Medicare Parts Explained
It’s essential to take the time to understand the different parts of Medicare.
Failing to do so can significantly impact your health and your bank account.
Brief History of The Four Parts of Medicare
In 1965 President Lyndon Johnson signed Medicare into law, which included both Part A and Part B. These first two parts are considered ‘Original Medicare’ and provide health insurance coverage to all individuals age 65 and over.
The Balanced Budget Act of 1997 expanded Medicare to include a third part to Medicare, Part C (Medicare Advantage).
In 2004 George W. Bush signed the Medicare Modernization Act, which added a fourth part to Medicare, Part D (prescription drug coverage), and expanded Medicare coverage to include individuals with disabilities and end-stage renal failure.
The Four Parts of Medicare Explained
It’s important to know that all four parts of Medicare are voluntary. As long as you’re eligible, you can choose which parts you want to enroll. Almost all individuals over age 65 choose to enroll in Part A because the premiums have already been paid throughout their working careers.
Medicare Part A is your hospital insurance. It covers all your inpatient medical services like hospitals, nursing facilities, and hospice care. You can think of Part A as covering your room and board if you were to need intensive or specialized care. Here’s an overview of what it covers:
- Inpatient hospital care
- Skilled nursing facility care
- Skilled nursing care, not custodial or long term care
- Hospice care
Benefits cover up to 100 days admitted within a hospital or care facility. After these 100 days, you will be left paying the full cost of care.
Most Medicare beneficiaries receive Part A for free. Thought your working career, Medicare taxes were taken each paycheck to cover your Part A premiums. As long as you’ve worked at least 40 eligible quarters, you receive Part A benefits for free.
Medicare Part B is your doctors’ insurance and covers all inpatient medical care – services such as office visits, simple surgeries, ambulance rides, dialysis, chemotherapy, and other like services. All Part B covered services fall into two categories:
- Medically necessary outpatient services
- Preventative services
If you have a specific service, test, or item that you want to find out if it’s covered, you can search Medicare-covered services here.
Unlike Part A, Part B premiums are not free. Every year Medicare adjusts the Part B premiums; in 2021, the standard premium is $148.50.
Part B pays 80% of all outpatient care services, and you pay the remaining 20%. There is no out-of-pocket maximum or limit for this 20%; therefore, most Medicare beneficiaries choose to enroll in Medigap or Medicare Advantage to protect against this financial liability.
Medicare Part C, also known as Medicare Advantage, is not part of Original Medicare and is not issued through the government. Medicare Advantage are private health insurance policies that expand your Original Medicare benefits to include vision, dental, hearing, and prescription drug coverage. These bundled plans provide an all-in-one solution to your health care needs.
Private insurance companies set the price for Medicare Advantage. In exchange for a single, set, monthly premium, Medicare Advantage eliminates all out-of-pocket expenses. These plans are particularly beneficial to individuals in poor health and expect to use their Medicare benefits frequently.
Medicare Part D provides prescription drug coverage through local insurance providers operating in your state. These, too are private insurance policies that add prescription drug coverage to your existing Medicare benefits. Medicare mandates that all Part D policies provide at least two drugs in every prescription drug category.
If you choose to forgo enrolling in Part D, you’ll pay out-of-pocket for all your prescription drugs.
Private insurance carriers set the price for Medicare Part D plans. However, the premiums are low and very affordable for most households. As a result, nearly 60% of all Medicare beneficiaries own a Part D policy. The only other way to attain prescription drug coverage is through Medicare Advantage.
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