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Medicare Supplement Insurance (Medigap)

Medicare is a health insurance program for:

  • people age 65 or older,
  • people under age 65 with certain disabilities, and
  • people of all ages with End-Stage Renal Disease (permanent kidney failure requiring dialysis or a kidney transplant).

Medicare consists of:

Part A Hospital Insurance - Most people don’t pay a premium for Part A because they or a spouse already paid for it through their payroll taxes while working. Medicare Part A helps cover inpatient care in hospitals, including critical access hospitals, and skilled nursing facilities (not custodial or long-term care). It also helps cover hospice care and some home health care. Beneficiaries must meet certain conditions to get these benefits.

Part B Medical Insurance - Most people pay a monthly premium for Part B. Medicare Part B helps cover doctors’ services and outpatient care. It also covers some other medical services that Part A doesn’t cover, such as some of the services of physical and occupational therapists, and some home health care. Part B helps pay for these covered services and supplies when they are medically necessary.

Part D Prescription Drug Coverage - Most people will pay a monthly premium for this coverage. Starting January 1, 2006, new Medicare prescription drug coverage became available to everyone with Medicare. Everyone with Medicare can get this coverage that may help lower prescription drug costs and help protect against higher costs in the future. Medicare Prescription Drug Coverage is insurance. Private companies provide the coverage. Beneficiaries choose the drug plan and pay a monthly premium. Like other insurance, if a beneficiary decides not to enroll in a drug plan when they are first eligible, they may pay a penalty if they choose to join later.

Advantages and disadvantages of Medicare

When it comes to Medicare, it’s important that you know both sides of the story, and understand the advantages and disadvantages of relying solely on Medicare to provide for your health care needs.

When Medicare was created in 1965, the goal was to create a program that would enable older Americans to enjoy their golden years without the worry that major illnesses and chronic medical conditions could wipe out their life savings. Unfortunately, many people think that Medicare pays all medical expenses. It does not.

Though Medicare covers many health care costs, there are many medical services that Medicare does not cover. This point is clearly made in the "Guide to Health Insurance for People with Medicare," which is published yearly by the Centers for Medicare & Medicaid Services (CMS) of the U.S. Department of Health and Human Services. As the guidebook suggests, "There are health care costs that Medicare either does not pay in full or does not pay at all. If you need or want services not covered by Medicare, you must pay the bill." To help fill the gaps in your Medicare coverage, you have the option of buying supplemental insurance policies known as "Medigap" plans. Supplement plans help pay the bills Medicare does not, and provide you with protection from the ever- increasing gaps in Medicare.

Why should you consider buying Medicare Supplement insurance?

Before Medicare will pay for any of the medical services you want or need, you must first pay Medicare's deductibles. When combined with the coinsurance you are also required to pay, you may be out hundreds, even thousands of dollars before any benefits are paid by Medicare! These are bills you are expected to pay.

Under Part B of Medicare, you could have out-of-pocket costs if your physician or medical supplier does not accept assignment of your Medicare claim and charges more than Medicare’s approved amount. The difference to be paid is called the ‘excess charge.’

A Medicare Supplement Plancan save you the expense and worry about paying significant out-of- pocket costs because of gaps in Medicare.

There are three ways to fill the gaps in Medicare:

· Purchase Medicare supplement insurance.

· Enroll in a health maintenance organization (HMO) that has a MedicareAdvantage contract.

· Continue current individual coverage, or employer-provided coverage, if available.

Medicare Part A helps pay for medically necessary inpatient care in a hospital and/or skilled nursing facility—but it is important to know that it only pays part of these medical expenses. Here's a general explanation of what's paid for:

Medicare Part A Coverage

Medicare Services

Benefit Period

Medicare Pays

You Pay

Hospital Services

First 60 days

Days 61 to 90

Days 91 to 150

Beyond 150 days

All but $952 deductible

All but $238/day

All but $496/day

Nothing

$952 deductible

$238 per day

$496 per day

ALL COSTS

Skilled Nursing Facility Care

First 20 days

Days 21 to 100

Beyond 100 days

All costs

All but $119/day

Nothing

Nothing

$119 per day

ALL COSTS

Home Health Care

If medically necessary

All costs

Nothing

Medicare benefits are paid on the basis of Benefit Periods. The Part A Benefit Period begins the first day you receive a Medicare-covered service in a qualified facility. It ends when you have been out of the hospital or other facility for 60 days in a row. If you enter a health care facility again after 60 days a new Benefit Period begins. For each new Benefit Period, you are responsible for the deductible and all coinsurance amounts.

