How to Choose a Medicare Plan
Medicare is a complex program with many different parts and ways to get coverage. Some people opt for Original Medicare (Parts A and B) and may choose to supplement this coverage with a Medigap policy or a Part D plan. Others may opt for a Medicare Advantage plan instead.
When it comes to choosing a Medicare plan that would best suit your needs, consider the following:
- What are your current and upcoming health needs?
- What is your budget?
- Who are your preferred healthcare providers?
- What plans are available in your area? Do you frequently travel or live in more than one state?
Having answers to these questions and understanding your options will help you make an informed decision on your Medicare coverage.
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Understanding Your Medicare Plan Options
Medicare is intended to provide comprehensive health insurance coverage for those over 65 years old, as well as those younger than 65 living with certain disabilities, End-stand Renal Disease, or Lou Gherig’s disease (ALS). Beneficiaries can consider the following Medicare options:
- Original Medicare (Parts A and B)
- Medicare Part C, or Medicare Advantage
- Medicare Part D, or prescription drug coverage
- Medicare Supplement insurance, or Medigap
The best option, or combination of options, depends on your specific needs, budget, and plan availability.
How Medicare Works (Part A and Part B)
- Part A (Hospital Insurance): Part A offers coverage for a variety of hospital-related services, including inpatient hospital care and short-term skilled nursing care.
- Part B (Medical Insurance): Part B offers coverage for a number of medically necessary and preventive services. Covered services include doctor’s visits and laboratory testing.
If you enroll in Original Medicare, you can get these covered services from any doctor, healthcare provider, or healthcare facility that accepts Medicare. There are no health insurance networks to keep track of, but if you see a provider who does not accept Medicare, you are generally responsible for the entire cost of your care. However, there are limitations to coverage. For example, neither Part A or Part B cover prescription medication, vision care, dental care, or hearing services.
Medicare Part A and Part B are available to three groups of people. You may be eligible to enroll if you are:
- Aged 65 or older: Most Americans become eligible for Medicare when they turn 65.
- Under 65 with certain disabilities: Medicare eligibility generally begins after receiving Social Security Disability Insurance benefits for 24 months.
- Diagnosed with End-stage Renal Disease: ESRD Medicare is for people who need regular dialysis or have had a kidney transplant.
Medicare Part A
Medicare Part A covers inpatient hospital care, including stays in hospitals, skilled nursing facilities, and hospice care. It also provides limited coverage for home health care services under certain conditions, primarily focused on post-hospitalization recovery.
The following services are covered by Medicare Part A:
- Inpatient hospital care: Up to 90 days per benefit period.
- Skilled nursing facility care: Up to 100 days per benefit period.
- Part-time home health care: Up to 28 to 35 hours per week.
- Hospice care: For people with 6 months or fewer to live.
Many people pay $0 per month for Part A because they or their spouse paid Medicare taxes while working. People who need to buy Part A pay either $278 or $506 per month.
Delaying Part A
Some people prefer not to enroll in Part A when first eligible. This could make sense for those who want to keep contributing to their Health Savings Account. However, if you need to pay a premium for Part A, be aware of late enrollment penalties. Signing up late may raise your premium by 10% for twice the number of years you waited to enroll.
Medicare Part B
Medicare Part B covers a wide range of medical services and supplies. It also helps pay for medically necessary services to diagnose and treat illnesses, and it also covers certain preventive services to help maintain overall health and well-being.
Part B covers outpatient medical services that prevent, detect, diagnose, or treat medical conditions. Some of these services include:
- Doctor services
- Ambulance services
- Durable medical equipment
- Cancer screenings
- Emergency department services
- Same-day surgeries
- Laboratory tests
- Diagnostic imaging
Many people pay the standard monthly premium for Part B, which is $164.90 in 2023. Some higher-income beneficiaries pay higher premiums.
Delaying Part B
Some people choose to delay enrollment in Part B, but like Part A, Part B has a late enrollment penalty. People who sign up late pay an extra 10% for each year they went without Part B coverage. However, people who wait to enroll because they’re still working and have job-based coverage may avoid this penalty.
