Basic Estate Planning: Medicare and Medigap

Fact Sheet 11
EP-11
Community Development
Date: 
07/06/2012
James C. Skeeles, Ph.D., Extension Educator Emeritus in Agriculture and Natural Resources and Community Development, skeeles.1@osu.edu
Chris Bruynis, Ph.D., Assistant Professor and Extension Educator in Agriculture and Natural Resources, bruynis.1@osu.edu
Russell N. Cunningham, Attorney and OSBA Certified Specialist in Estate Planning, Trusts, and Probate Law, Barrett, Easterday, Cunningham & Eselgroth, LLP, rcunningham@ohiocounsel.com

Medicare has four parts. You might or might not need each part. Medicare generally doesn't include coverage for vision, hearing, dental, nursing home care, or care outside the United States. If requested by a patient but not doctor ordered, a private room, private duty nurse, telephone, and television are not deemed necessary by Medicare, thus not covered.

Under the new health care law, yearly physical exams are provided free if done by a doctor that accepts Medicare reimbursement as full payment. Many preventative tests and screenings are also free, even though you usually have to pay the co-pay for the doctor visit needed for the doctor to order such tests.

Part A pays for the hospital or skilled nursing facility, home health care, hospice care, and medicines administered to inpatients.

Part B helps pay bills for doctors and outpatient services such as rehabilitation, laboratory tests, and costs for medical equipment. It also covers doctor costs in the hospital and most medicines given in the hospital.

Part C is an alternative package referred to as Medicare Advantage, which include Parts A and B and often part D.

Part D is the new prescription drug Medicare plan that covers drugs taken at home, plus insulin and some vaccines.

Costs

There is no premium for Part A if you are eligible for Medicare. The base cost for Part B is $99.90 per month for 2012. Part D and Medicare Advantage Plans are sold by private companies, so the cost varies by the plan chosen. Those with modified, adjusted gross income over $85,000 for a single or $170,000 for a couple filing jointly will have higher premiums for Parts B and D. For Part D, the monthly base cost is included in the Part B premium for an individual with less than $85,000 of income, but it goes up to just under $65 per month for an individual with yearly income over $214,000.

2011 Yearly Deductibles

Part A: $1,156 each time you are admitted to the hospital in each 60-day benefit period

Part B: $140

Part C: Deductibles vary, with the above and below reduced or waived by some.

Part D: $320

Co-pays

Part A: After your deductible is met, you pay nothing for up to 60 days in the hospital, but additional days cost $289 for the 61st through 90th day, except for a one-time allocation of 60 lifetime reserve days that cost $578 per day. Skilled nursing care costs $144.50 per day between the 21st and 100th day for each benefit period.

Part B: 20% of the Medicare approved amounts.

Part C and D: Co-pays vary by plan.

Medicare—Apply Early

Medicare is a government program that pays a large part, but not all, of medical expenses after you turn 65 (before 65 if disabled). The government will not pay expenses unless you have applied. If you are already on social security when you turn 65, you will get a card notifying you that you will be enrolled in Medicare and the premium for Part B will be deducted from your social security check. If you are eligible for social security but not enrolled, apply for Medicare at the social security office two or three months before the month of your 65th birthday.

If you are not eligible for social security, you are not eligible for Medicare without paying a $451 per year fee for Part A if you have fewer than 30 work credits. If you have 30 to 39 credits, you pay $248 per month but there is no fee with over 40 work credits. Many spouses who were never employed are eligible for social security and Medicare because their spouse was employed.

Most not eligible for social security have a medical plan that replaces Medicare. However, even if you have other health benefits, you should apply for at least Part A of Medicare, if eligible, when turning 65, as Part A is free for most. In fact, you should apply two to three months before the month of your 65th birthday. Keep in mind that tax rules indicate that you can't contribute to a health savings account set up through your employer once enrolled in Medicare A or B. You can draw on funds after enrolling, but you can't make nontaxed contributions to the account.

The lowest monthly premium (based on 2011 income) for Part B is $99.90 per month, so check with your health benefit provider to see if you need to enroll in Part B. The lowest rate applied to those with 2011 income of $85,000 or less (twice that for a couple). In general, as income doubles, so do Part B rates, up to a maximum of $319.70 for individual income of $214,000 per year. For current rates, call the Centers for Medicare and Medicaid Services (1-800-633-4227). If you prefer a readable document, search for Medicare and You at medicare.gov. If you have Adobe Acrobat (a free program) installed on your computer, you will be able to download the latest version of Medicare and You.

