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What Is Medicare? Ultimate, No-BS Guide For 2022

Rikin Shah | Licensed Life & Health Insurance Agent

What is Medicare

Richard Feynman famously said, “If you think you understand quantum mechanics, you don’t understand quantum mechanics.”

Most Americans would say the same about Medicare these days…

However, understanding this program is essential for those nearing or over 65, as it can keep your health and pocketbook in great shape.

Below, we’ve put together a brief, straightforward guide to help you understand this essential program.

Medicare: A Bird’s Eye View

Medicare is health insurance for seniors and disabled Americans, managed by the federal government.

Medicare provides health insurance coverage for Americans ages 65 and older, and certain younger adults with disabilities, regardless of their income or medical history.

It works like any other insurance policy.

Medicare recipients pay premiums, deductibles, and coinsurance, and in return, the federal government removes the risk of catastrophic, unaffordable medical expenses.

What’s The Point Of Medicare?

Medicare Parts A & B (known as “Original Medicare”) are the core of Medicare.

They cover the most expensive forms of healthcare, inpatient and outpatient medical services. In other words, hospital visits and doctor visits.

Medicare’s goal is to ensure that Americans on a fixed income (seniors and the disabled) do not have to forego necessary medical care for financial reasons.

Said another way, its goal is to cover the most expensive, least predictable forms of medically necessary care.

Why? Two reasons:

  1. Seniors are typically on fixed incomes. Their budgets can’t absorb large, unexpected healthcare costs as easily as those in the workforce.
  2. The second factor working against seniors is more obvious. By virtue of being older, seniors are more likely to need expensive medical care.

Medicare seeks to protect seniors and the disabled from the health risks of being on a fixed income.

In other words, not being able to make more of it (income) to pay for large, unexpected medical bills!

The Key Components Of Medicare

In this section, we’ll go one level deeper and see what makes up this health insurance program.

The Main Course = Medicare Parts A & B

Everyone needs to eat. And if you don’t, you’re going to be in trouble.

Likewise, everyone senior needs Medicare. And the longer you wait to get it, the worse off you’ll be.

The Bread = Prescription Drug Coverage (Medicare Part D)

What kind of restaurant doesn’t bring you some rolls with dinner, right? And then charges you when you ask!

That’s been the largest complaint about Medicare for years. What kind of health plan for seniors doesn’t include prescription drug coverage?

To get prescription drug coverage, seniors must join a Medicare-approved plan from a private insurer. Each plan can vary in cost and specific drugs covered.

You can get more information on the drugs plans available in your area by going to Medicare.gov/plans-compare.

The Dessert = Medicare Supplement Insurance (Plans A-N)

If you’re really hungry (for healthcare), you gotta get dessert.

As we’ll go through in much more detail below, Medicare Supplement Insurance is a set of 10-12 plans (depending on your state) that can help reduce some of your Part A and Part B deductibles and coinsurance requirements.

Original Medicare (Parts A & B)

This line below is not oversimplifying things. That is Medicare. Doesn’t look as intimidating to under when written like that.

Original Medicare = Medicare Part A + Part B = Inpatient + Outpatient Care

You can get Medicare coverage from two sources:

  • Directly from the Federal Government
  • Through private health insurance companies (e.g., Cigna, Aetna, and many more)

Let’s dive into Part A and Part B in more detail.

Medicare Part A (Inpatient Care)

Medicare Part A is the Hospital Insurance program that helps cover inpatient care.

This includes semi-private accommodations if medically necessary, general hospital services, hospice care, and some home health visits.

It also covers skilled nursing facilities for a limited period when recovery from an illness or surgery requires supervision by a medical professional.

Medicare Part A and Medicare Part B Comparison

Medicare Part B (Outpatient Care)​

Medicare Part B is often called the “outpatient” or “doctor visit” insurance portion of Medicare.

It has two components:

  • Medically necessary services: Services or supplies that are needed to diagnose or treat your medical condition and that meet accepted standards of medical practice
  • Preventive services: health care to prevent illness (like the flu) or detect it at an early stage, when treatment is most likely to work best.

What Does Original Medicare NOT Cover?

You may have realized that there’s quite a bit of coverage missing from Original Medicare.

Prescription Drugs (“Part D”)

Private insurance companies provide Medicare Part D prescription drug coverage.

It helps people with Medicare pay for self-administered prescription medicines (drugs) by working out discounted prices with national pharmacies.

