How Medicare is a lot like putting on layers on a cold day.

In the same way that you put on layers before going outside on a cold day, you put on layers of health insurance when it comes to Medicare. And just like you wouldn’t put your coat on before your undershirt, there’s an order to these layers of health insurance.

Your First Layer: Part A

• Covers - Hospitalization, skilled nursing care, and hospice. Full coverage for the first 60 days in a hospital after a $1,556 deductible ($1,600 starting in 2023) is paid. After the 60th day, you pay $389 per day ($400 per day in 2023). After the 91st day, you pay $778 per day ($800 per day in 2023). After the 150th day, you pay all expenses.

• Premium - None, if Social Security tax has been withheld from your paycheck for at least ten years. Otherwise there’s a premium.

• Provided by - The federal government

• When To Enroll - Three months before your 65th birthday up to three months after

• How to Enroll - You’re automatically enrolled if you’re collecting social security. Otherwise go to www.medicare.gov or follow this link.

• Employer Coverage & Delaying Enrollment - Most people enroll in Part A even if they’re covered by their or their spouse’s employer. The main reasons people delay enrolling in Part A are if they haven’t paid Social Security taxes for ten years and therefore need to pay a premium for Part A or if they have an HSA account. 

Your Second Layer: Part B

• Covers - Out-Patient care and doctor’s charges in a hospital. Examples of Out-Patient care are a check-up, X-Ray, blood test, or a simple elective procedure. After meeting an annual deductible of $233 ($226 in 2023), Part B covers 80% of expenses, and you pay the remaining 20%.

• Premium - If your individual tax return shows income of $91,000 (or $182,000 for a joint tax return), or less, your Part B premium is $170.10 a month ($164.90 a month in 2023). If your income is higher, your premium will be as well. You can find a chart of Part B premiums as they vary with income at www.medicare.gov.

• Provided by - The federal government

• When To Enroll - Three months before your 65th birthday up to three months after

• How to Enroll - You’re automatically enrolled if you’re collecting Social Security. Otherwise go to www.medicare.gov or follow this link.

• Employer Coverage & Delaying Enrollment - Because everyone pays Part B premium, more people consider delaying enrollment in it if they have sufficient coverage from their or their spouse’s employer. The employer’s HR staff will let you know if you can delay enrollment in Part B. If you delay enrolling in Part B and don’t have sufficient employer coverage, you will face financial penalties in the future. 

A Quick Pause Before Adding More Layers

Parts A and B together are referred to as “Original Medicare”, and while they satisfy the minimum medical coverage the government requires you to have, many folks find they have gaps in the following areas:

• Part A Deductible - The Part A deductible resets once you’ve been out of the hospital for 60 days. So if you go to the hospital several times, each time 60 days since the last one, you’ll pay a $1,556 deductible each time. This could add up.

• Part B Coinsurance - After you meet the Part B deductible, you pay 20% of Part B covered care. 20% of a large number can be a large number.

• Excess Charges - Healthcare providers will occasionally charge more than Medicare will reimburse them. The difference is called an “excess charge”, and you pay for all of it.

• Foreign Travel - Original Medicare doesn’t cover healthcare received abroad except for a few limited cases in Canada and Mexico.

Further, the government requires you to have Prescription Drug Coverage, also referred to as “Part D”. Time to put on some more layers.

More Layers: Medigap, Medicare Advantage, and Prescription Drug Coverage

If you’re fine with the coverage provided by Original Medicare (Parts A and B), you can purchase an additional Prescription Drug Plan from a private insurance carrier (Part D), and you will have met the minimum amount of health insurance the government requires you to carry.

If you want additional coverage to “fill the gaps” in Original Medicare, you have two options:

Medigap Plan (Medicare Supplement)

If you’ve ever heard of “Plan G” or “Plan F”, you’ve heard of Medigap plans. They pick up the bill after Original Medicare pays. So if you got a blood test that costs $100, Part B will cover $80, and if your Medigap plan covers Part B coinsurance, it’ll cover all or part of the remaining $20.

Medigap plans are defined by the government but offered by private carriers. This means that the benefits of Plan G offered by Humana and Cigna are the same. The premium, however, will likely be different. Medigap premium is paid in addition to Medicare Part B premium.

The different Medigap benefits are listed on www.medicare.gov. Though there are ten options, four or five can usually be ruled out because, surprisingly, they cost more than other Medigap options with more coverage. The Medigap plan with the most comprehensive coverage that’s currently available to new Medicare enrollees is Plan G.

Should you choose a Medigap plan, you also need to purchase a Prescription Drug Plan. I am happy to discuss which Medigap plan might be a good fit for you.

Medicare Advantage Plans

Unlike Medigap Plans, Medicare Advantage plans are entirely defined and run by private carriers. They typically have you pay a copayment (a flat fee) or coinsurance (a percent of the total costs) for In-Patient and Out-Patient care until your medical payments for the calendar year reach an “out-of-pocket maximum”, at which point the plan covers all your expenses. Out-of-pocket maximums depend on the plan and typically cost about as much as a used car.

Medicare Advantage plans are typically offered as HMOs or PPOs. In the HMO model, you can only see doctors in the HMO, and you must get a referral from your primary care physician to see a specialist. This is in contrast to Original Medicare or Medigap, which allow you to see any doctor who accepts Medicare.

In the PPO model, Medicare Advantage plans let you see out of network doctors, but provide less coverage when you do so. If you choose the Medicare Advantage route, be sure it covers your preferred healthcare providers.

Unlike Medigap plans, Medicare Advantage plans come bundled with prescription drug coverage, so there’s no need to purchase a separate Prescription Drug Plan. Be sure a Medicare Advantage plan covers your prescriptions before enrolling in it.

Choosing Between Medigap and Medicare Advantage

To compare any plans, you must consider their total cost for the year: their premium plus your share of the year’s expected healthcare bills.

Depending on the plans available in your zip code, a Medicare Advantage plan might make more sense than a Medigap plan, or vice versa. I can help you compare different plans in your area.

Fortunately, there is an “escape hatch” for folks who enroll in a Medicare Advantage plan and are unhappy. If you enroll in a Medicare Advantage plan when you turn 65, you may switch to a Medigap plan for any reason during the first year.

Next Steps

I hope I have been able to somewhat demystify the world of Medicare for you, and if you have any further questions about Medicare in general or about which specific Medigap or Medicare Advantage plans are the best fit for you, please call at 1 (888) 376-2028 or click "Get Started" below.