If you choose not to apply for Part B because your employer's benefit package has Part B benefits, but you then retire, check immediately after retirement to see if you need Part B. Most likely you should pick up Part B upon retirement or upon turning 65 if not employed with medical insurance coverage. If you need insurance to supplement Medicare, it should also be purchased at that time since there are advantages to enrolling during the open enrollment period. This is further discussed later. Remember, if eligible for social security, don't forget to apply for Part A before the month of your 65th birthday, no matter if employed or not or if you have another medical plan or not. You can enroll in Part B (and need to to do so when you turn 65 to avoid penalty) without Plan A, but if you buy into A, you must also enroll in B.

You can get Part D only if enrolled in A or B. You can forgo D without penalty only if you have had "credible" drug coverage since turning 65.

Medicare—Further Explanation

When deciding how to pay for medical expenses that Medicare does not cover, you need to have a basic understanding of Medicare. How much is not covered by Medicare and will need to be paid by you or some alternative arrangement? Medical expenses go up, and the figures quoted below might be different now.

Part A

First, let's talk about Part A, or the hospitalization part of medicare. You pay the first $1,156 every time you are admitted to the hospital in each benefit period. A benefit period begins when you are admitted and ends when you have been out of the hospital or skilled nursing/rehabilitation facility for 60 days. It also ends even if you remain in a skilled nursing facility but don't receive any skilled care there for 60 days in a row. If you enter a hospital again after 60 days, a new benefit period begins. You then pay $1,156 again, but you get a new "set" of benefits for the new benefit period. There is no limit to the number of benefit periods for hospital or skilled nursing facility care. For most people on Medicare, the $1,156 deductible is all you pay for hospitalization. This is the case because most hospital stays are less than 60 days.

During each benefit period, the hospital room cost is covered for the first 60 days. After that, you pay $289 of daily hospital room cost for the 61st through 90th day, and Medicare pays the rest of the hospitalization expenses. Hospital room cost is not covered beyond 90 days in any benefit period except for an additional once-in-a-lifetime allocation of 60 days (called lifetime reserve days). After a hospital stay of more than 90 days, you can begin using your allocation of 60 lifetime reserve days. Once used, those 60 days are gone and never renewed. You pay $578 for each lifetime reserve day used, and Medicare pays the rest of the hospitalization expenses. You also pay $144.50 per day between 21 and 100 days per benefit period for skilled nursing facility care.

Part B

Part B of Medicare covers doctor bills and medical expenses other than the hospital room cost. You pay the first $140 of Medicare-approved charges, and Medicare pays 80% of the remaining Medicare-approved expenses. Assuming Medicare approves all your expenses, that leaves 20% of the "major medical" expenses that you need to pay. If Medicare does not recognize all the care as covered by Medicare, they will not cover those expenses. Therefore, you could easily have to pay more than the first $140 plus 20% of "major medical" expenses. However, generally the bulk of your expenses are the 20% of the "major medical" expenses not covered. This short description by no means gives all details and specifics of Medicare.

Part C (or Medicare Advantage)

There is the traditional Medicare plan where as long as your service provider (hospital, doctor, etc.) accepts Medicare patients and applies to Medicare for payment, Medicare pays their portion and you pay yours. However, upon applying for Medicare (or during the open enrollment period from October 15 to December 7 in any year), you can opt to join a Medicare Advantage Plan.

Medicare Advantage (MA) is offered by private companies. This plan includes all benefits covered by the traditional plan but usually for a higher monthly premium, additional benefits, and lower co-pays. Part D is often included too. However, for many of the MA plans, your choice of doctors and other providers might be restricted to those in the plan's network. Each plan has an upper limit on your annual out-of-pocket cost liability. However, each plan can change the monthly premium, extra benefits, and/or co-pays or even withdraw from serving Medicare patients at the end of each year.

You likely have access to at least one MA plan. The best way to compare MA plans is to reference medicare.gov or the Centers for Medicare and Medicaid Services (1-800-633-4227). You can enroll in an MA plan through Medicare, or you can enroll directly through the insurance company that provides the MA plan.

Part D

Part D is the new drug coverage. There is a significant penalty if you don't have other drug coverage when you turn 65, so either sign up then or when you enroll in Medicare. Call the Centers for Medicare and Medicaid Services (1-800-6334227) to get various plan details and premiums; have your most recent two years of income tax returns handy, as well as a list of the drugs you are currently taking.