Needed Healthcare

Three healthcare services needed by the vast majority of seniors are not included in Original Medicare. These are:

  • Dental
  • Vision
  • Hearing aids

As we’ll discuss below, nearly all Medicare Advantage plans cover one of these and 68% cover all three.

“Nice-To-Have” Healthcare

Benefits that, while not essential, are highly popular among seniors and missing from traditional Medicare include:

  • Wellness care (Silver Sneakers)
  • Foreign emergency care

Medicare Advantage (C): Bundled Care

You can get your Medicare coverage through Original Medicare or a Medicare Advantage Plan.

If you have Original Medicare, the government pays for your health care directly.

Medicare Advantage plans, sometimes called Medicare “Part C” plans, are sold by Medicare-approved private insurance companies. These companies pay for your healthcare and are then reimbursed by Medicare.

Medicare Advantage Pros And Cons

What Medicare Advantage Covers

Medicare Advantage Plans must cover all of the services that Original Medicare covers except hospice care. (Original Medicare covers hospice care even if you’re in a Medicare Advantage Plan.)

Medicare Advantage plans provide all of your Medicare Part A (Hospital Insurance) and Medicare Part B (Medical Insurance) coverage. In addition:

  • Most Medicare Advantage Plans include Medicare prescription drug coverage (Part D)
  • Many plans also offer extra benefits such as dental care, eyeglasses, or wellness programs, like gym memberships (Silver Sneakers)

However, note that these additional benefits (those beyond Part A & B) can change from year to year.

How To Get Medicare Advantage

These private insurance plans have varying benefit structures, including HMOs, PPOs, Special Needs Plans, etc., much like standard health insurance policies available today.

If you have Medicare Advantage, you are still required to pay your Part B premium (in addition to your monthly premiums for your Medicare Advantage plan itself).

Who Is Eligible For Medicare Advantage?

If you are eligible for Medicare Parts and B (and live in the plan’s service area), you are eligible to purchase a Medicare Advantage plan.

Note that individuals with end-stage renal disease (permanent kidney failure) generally can’t join a Medicare Advantage Plan.

Medicare Supplement (“Medigap”)

Original Medicare pays for many, but not all, health care services and supplies.

A Medicare supplement policy fills in the gaps of what’s not covered under Original Medicare coverage. These policies are therefore often called “Medigap” policies.

Medigap policies, or plans, are identified by the letters A, B, C, D, F, G, K, L, M, and N.

Medicare supplement plans (e.g., Medicare Plan F or Medigap Plan G) are private insurance. They help pay some of the health care costs that Original Medicare doesn’t cover (like copayments, coinsurance, deductibles, and other out-of-pocket costs).

If you have Original Medicare and a Medigap policy, Medicare will first pay its share of the Medicare-approved amounts for covered health care costs. Then, your Medigap policy pays its share.

Medigap Plans & Benefits

All Medigap policies must follow Federal and state laws designed to protect you, and policies must be identified as “Medicare Supplement Insurance.”

Medigap policies have the SAME basic benefits, no matter which state you live in or which health insurer you choose.

While their prices differ significantly, each Medigap plan (A through N) must offer the same basic benefits, no matter which insurance company sells it.

In Massachusetts, Minnesota, and Wisconsin, benefits are labeled differently, but each state’s policies are standardized.

TABLE: A COMPARISON OF MEDIGAP PLAN COVERAGE

Table Comparing The Benefits Of All 10 Medicare Supplement Insurance Plans

That said, some do offer additional benefits (like subsidized gym memberships), but in the end, these create only minor differences.

The far more significant differences lie between plan types (Plan K vs. Plan N, for example). You can choose which plan meets your needs.

Medicare Supplement Plans Vs. Medicare Advantage

While they both involve health care coverage from a private insurance company, Medigap plans and Medicare Advantage plans are entirely different.

Medicare Advantage is an alternative way to get the benefits available through Original Medicare.

On the other hand, Medigap supplements your Original Medicare benefits by paying for costs that Original Medicare does not cover.

Medicare Eligibility & Enrollment

Americans aged 65 or older, certain younger adults with disabilities and those with end-stage renal disease (permanent kidney failure requiring dialysis or a transplant) are eligible for Medicare.

Medicare eligibility requirements vary depending on the circumstances.

Medicare eligibility spans the three months of your 65th birthday + the 3 months before and after.

Medicare Enrollment Period
Eligibility spans the month of your 65th birthday + the 3 months before and after

How Do I Sign Up?

You can enroll online anytime during open enrollment periods, which are typically twice per year (typically January/February and June through Sept 30).

