The Lowdown on Medicare and Medicaid
Medicare is government-provided health and hospitalization insurance for people age 65 and older and those under 65 with certain disabilities. Some portions of Medicare are free and others cost money, with premiums typically deducted from your Social Security benefit checks. Medicare tax is deducted from workers' wages.
It's advisable to enroll in Medicare during your initial enrollment period, which or most people is the seven-month period that begins three months before the month they turn 65. If you miss that window, you may enroll during the general enrollment period between January 1 and March 31 each year, although your coverage won't begin until July 1, and you will likely be charged higher premiums and a late-enrollment penalty.
Note: If you are covered under a group health plan based on current employment (yours or your spouse's), you will have an 8-monthy special enrollment period in which to sign up for Medicare Part A and/or Part B that starts the month after employment ends or after the group plan is terminated, whichever comes first. Usually, you don't pay a late enrollment penalty if you sign up during a special enrollment period. Also note: COBRA and retiree health plans aren't considered coverage based on current employment, so you wouldn't be eligible for a special enrollment period when either of those types of coverage ends.
There are four types of Medicare coverage available.
1. Medicare Part A – Hospital Insurance
Most people age 65 or older are eligible for free Medicare Part A for hospitalization and emergencies, provided they or their spouse have paid FICA taxes for at least 40 calendar quarters. Those who don't qualify for no-cost Part A hospital insurance may be able to get it by paying a small monthly premium. Part A insurance covers many hospitalization costs, some stays in skilled nursing facilities following a hospital stay, and many home health care and hospice care expenses. (Hospice care provides a more comfort-based approach for people facing terminal illness, preferring support, therapy and pain-killing drugs to surgery, hospitalization and traditional medicine.) If you collect Social Security, Railroad Retirement Board benefits or disability benefits, or you have certain diseases, you will automatically get Medicare Parts A and B.
2. Medicare Part B – Doctor, Outpatient and Clinical Services
Medicare Part B covers medically necessary services – any services or supplies you need to diagnose or treat a medical condition; and preventative services, including procedures to prevent illness or detect it at an early stage. Be aware that not all doctors accept Medicare, so it's important to check with your doctor before you receive services. Part B is optional and has a monthly premium, which is based on income and other factors.
Most people are automatically enrolled in Part B at the same time they begin Part A coverage. To opt out, follow the instructions that accompanied your Medicare card, which is mailed about three months before your 65th birthday. Before you opt out, however, weigh that decision carefully because there's often a sizeable penalty if you decide to enroll later on – that is, unless you're currently covered by an employer's plan, in which case you can later enroll without penalty.
3. Medicare Part C – Medicare Advantage Plan
Medicare Part C plans provide an alternative to traditional Part A and B coverage. They are offered by private, Medicare-approved companies. To be eligible for Part C coverage, you must already have both Medicare Parts A and B. Medicare Advantage Plans also often include drug coverage (Part D).
Some of the most common types of Medicare Advantage Plans are: Health Maintenance Organization plans (HMOs), Preferred Provider Organization plans (PPOs), Private Fee-for-Service plans (PFFSs) and Special Needs Plans (SNPs). Part C may also include vision, hearing, dental and other services. Plan C monthly premiums may be higher than for normal Part B coverage, but they usually have lower out-of-pocket costs (such as lower deductibles and copayments). However, you're usually required to use the plan's provider network, which may be more restrictive than providers you could access through regular Parts A and B. Since each plan differs in terms of cost and coverage, it's important to research the costs and rules of service before enrollment. Note that rules and benefits may also change from year to year.
4. Medicare Part D – Prescription Coverage
Medicare Plan D is optional and carries a monthly premium. Coverage is provided by an insurance or other private company that has been approved by Medicare. Plans vary widely in terms of cost, copayments, deductibles and medications covered. To gain this type of coverage, you must have Part A and/or Part B Medicare insurance. There may be dozens of plans available to you, depending on where you live. For help finding the options available in your area, click here. (https://www.medicare.gov/find-a-plan/questions/home.aspx. As with Medicare Part B, you may be charged a late-enrollment penalty if you don't sign up when first eligible and later decide to enroll. Also, if you're in a Part C plan that includes drug coverage, you don't need to buy Part D.
Medigap, also called Medicare Supplement Insurance, is private health insurance that is designed to supplement original Medicare benefits. It differs from Medicare Advantage Plans in that it is not a way to get Medicare benefits, but rather, to fill in the gaps in your Medicare coverage.
Some employers and unions offer Medigap coverage to their retirees. Medigap plans can vary widely in terms of cost, covered benefits and states participating so compare your options carefully. Note that Medigap policies do not pay for Medicare Advantage plan deductibles and copayments, so if you want to join an Advantage plan, you may want to cancel your Medigap coverage. Also, if you already have a Medicare Advantage plan, it's illegal for anyone to sell you Medigap insurance unless you are switching back to original Medicare Part A and B coverage.
Understanding and choosing the right Medicare options for your individual situation can be a complicated and time-consuming process. For assistance, call 1-800-633-4227 or visit www.medicare.gov, where you'll find:
• Helpful publications, including "Medicare & You," a highly detailed guide that explains Medicare in easy-to-understand language.
• Tools to compare prescription drug plans, hospitals, nursing homes, home health agencies and Medigap plans in your area
• A resource to find local doctors and other health practitioners who participate in Medicare
• Services covered by various Medicare plans
• Enrollment instructions
Medicaid is a joint state and federal program that assists with the medical costs of some people with limited incomes who meet certain eligibility requirements. To find out about the requirements and how to apply for Medicaid in your state, go to https://www.medicaid.gov.
Related: Take a Close Look at Social Security in 2016
Related: Individual Retirement Savings Options
Related: Understanding Social Security
Related: Do I Have Enough Retirement Money?