Part D is not total coverage for drugs; it is just a subsidy to the private company you choose. You pay the plan's deductible and co-pays until the total cost to you for that year reaches $2,930 (in 2012). Beyond that, you will be in the gap called the "doughnut hole." Most plans then pay nothing, but as of 2012, you get a 50% discount on brand name drugs. This percentage reduces every year until 2020, when the percentage you pay will be 25%. If all of your drug costs including deductibles and co-pays total $4,700 (in 2012), the coverage resumes and the drugs cost you no more than 5% of their cost the rest of the year.

If your income is under a certain level, you might qualify for the Extra Help Program in Part D. This provides low-cost drug coverage, zero or reduced premiums and deductibles, and low co-pays. If you are low-income, inquire at the Centers for Medicare and Medicaid Services (1-800-633-4227).

Other Help for Those Who Are Low-Income

So, what are the options to pay your monthly premiums or what Medicare will not pay? First, if your income and assets are low enough, most if not all medical expenses will be covered. (Medicaid requirements are discussed in the previous fact sheet.) There are several other programs that might pay medical expenses and are also administered by the County Job and Family Services Office, as is Medicaid. For example, you might be a Qualified Medicare Beneficiary (QMB). If you are a QMB, all your medical expenses not paid by Medicare are paid. The QMB Program is like a free Medicare supplement or Medigap policy.

The general guidelines to qualify as a QMB consist of monthly income less than $951 if single or $1,281 if married, and assets less than $6,940 if single or $10,410 if married (not including your home, home furnishings, one car, $1,500 in a burial fund, personal jewelry, and life insurance).

If you are not a QMB, you might be an SLMB (Specified Low-Income Medicare Beneficiary). The SLMB Program pays only for the Part B premium charged for Medicare ($99.90 per month). It also pays the premium for the three months prior to qualifying. To qualify for the SLMB Program, one must have monthly income of $1,137 or less ($1,533 for a couple) and countable assets less than $6,940 ($10,410 for a couple). Unlike the above two programs, a Qualified Individual (QI) is approved only if he or she applies before the designated funds run out. Like SLMB, QI only pays the $99.90 per month for Part B. To qualify as a QI, one must have monthly income less than $1,277 if single or $1,723 if married, and must also have countable assets less than $6,940 ($10,410 for a couple). All these limits change annually.

If you have more income than is necessary to qualify for Medicaid, QMB, or SLMB, you might have other medical insurance or might be in a medical plan that will cover most (and possibly all) of the expenses that Medicare will not. You might have medical coverage through your employer, or your retirement fund might include a health insurance plan as part of your retirement benefit. Remember, many health insurance plans assume that if you are eligible for Medicare, you have it. Therefore, they will then pay only what Medicare will not pay.

Medigap

The rest of this fact sheet concerns those insurance policies written specifically to pay what Medicare will not pay. These policies are called Medigap or Medicare Supplement Insurance, hereafter referred to as Medigap. They are sold by private insurance companies—not the government—but are highly regulated. You pay a premium to the insurance company so that it will pay those medical expenses Medicare will not pay.

Plan A vs. Plans C Through J

In 1992 the government required all Medigap companies to offer no more than 10 plans, designated by letter A through J, and made it illegal to sell you duplicate policies. Every Plan A offers the same benefits, as does every plan with the same letter. Plan A has the fewest benefits and the lowest prices. Plan A includes the most important benefits, but other plans add to the basic Plan A. After you pay the initial $1,156 Medicare deductible, your Plan A combines with Medicare to cover all Medicare-approved hospital charges for at least 150 continuous days in a hospital. If you are in and out of the hospital, Plan A with Medicare will likely cover even more than 150 days. There is also 365 days of lifetime coverage that once used, is gone. Plan A along with Medicare will also cover all your Medicare-approved medical expenses (including blood expenses) that are in addition to hospital room expenses. But you will have to pay $140 Part B deductible per year in any year that you have medical expenses covered by Part B.

So, why do plans B through J exist? The additional plans offer different combinations of additional coverage. Every plan except Plan A covers the $1,156 Part A Medicare deductible. Every plan except A and B covers skilled nursing co-insurance and foreign travel emergencies. Refer to Medicare and You (mentioned on page 2 of this fact sheet) for a summary of the additional coverages for Plans B through J.