If you enroll in Original Medicare, you may pay a monthly premium:
- Part A premium: Many people with Medicare do not pay monthly premiums for Part A. You may be eligible for “premium-free Part A” if you or your spouse paid Medicare taxes while working. If you are not eligible for premium-free Part A, Part A premiums are either $278 or $506 a month, depending on how long you or your spouse have paid Medicare taxes while employed.
- Part B premium: The standard premium for Part B in 2022 is $164.90 per month, though those with higher incomes may pay higher premiums. This applies to people with individual incomes over $97,000 per year or $194,000 per year for joint filers.
Other costs in Original Medicare include deductibles and the coinsurance or copayments for your medical care.
How Medicare Part C Works (Medicare Advantage)
Medicare Advantage is an alternative to Original Medicare, and is also known as Medicare Part C. These plans are sold by private insurance companies approved by Medicare. Medicare Advantage plans must cover the same benefits as Original Medicare at minimum, but many also offer additional benefits. For example, Medicare Advantage plans may include Medicare Part D, or prescription drug coverage, as well as coverage for routine eye exams and hearing aids.
Unlike Original Medicare, Medicare Advantage plans utilize healthcare network providers. This means you may need to get care from doctors, healthcare providers, and healthcare facilities that participate in the plan, though there may be exceptions to these rules, such as emergency care. Depending on your plan type, out-of-network care may or may not be covered.
In general, anyone enrolled in Original Medicare is also eligible for Medicare Advantage. However, individual Medicare Advantage Plans can set additional criteria, so when choosing a Medicare plan, pay attention to each plan’s:
- Service area: Plans limit enrollment to people who live within certain geographic boundaries.
- Membership limitations: For Special Needs Plans, you can only join if you have the health needs the plan covers.
In 2023, the projected average premium for Medicare Advantage plans is $18 per month. Keep in mind that because Medicare Advantage still includes Part A and Part B coverage, you will still need to pay those premiums, though some plans pay all or part of the Part B premium. In addition, Medicare Advantage plans are offered by private companies, so your costs may vary depending on the specific plan you choose.
Deductibles, copayments, and coinsurance may vary from one plan to another, so check the plan’s details to find out what you might pay for your care, as these amounts may differ from the cost-sharing requirements of Original Medicare.
However, Medicare Advantage plans have an annual out-of-pocket maximum, which means there’s a cap on your share of covered medical expenses. This can be up to $8,300 for 2023, though some plans may feature a lower limit. Original Medicare does not have this cap.
Supplemental Plans For Medicare
Original Medicare covers many healthcare services, but it does not cover all of the beneficiaries’ costs. Private companies sell supplemental plans that provide additional coverage. Medigap plans help pay for out-of-pocket costs in Original Medicare, while Part D plans add prescription drug coverage.
Medicare Prescription Drug Coverage (Part D)
Medicare Part D is optional prescription drug coverage for people with Medicare. Many Medicare Advantage plans include Part D drug coverage, but there are also stand-alone Part D plans that can add drug coverage to Original Medicare.
Note that Part D plans typically utilize a network of pharmacies where you can pick up your prescriptions, which means it may not cover drugs you get from out-of-network pharmacies. This is the case even if you have Original Medicare, which does not utilize healthcare provider networks. It is important to see if your preferred pharmacy is within the Part D plan’s network before enrolling.
Anyone with Original Medicare is eligible for Part D coverage, either through a standalone Part D plan or a Medicare Advantage Plan with drug coverage. Standalone plans are compatible with Original Medicare and some types of Medicare Advantage Plans.
Medicare Part D drug plans may cover both name-brand and generic prescription drugs. The list of covered drugs, known as the formulary, may vary from one plan to another. Each plan is generally required to cover two or more drugs in each prescription drug category, as well as drugs in certain protected classes, including:
- Cancer drugs
- HIV/AIDS drugs
If you take a prescription drug that your plan doesn’t cover, your doctor may recommend taking a similar drug that’s on your insurer’s formulary. If no similar drug is available, your doctor can request an exception for your plan to cover the prescription, though this does not guarantee coverage.
The average monthly premium is $31.50 in 2023. However, your costs in Medicare Part D may vary depending on the plan you choose, as it is offered by private insurance companies. The drugs you take and how your plan covers them may also affect your costs.
