A, B, C, D, Medigap (Medicare Supplement) – What? How are you supposed to make sense of this?
Take a look at the diagram below. If you are becoming Medicare-eligible and your existing health insurance coverage will be ending, you will choose between the two approaches you see here…
There are several similarities and differences between these two approaches, but it’s important to understand the parts:
Part A (hospital)
In general, Part A covers (allows):
- inpatient hospital care
- skilled nursing facility care
- nursing home care (in certain situations)
- hospice care
- home health services
Part A does not have a monthly premium, as long as you or your spouse (who is 62+) has 40 or more quarters paid into the Medicare system.
Part B (medical)
Part B covers medically necessary services and preventive services on an outpatient basis. This includes, but is not limited to…
- visits to your primary care doctor or a specialist
- medical treatments and tests
- laboratory testing
- durable medical equipment (DME)
- outpatient surgery
- outpatient prescription drugs (in limited situations)
- mental health services
- ambulance services
Part B has a monthly premium that is based on your income from two years ago. Medicare communicates directly with the Internal Revenue Service annually to determine your Part B monthly premium. Modified Adjusted Gross Income (MAGI) is what is used – typically calculated by adding your Adjusted Gross Income (AGI) to any tax-exempt interest you received in the tax year in question. If your income exceeds certain amounts, your Part B premium will be higher.
Part C (Medicare Advantage)
Part C is another name for what most people call a Medicare Advantage Plan. Rather than running medical claims through Medicare first and then a Medigap (Medicare Supplement) plan…and then purchasing a stand-alone Part D prescription drug plan, you would use the Medicare Advantage plan to file all medical and prescription drug claims. You don’t need your Original Medicare card in this case (just file it away in a safe place).
Part C (Medicare Advantage) plans typically combine Parts A, B and D in one plan…though, some Medicare Advantage plans are available without Part D prescription drug coverage (i.e. when you already have creditable prescription drug coverage through another source, such as the VA).
Part D (prescription drug)
Medicare Part D plans were first made available in 2006. They provide coverage for prescription drugs purchased in a pharmacy setting (or via mail order). A Part D prescription drug plan does not pay for 100% of your prescription costs, rather it pays a portion (if the drug is on the Part D prescription drug plan’s formulary). A cost-share is involved, so you will still owe a copay when picking up your prescriptions.
Coverage and drug copays are primarily based on a drug’s tier (usually Tiers 1 through 5). A drug in a lower tier will generally cost less than a higher tier drug.
There are also different phases of Part D, so your drug copays can change throughout the calendar year, depending on which phase you are in. Essentially, the more expensive your prescriptions cost on a gross basis, the more likely you will reach the different phases of Part D. The four phases of Part D include:
- Deductible Phase: This is the period where you must reach a certain amount of prescription costs before your Part D plan kicks in. The maximum deductible a Part D plan can have in 2018 is $405.
- Initial Coverage Phase: This is when your Part D plan picks up the bulk of the cost (about 75%).
- Coverage Gap (Donut Hole): Once your gross drug costs reach a certain amount, you will enter what has been coined as the Donut Hole. You typically owe a higher percentage of the drug’s costs in this phase, though the Donut Hole is scheduled to sunset starting in 2020.
- Catastrophic: If your drug costs are high enough, you will reach this phase. This is where you pay no more than 5% of the cost of the drug the rest of the calendar year. And then everything resets on January 1st…placing you back in the deductible phase.
Medigap (Medicare Supplement)
Medigap health insurance plans are used to help pay for some of the healthcare services covered/allowed by Medicare but not fully paid for. In other words, it helps fill some of the gaps of Original Medicare coverage.
There are several Medigap plans to choose from. Unfortunately, the plans are lettered, so it can be confusing when you see Medigap plans with the same plan letter as the parts of Medicare we have summarized above.