You may be required to provide proof of age (typically a birth certificate) and documentation showing any pre-existing conditions you have through medical records review by an approved physician before coverage begins.

Penalties For Late Sign-Up

If you don’t buy it when you’re first eligible, your monthly premium may increase by 10%. (You’ll have to pay the higher premium for twice the number of years you could have had Part A but didn’t sign up.)

The Cost Of Medicare Coverage

Let’s look at what health insurance through Medicare will cost you. At the highest level, it will be some combination of:

  • Premiums
  • Out-of-pocket costs (deductibles and coinsurance/copays)

These out-of-pocket costs may or may not have a limit on them.

Medicare Part A Costs

Most people do not have to pay a monthly premium for Part A.

However, if you have not paid Medicare taxes for 40 quarters (10 years), you will have to pay a Part A premium.

Here is what your premium may be:

  • If you paid Medicare taxes for less than 30 quarters, the standard Part A premium is $471
  • If you paid Medicare taxes for 30-39 quarters, the standard Part A premium is $259

Medicare Part B Costs

Let’s do the same with Part B costs.

Part B Premiums

The monthly premium for Part B standard coverage is contingent upon your annual income, personal circumstances, and living location. The standard Part B premium amount in 2021 is $148.50.

Most people pay the standard Part B premium amount. If your modified adjusted gross income as reported on your IRS tax return from 2 years ago is above a certain amount, you’ll pay the standard premium amount and an Income Related Monthly Adjustment Amount (IRMAA). IRMAA is an extra charge added to your premium.

Part B Annual Deductible

In 2021, you pay $203 for your Part B deductible.

Note that, as of 2020, Medigap plans cannot cover your Part B deductible.

Part B Coinsurance / Copays

After you meet your deductible for the year, you typically pay 20% of the Medicare-Approved Amount for these:

  • Most doctor services (including most doctor services while you’re a hospital inpatient)
  • Outpatient therapy
  • Durable medical equipment

Below, we’ve listed the coverage details for common services covered under Part B. You can use these to more accurately estimate your out-of-pocket expenses.

Costs For Added Coverage

In this section, we’ll go through the costs you may incur if you choose to bolster your Original Medicare coverage with a private market policy.

Medicare Advantage (Part C)

  • Monthly premiums: The Part C monthly premium varies by plan
  • Deductibles and coinsurance: The amount you pay for Part C deductibles, copayments, and/or coinsurance varies by plan. Look for specific Part C plan costs, and then call the plans you’re interested in to get more details

Prescription Drugs (Part D)

  • Monthly premiums: The Part D monthly premium varies by plan (higher-income consumers may pay more)
  • Deductibles and coinsurance: The amount you pay for Part D deductibles, copayments, and/or coinsurance varies by plan. Look for specific Medicare drug plan costs, and then call the plans you’re interested in to get more details

Medicare Supplement Insurance (Medigap)

  • Monthly premiums: Premiums for Medigap plans vary significantly, as they are medically underwritten for the most part. (Only during your Initial Enrollment Period can you purchase a Medigap policy on a guaranteed issue basis)
  • Deductibles and coinsurance: Meidgap policies do not have their own coinsurance requiements

FAQs About Medicare

Medicare is our country’s health insurance program for people age 65 or older and younger people receiving Social Security disability benefits. The program helps with the cost of health care, but it doesn’t cover all medical expenses or the cost of most long-term care.

Many people are working past age 65, so how does Medicare fit in? It is mandatory to sign up for Medicare Part A once you enroll in Social Security. The two are permanently linked. However, Medicare Parts B, C, and D are optional and you can delay enrollment if you have creditable coverage.

Medicare is funded by the Social Security Administration. Which means it’s funded by taxpayers: We all pay 1.45% of our earnings into FICA – Federal Insurance Contributions Act – which go toward Medicare. Employers pay another 1.45%, bringing the total to 2.9%.

Conclusion

If you were scratching your head and asking, “What is Medicare?” we hope that this piece helped that itch!

If you have any questions or suggestions, don’t hesitate to leave a comment here. We will be sure to get back to you within 24 hours.

Warm Regards,
The GetSure Team

  1. Medicare.gov. 

    (n.d.). 

    Your Medicare Benefits. 

  2. Medicare.gov. 

    (n.d.). 

    Medicare & You 2022 Handbook. 

  3. Medicare.gov. 

    (n.d.). 

    What’s A Medicare Advantage Plan. 

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