Many health problems don't require hospitalization, just a quick visit to the doctor. Medicare Part B is designed to help cover part of your out-patient hospital charges, your doctor fees, and certain other medical expenses such as x-rays, lab tests, and durable medical equipment. It also covers physical, speech, or occupational therapy. Here's a general explanation of what's paid for:

Medicare Part B Coverage

Medicare Services

Benefits Period

Medicare Pays

You Pay

Physician & Surgeon Fees

Therapists

Diagnostic Tests

Medical Supplies

Ambulance Service

Outpatient Hospital Services

January 1 – December 31

Generally 80% of approved amount after $124 annual deductible

$124 deductible plus 20% of the Medicare approved charges plus any excess charges if the provider does not accept assignment

Blood Service

As needed

80% after the first 3 pints

First 3 pints plus 20% of cost

As you can see, even with Medicare paying many charges your expenses can add up very quickly!

When you use your Part B benefits, you will pay the first $110 each calendar year. After you meet this deductible, you are generally responsible for 20% of Medicare's allowed amount (called "coinsurance"). Besides the deductible and coinsurance you may have other costs if your physician or medical service provider does not accept "assignment" of your Medicare claim, and charges more than Medicare's approved amount (called the "excess charge").

To avoid excess charges:
  • Speak directly with each provider to make certain they accept Medicare's assignment,
  • Purchase Medicare supplement insurance that pays excess charges.
  • Enroll in a health maintenance organization (HMO) that has a MedicareAdvantage contract.

As you can see, there are many charges for which Medicare doesn't pay. As a result, the amount of money you must pay can add up very quickly. You have a choice of affordable options to help pay for medical expenses, services, and supplies that Medicare covers only partially or not at all. The basic types of options available include:

  • Medicare supplement plans that pay some or all of the amounts that Medicare does not pay for covered services, and which may pay for certain services not covered by Medicare at all.
  • MedicareAdvantage plans which include HMOs, PPOs, Private Fee For Service (PFFS), from which you purchase health care services directly.
  • Continuation or conversion of an employer-provided or other policy when you reach age 65.
  • Other types of insurance policies, such as hospital indemnity policies (which pay cash amounts for each day of inpatient hospital care) and long-term care insurance policies (which, depending on the policy, cover care in a nursing home or in your own home).

Medicare HMOs

Enrolling in a health maintenance organization (HMO) with a MedicareAdvantage contract is a cost-effective way to receive needed medical care and services.

Here is a brief list of key protections:

  • You cannot be denied enrollment because of your health status (unless you have End-Stage Renal Disease).
  • Your membership cannot be terminated because of poor health or because of the cost of providing treatments.
  • Emergency facilities must be available around the clock.
  • All Medicare-covered services must be available with reasonable promptness.
  • You can withdraw from the HMO at any time by providing written notification.
  • You have the right to file a grievance and to appeal any decision about the plan's payment for, or failure to provide, what you believe are Medicare-covered services or other services offered by the plan.

You must be entitled to Part A and enrolled in Part B of Medicare to apply for membership in a Medicare HMO. Anyone with Medicare may apply including those under age 65 entitled to Medicare on the basis of Social Security Disability Benefits. If you are only enrolled in Part B, you must purchase Part A directly from Social Security. Members must continue to pay Part B (and Part A if applicable) premiums and use plan providers.

Medicare Supplement Plans

Medicare Supplement Plans are specifically designed to supplement Medicare benefits. These plans offer more freedom than an HMO in choosing your hospitals and doctors. To make it easier for consumers to comparison-shop, federal law limits the number of different Medicare supplement policies that can be sold. That limit is 10.

Supplement Plans typically have letter designations ranging from "A" through “T” with Plan A being the basic benefit package. Each of the other nine plans includes this basic package plus a different combination of additional benefits. Generally, the higher the coverage, the more a policy costs. All Medicare supplement insurers must make Plan A available. They can independently decide which of the other nine optional plans they will sell.