Understanding Medicare
A topic of major concern to all Americans is the cost of health care. Federally funded programs like Medicare and Medicaid seem complex and uncertain to many people. It’s important to understand the role of these government–sponsored programs as you investigate other funding strategies that are available to help you meet your future medical expenses.
Medicare
Medicare was founded in 1965 to serve as a safety net to help cover some of the costs associated with health care for older Americans and those with certain disabilities.
It’s an insurance program administered by the Centers for Medicare and Medicaid Services, an agency of the federal government.
You are typically eligible for Medicare after 10 or more years of working and paying Social Security taxes. To begin receiving Medicare benefits, you must be age 65 and a U.S. citizen or permanent resident. If younger than 65, you can qualify for Medicare if you have end-stage renal disease or certain disabilities.
Medicare has two parts: Part A covers hospital benefits and Part B covers all other medical care.
Part A:
You can get Part A at age 65 without having to pay premiums if:
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You are already receiving retirement benefits from Social Security or the Railroad Retirement Board.
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You are eligible to receive Social Security or Railroad benefits but have not yet filed for them.
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You or your spouse had Medicare-covered government employment.
If you are under 65, you can get Part A without having to pay premiums if:
Part B:
Even if you qualify for Part A without paying a premium, you must pay for Part
B if you want it. There is a monthly premium associated with Part B coverage. Part B covers care outside of hospitalization such as physician/surgeon services, outpatient services, ambulances, physical therapy, mental health, and some medical supplies and equipment. Part B does not cover routine checkups, hearing aids, or other “extras.”
As baby boomers reach their golden years, programs like Medicare may not be able to bear the strain of the sheer number of people requiring all types of medical care.
Part D:
Medicare has added coverage for prescription medicines. This means that people who have Medicare are able to get insurance to pay for part of their prescription drugs. Medicare is working with insurance companies to offer this benefit. It is available no matter what your income, illnesses, or drug costs. Please see the article on Medicare Part D for more information.
Long-term care
Long-term care can include a stay in a skilled nursing, intermediate care or residential care facility. It also might include home health care, hospice care, and around-the-clock nursing home care. Today, a one-year stay in a nursing home averages $55,000. By 2030, the same stay will cost an estimated $190,000. And illnesses like Alzheimer’s, Parkinson’s or multiple sclerosis can require years of nursing home care, not to mention the tremendous stress imposed on the family and caregivers.
It’s not surprising, then, that health-care costs are the biggest retirement expense for some Americans. Medicare offers only limited benefits to pay for long-term care. Individuals with limited retirement savings could become financially crippled if long-term care becomes necessary.
Beyond Medicare – other options for funding medical expenses:
Depending upon where you live, you may have access to a Medicare managed care plan or a Private Fee-for-Service plan. Options include the following:
Medicare managed care plans
These “Medicare + Choice” plans are like HMOs. In most cases, you can only go to doctors or hospitals that are part of the plan and you need a referral to see a specialist. These plans must cover all Part A and Part B benefits, and some cover
extras like prescription drugs, dental services and eye exams.
Private Fee-for-Service plans
These “Medicare + Choice” plans are only available in some areas of the country. The plans are offered by private insurance companies instead of the federal government. Medicare pays a set amount of money every month to the insurance company to provide the coverage. The insurance company, in turn, collects payments and deductibles. Under Fee-for-Service plans, you can go to any doctor or specialist you want without a referral (as long as they agree to accept your plan’s fees).These plans must cover all Part A and Part B benefits and may offer additional benefits.
Medigap
You may also be able to purchase supplemental coverage called Medigap insurance. Medigap is only available to people enrolled in Medicare. Medigap coverage may help you lower your out-of-pocket expenses by covering co-payments and deductibles, and by offering enhanced benefits. You don’t need Medigap—and generally it’s illegal for a company to sell it to you—if you already have coverage under a Medicare managed care plan, Private Fee-for-Service plan, Medicare Medical Savings Account, Religious Fraternal Benefits plan or Medicaid.
Medicaid
Medicaid provides health and long-term care for elderly and disabled people whose income is below poverty level and for low-income families with children. Eligibility for Medicaid varies by state and is only for those in the direst of financial circumstances.
Source: American Council of Life Insurers, 2003; Center for Medicare and Medicaid Services, 2003.
What you can do?
1) Factor increased medical expenses and the possible need for long-term care into your retirement planning.
2) Don’t focus solely on saving for your living expenses.
3) Discuss with your family what you would like to happen in case you are unable to take care of yourself.
4) Also keep them informed of which hospital and doctors you would prefer if you had a choice.
5) When you have an idea of what you want, you can look at potential medical funding sources.
Realize that government insurance alone (like Medicare or Medicaid) will probably not fund your health-care expenses. Private health insurance can help fill the gaps in Medicare coverage. Just be sure not to duplicate your coverage.
Additional Resources:
* Centers for Medicare and Medicaid Services (CMS) (800) 633-4227
(877) 486-2048 (TTY-TDD for the hearing and speech impaired)
Web sites: www.medicare.gov, www.cms.hhs.gov
* National Social Security Administration (800) 772-1213
(800) 325- 0778 (TTY-TDD for the hearing and speech impaired)
Web site: www.ssa.gov
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