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Medicare Benefits - How Medicare Plans Work

Medicare provides approximately 45 million Americans age 65 or over, or who meet other specific standards, with health insurance. Americans who are under 65 with certain disabilities, or who have end-stage renal disease, also qualify for the program. The United States government controls the Medicare program, which offers a variety of different health care plans depending on the needs of its constituency.

There are four different parts to Medicare that each cover certain services for people who qualify: hospital insurance (Part A), medical insurance (Part B), the Medicare Advantage program Part C), and prescription drug coverage (Part D). Those who qualify can opt for coverage through the traditional Medicare program or through Medicare private plans (Medicare Advantage). Most people are automatically enrolled in part A, the original Medicare Plan, unless an individual explicitly elects to enroll in a Medicare Advantage Plan.

Part A, the original Medicare Plan, is controlled and administered by the United States government and provides hospital insurance on a fee-for-service basis. The hospital insurance covers inpatient care in hospitals and skilled nursing facilities (but not for long term custodial care), as well as home health services and hospice.  If you or your spouse paid Medicare taxes while working, you generally do not pay a monthly premium for Part A coverage.  You can also purchase Part A if you are over 65, enrolling in Part B, and meet American citizenship or residency requirements. Normally, if you decide to purchase Part A, you must also have Part B and must pay premiums for both services.

Medicare Part B is medical insurance that covers necessary doctor’s services, outpatient care, home health, and some preventative services. If you already get benefits from Social Security or the Railroad Retirement Board, you automatically enroll in part B the month you turn 65 and receive your Medicare card in the mail. If you are under 65 and disabled you automatically get part B once you receive disability benefits from Social Security.  In order to opt out of Part B, you must send the card back: otherwise, you keep part B and keep paying Part B monthly premiums.

The Medicare Advantage Plan, or Part C, covers over ten million Americans with private health insurance and Medicare benefits that are approved by Medicare. Part C offers both Part A and B benefits as well as other benefits not covered by Medicare, including prescription drugs, vision, hearing, or dental.  Most Medicare Advantage plans have lower co-payments than traditional Medicare plans but are not available in all areas of the United States. Most Advantage plans require you to use the doctors or hospitals on that plan’s network. Part C plans include Health Maintenance Organizations (HMOs), Preferred Provider Organization (PPO), Private Fee for Services (PFFS), Special Needs, or Medicare Savings Accounts (MSA).

Private companies approved by Medicare also offer prescription drug coverage (Part D). available to everyone with Medicare. In order to get coverage for prescription drugs, you need to join a Medicare drug plan. People can voluntarily sign up for Medicare prescription drug plans which only cover prescription drugs, coupled with the traditional Medicare program, or can opt for Medicare Advantage Plans, which can already cover prescription drugs. Many Part D plans have a coverage gap, which pay only a certain amount for prescription drugs. After you spend more than that amount, you are responsible to pay the full cost of your prescriptions until you hit the out of pocket obligation, after which you are only accountable for a co-payment.

Medigap, or Medicare Supplemental Insurance, are supplemental health insurance policies that cover costs that original Medicare doesn't cover. Retiree coverage from former employers or unions can provide supplemental insurance: otherwise, you can purchase supplemental insurance from an insurance company approved by CMS. If you are already enrolled in Medicare Advantage, you do not need to worry about supplemental insurance. Prescription drug coverage is no longer sold with Medigap policies, although policies sold before January 1st, 2006 may include prescriptions. Currently, there are twelve different Medigap plans offering different benefit packages (Plans A-L), which vary in price depending on the coverage.