The different parts of Medicare cover different services. The four parts of the program in 2016 are:
- Medicare Part A (hospital insurance)
- Medicare Part B (medical insurance)
- Medicare Part C (Medicare Advantage Plans), and
- Medicare Part D (prescription drug coverage).
Certain areas of each part of Medicare may change on a yearly basis. For example, your out-of-pocket costs, availability of various plans under Part C, benefits covered, and how coverage is provided to eligible people might change from time to time.
Medicare Part A
In order to qualify for Medicare, you must be a U.S. citizen or legal resident who is 65 years of age or older. (However, certain individuals who under the age of 65 are also eligible for the program.)
Check Your Eligibility
Medicare Part A pays for in-patient hospital expenses. In most cases, those who are age 65 and over can get premium-free Medicare Part A coverage so long as they (or their spouse) paid taxes while working for ten or more years. The majority of people who are on Medicare became eligible for free Part A by working and paying taxes for a sufficient amount of time.
This is how it works: Social Security credits are counted towards eligibility for Medicare. These credits are earned through the Social Security and Medicare payroll taxes that are paid while you are employed. In most cases, you’ll need 40 credits (ten years of employment) to receive Social Security benefits and qualify for Medicare. As of 2016, you earn one Social Security or Medicare work credit for every $1,260 you make. (This amount goes up each year.) It’s only possible to earn a maximum of four credits each year. You don’t need more than 40 credits. If you happen to earn more than 40 credits over your career, the additional credits are unused. You may also qualify for Medicare if you are, or have been, a government employee who has paid Medicare payroll taxes during employment.
It is also possible to qualify for Medicare Part A at age 65 if you (or your spouse who is alive or deceased, including divorced spouses) has worked a sufficient amount of time so that you’re entitled to Social Security or Railroad Retirement benefits, even if you are not actually receiving them.
Some individuals who are younger than the age of 65 are eligible for Medicare. For example:
- Those who received disability benefits from Social Security or the Railroad Retirement Board for 24 months, which do not need to be consecutive. (After getting Social Security or Railroad Retirement benefits for 24 months, you’ll be automatically enrolled in Part A and Part B.)
- Those who get disability benefits because they suffer from Amyotrophic Lateral Sclerosis (ALS), which is also called Lou Gehrig’s disease.
Those who have end-stage renal disease (permanent kidney failure requiring dialysis or a kidney transplant). One of the following must also apply to their situation: the individual worked the required amount of time under Social Security, the Railroad Retirement Board, or as a government employee; the individual is already receiving or is eligible to receive Social Security or Railroad Retirement benefits; or the individual is the spouse or dependent child of a person who meets one of the requirements listed above.
Check Your Eligibility
Costs associated with Part A. If you don’t qualify for premium-free Part A, the cost is up to $411 per month in 2016.
The deductible for Medicare Part A in 2016 is $1,288 for each benefit period. (This is the amount that you must pay out-of-pocket before Medicare starts to pay its share of covered services.)
In 2016, the coinsurance costs for hospital inpatient stays for each benefit period are as follows for Medicare Part A. You willl have to pay:
- For days 1 to 60: $0 coinsurance for each benefit period.
- For days 61 to 90: $322 coinsurance per day of each benefit period.
- For days 91 and over: $644 coinsurance per each “lifetime reserve day” after day 90 for each benefit period. (“Lifetime reserve days” are additional days when Medicare will pay all covered costs, except for a daily coinsurance, if you’re in a hospital for more than 90 days. You get 60 reserve days that can be used during your lifetime.)
- Beyond lifetime reserve days: all costs.
Medicare Part B
Medicare Part B, which is medical insurance, covers health services and certain supplies including visits to the doctor’s office, laboratory tests, and wheelchairs, for example.
Those individuals who are eligible for free Medicare Part A are eligible for Part B. You have to enroll and pay a monthly premium. Those who not eligible for premium-free Medicare Part A, are eligible for Medicare Part B if:
- age 65 or older, and
- either a United States citizen or an alien lawfully admitted for permanent residence who has lived in the United States continuously during the five years immediately before the month prior to applying for enrollment in Part B.
Costs associated with Part B. The monthly premium for Medicare Part B in 2016 is $104.90 for most people. If you do not sign up when you are first eligible, you may have to pay more. Also, those who have higher modified adjusted gross incomes, as reported on taxes two years ago, also may have to pay more.
While there is no requirement to sign up for Part B coverage, those who choose not to enroll in Part B, but later decide they want coverage, may have to pay a higher monthly premium. The Part B monthly premium may increase by 10% for each twelve-month period of eligibility for Part B that was not elected. This penalty may continue for as long as you have Medicare.
In 2016, the Part B deductible is $166 per year. After reaching the deductible, you typically must pay 20% for all approved Medicare services. This means that if you go to the doctor or have a medical test, you will have to pay 20% of the cost.
There is no out of pocket limit when it comes to Medicare Part B, and it is important to note that not all procedures will be covered.
Medicare Part A and Part B are collectively referred to as “Original Medicare.”
Medicare Part C
Medicare Part C (Medicare Advantage Plans) covers Part A and Part B benefits and often offers additional benefits. Private health insurance companies provide these plans, though the Medicare program must approve them. Medicare Advantage Plans generally provide prescription drug coverage as a component of the plan.
To opt into a Medicare Advantage (Part C) Plan, you must first enroll in both Medicare Part A and Part B. Once you have Parts A and B (and so long as you live in the area of coverage), you can join the plan. (Generally, if you have end-stage renal disease you are not eligible to join a Medicare Advantage Plan, but there are certain exceptions.)
Because these plans are run by private companies, the companies get to decide how much to charge, whether to impose additional coverage rules, and what additional benefits to provide. In 2016, as with any other year, the out-of-pocket costs that you’ll have to pay all depend on which Medicare Advantage Plan you choose.
Medicare Part D
Part D of Medicare offers prescription drug plans through Medicare-approved private insurance companies. Costs vary among different plans. Primarily, the amount you will pay during the plan depends on the monthly premium (which varies from plan to plan), the yearly deductible, copayments/coinsurance (these differ according to the plan chosen and are paid after meeting the deductible), the coverage gap (which is known as the “donut hole”), and catastrophic coverage.
The company that administers the plan sets the costs subject to some limits. For example, Part D prescription drug plans cannot have an annual deductible that is higher than $360 in 2016.
With Part D, there is a coverage gap (known as the “donut hole”) when you and your plan have paid a certain amount during the year. You will hit the donut hole in 2016 when you and the plan have spent a total of $3,310 on covered drugs. Once you’re in the donut hole you have to pay more for prescription drugs. In 2016, you will not have to pay more than 45% of the plan’s cost for covered brand-name prescription drugs. For generic drugs, you won’t have to pay more than 58%.
The gap is gradually narrowing. For example, you will only be required to pay 25% for covered brand-name and generic drugs during the gap in 2020 (whereas in 2015, people had to pay 45% for brand-name drugs and 65% for generic drugs when in the coverage gap.)
You get out of the coverage gap when you have paid a total of $4,850 (2016 figure) for the year. Then you enter catastrophic coverage, which means that your drug copayments and coinsurance are kept very low for the rest of the year.