Insurers may place drugs in different tiers, and drugs in lower tiers may have lower copayments than drugs in higher tiers. While tiers may vary from one plan to another, here’s an example of what your costs might look like:
- Tier 1: Generic prescription drugs, with a lower copayment.
- Tier 2: Brand-name drugs, with a medium copayment.
- Tier 3: Specialty drugs, with a higher copayment.
If you take drugs that are not on your plan’s formulary, you may need to pay for them out of pocket. However, you or your doctor could request an exception, and the plan may agree to cover your drugs.
Medicare Supplemental Insurance (Medigap)
Medicare Supplement Insurance, or Medigap, is a stand-alone plan that provides supplemental coverage to help fill the “gaps” in Original Medicare. Offered by private insurance companies, these plans help cover out-of-pocket costs such as copays, coinsurance, and deductibles. However, Medigap policies are only valid additions to Original Medicare and cannot be used to supplement Medicare Advantage plans.
There are 10 standardized Medigap policies: A, B, C, D, F, G, K, L, M, and N. The lettered plans available to you may vary depending on when you became eligible for Medicare and what state you live in. Note that Medigap options differ in Massachusetts, Minnesota, or Wisconsin, as these states have their own set of standardized Medigap policies.
Generally, consumers become eligible for Medigap the first month they turn 65 and are enrolled in Part B. They have a 6-month Medigap Open Enrollment Period when they can join any Medigap policy sold in their state.
Every Medigap policy offers full or partial coverage for these basic benefits:
- Medicare Part A hospital coinsurance
- Additional 365 days of hospital coverage
- Medicare Part A hospice coinsurance or copayment costs
- Medicare Part B coinsurance or copayment costs
- Blood transfusion (first 3 pints)
Beyond those benefits, specific coverages depends on the plan letter. Medigap plans are subject to state regulations, so some states may mandate specific coverages for beneficiaries living in that state. Otherwise, all same-letter plans are identical within every state. For example, all Medigap Plan G policies within California provide identical coverages, no matter which insurer offers it.
Private insurance companies set the prices for their Medigap policies. Your costs may vary depending on the standardized plan you choose — A, B, C, D, F, G, K, L, M, or N — and the company you buy it from.
There are three ways insurance companies can set their Medigap premiums. Learning what method a company uses can help you understand how your premiums might change in the future:
- Community-rated: The premium is the same for each person who buys the Medigap policy, regardless of their age.
- Issue-age-rated: The premium is determined based on your age when you buy the policy.
- Attained-age-rated: The premium is set based on your age when you buy the policy, but it may automatically increase as you get older.
Some insurance companies may offer lower premiums for certain people, such as nonsmokers or those who pay their premiums annually instead of monthly.
Original Medicare vs. Medicare Advantage
No; you can enroll in a stand-alone Part D plan
Sometimes; some plans include Part D benefits or you can enroll in a stand-alone Part D plan
Sometimes; some plans include vision, dental, etc.
Part A: Usually $0, but some people pay $278 or $506 per month. Part B: Usually $164.90
Varies; some plans charge supplemental premiums in addition to Part A and/or B premiums
Part A: $1,600 per benefit period. Part B: $226 per year
Varies; some plans have a $0 deductible
Copay and Coinsurance
Yes; varies by plan and service
Annual Out-of-pocket Maximum
None; you can enroll in Medigap to reduce out-of-pocket costs
Varies; out-of-pocket maximums can be as high as $8,300
Compatible with Medigap
Original Medicare is the traditional health insurance program run by the federal government. Medicare Advantage is an alternative offered by private insurance companies. People who want standardized, nationwide coverage may prefer Original Medicare, while people who want extra benefits may prefer Medicare Advantage.
How to Compare Your Options to Select a Medicare Plan
When choosing a Medicare plan, consider your health needs, preferred providers, and budget for medical care. Compare the plans available in your area, and look into each plan’s ratings and reviews.
1. Consider Your Health Needs and Preferred Providers
When selecting a Medicare plan, consider your typical health care needs, as well as any planned health expenses like scheduled surgical procedures. For example, if you have a surgery set for later in the year and are considering enrolling in Medicare Advantage, you may want to confirm that the hospital is part of a plan’s network, as out-of-network facilities may not be covered. This could result in significantly higher out-of-pocket costs.
Medigap, Medicare Advantage, or Part D coverages vary, so it’s important to select a plan that covers the specific services you usually need. For example, if you see a specialist like a dermatologist multiple times a year because you are at a higher risk for skin cancer, make sure the plan you choose will cover it. In addition, find out if your doctors and specialists are in its network to avoid out-of-network issues and costs.
2. Consider Your Budget
When you’re considering health insurance options, cost may be an important factor. Some of the costs to keep in mind as you look at Medicare plans include:
- Premiums: The monthly fees you pay to Medicare or to your insurance company for health coverage.
- Deductibles: The amount you’re required to pay out of pocket before your health coverage starts to pay.
- Coinsurance: The amount you’re required to pay as your share of the cost of covered services. Coinsurance is generally a fixed percentage, such as 10% or 20% of the service cost.
- Copayments: Like coinsurance, a copayment refers to your share of your care costs. It’s generally a fixed dollar amount, such as $10 or $20.
You may also want to consider how each plan covers your specific doctors and drugs because if your doctors are out of the plan’s network or your drugs aren’t on the plan’s formulary, you may pay higher costs.
3. Consider Your Area’s Plan Options
Medicare plan options vary depending on location. Medicare Advantage Plans and Part D drug plans have service areas, and beneficiaries must live within the plan’s service area to enroll.
Here’s how to select a Medicare plan for sale in your area: Search for plans online at Medicare.gov, check the back of your Medicare & You handbook, or work with a trusted agent or broker.
4. Consider Each Plan’s Ratings and Reviews
Medicare Advantage Plans and standalone Part D drug plans are sold by private insurance companies, so the quality of care and customer service can vary significantly. Before joining a plan, consider ratings and reviews.
Medicare uses a Star Ratings system to help beneficiaries compare plans. Plans are rated on a scale of one to 5, with 5 being the highest. You can view each plan’s star ratings using the Medicare Plan Finder tool at Medicare.gov.
Tips For a Smooth Enrollment Process
Enrolling in your preferred Medicare plan is not difficult, but some planning can help the process move as smoothly as possible. Before you get started, mark your next enrollment period on your calendar, gather the necessary documents, and understand your coverage options.
Remember Your Enrollment Periods
If you’re eligible for Medicare, you can sign up or change your coverage at specific times throughout the year. Mark your calendar with these enrollment windows:
- Initial Enrollment Period: This 7-month period starts 3 months before you turn 65, or 3 months before your 25th month of getting disability benefits.
- Open Enrollment Period: From October 15 to December 7 each year, you can apply for Medicare Advantage or Part D plans. Changes take effect January 1.
- General Enrollment Period: If you want to make changes to your Medicare Advantage plan, enroll in a new one, or enroll in Original Medicare, you can sign up from January 1 to March 31 each year. Coverage starts July 1. A late enrollment penalty may apply.
- Special Enrollment Period: If you experience certain life events, such as losing your current coverage, you may be able to sign up for Medicare outside of the typical enrollment windows without a late enrollment penalty.
Gather Your Necessary Documents
Whether enrolling in Medicare for the first time or switching to a different plan that better suits your needs, you’ll need to provide certain documentation.
If you’re newly eligible for Medicare, be prepared to provide your Social Security Number. Medicare may ask to see documents such as your original birth certificate, permanent resident card, or certificate of citizenship. Current beneficiaries should be prepared to provide the information on the front of their red, white, and blue Medicare card.
Understand All of Your Options
Understanding the different options helps you determine how to pick a Medicare plan that fits your needs. To make an informed decision, research how each plan works, what it covers, and how much it costs.
Before enrolling in a plan, read the plan documents carefully. Ensure the plan works with your health needs and budget and allows you to see your preferred doctors.
Putting It All Together
Medicare is a complex program, and it can be challenging to narrow down the options that are right for you. Carefully consider your typical and upcoming healthcare needs, your personal financial situation and budget, how soon you need your coverage to begin, and the enrollment periods when weighing your options. If you need more information about how to pick a Medicare plan, you can reach out to Medicare or a licensed agent.