Medigap Open Enrollment

There is an open enrollment period for Medigap insurance during which every company must accept you for any policy it sells, at its lowest price for customers in your age group. In other words, during the open enrollment period, a company cannot reject you or charge you a higher rate because of poor health. Your open enrollment period starts the month you enroll in Part B of Medicare and ends 6 months later. If you have Medicare because you are disabled and you are not yet 65, your open enrollment period begins the month of your 65th birthday and ends 6 months later. If you are going to purchase Medigap insurance and you have had a past history of health problems, it is especially important to do so during the open enrollment period. However, if you have a pre-existing condition, you might have to wait up to 6 months for coverage even if you purchase the Medigap insurance during the open enrollment period.

Shopping for Medigap Insurance

Here are some key points to keep in mind when shopping for Medigap coverage.

  1. More than one Medigap policy is a waste.
  2. If you are going to buy a policy and have had health problems, make sure you buy it during the open enrollment period. The open enrollment period is the time period between enrollment in Part B of Medicare (or your 65th birthday if disabled) and 6 months from that date.
  3. Don't pay with cash. When paying by check, make it out to the insurance company, not the insurance agent.
  4. Remember, you might not need a Medigap policy, especially if covered by a retirement or other health plan, or if your income and assets are low enough so that you are eligible for Medicaid or are a QMB.
  5. There is a 30-day, no-obligation period during which you can cancel a policy and get your money back.

Medigap Policy and Premium Comparison Chart

If you are shopping for Medigap insurance, the charts in this bulletin will help. Also, Consumer Reports magazine, available at your local library, has excellent articles on Medigap insurance. Finally, if you are serious about purchasing a policy, call the Centers for Medicare and Medicaid Services (1-800-633-4227) to request the Medigap shopping guide Choosing a Medigap Policy.

Balance Billing

Your doctor cannot charge you more than what Medicare approves. Ohio law prohibits the medical industry from excess charging any Medicare patient. Medigap policies offer coverage for excess charges; however, only those who will be spending a significant amount of time in a state or a country that does not prohibit balance billing (such as winters in Florida), should supplement their Medigap policy with excess charge coverage. Plans F and G add excess coverage to Plans C and D, respectively, thus should not be considered unless one will be spending a considerable amount of time in a state that allows balance billing.

Standardized Post-1992 vs. Pre-1992

Medigap policies were sold before 1992, but they were not required to be standardized. Some of the pre-1992 policies were better, and some were worse than the standard post-1992 policies. Some coverages were available before 1992 but not available now. You never need two Medigap policies. In fact, it is considered unethical for anyone to knowingly sell you a second Medigap policy unless you drop your present plan. But if you are considering switching from an old policy to a new one, use the chart included in Choosing a Medigap Policy to compare the two policies. Also, managed care plans through an HMO are a substitute for Medigap insurance. You do not need two or more Medigap policies, and you do not need both a Medigap policy and an HMO. If you join an HMO, cancel the Medigap policy as soon as you have confirmed your membership in the HMO. Likewise, if you move from an HMO's territory, you will likely dis-enroll from the HMO and consider a Medigap policy or other arrangement to cover expenses that Medicare will not.

Further Help

Medicare has vastly improved their educational and decision-making materials, along with their customer service. As mentioned earlier in this fact sheet, you can access their Centers for Medicare and Medicaid Services by calling 1-800-6334227 or by logging on to medicare.gov. Their bulletin, Medicare and You, will be of great value to you as you explore your Medicare and Medigap options. (The instructions for obtaining a copy of Medicare and You are included on page 2 of this fact sheet.)

If you are enrolling in Medicare when you retire or turn 65, you will want to contact the Social Security Administration at 1-800-772-1213 or log on to ssa.gov for enrollment help. Also, decision aides, publications, related lines, and access to a local counselor or help line is available at insurance.ohio.gov by clicking on "Medicare Services."

Your local Job and Family Services Office can be of assistance with Medicaid, other low-income qualifying assistance, and the Extra Help Program in Part D. At the State Health Insurance Program (SHIP), trained counselors offer help on all Medicare and Medicaid issues for free. To locate your SHIP office, call 1-800-677-1116 or go to shiptalk.org.

Ohio Senior Health Insurance Information Program

The Ohio Department of Insurance coordinates a program to personally assist seniors. The Ohio Senior Health Insurance Information Program (OSHIIP), accessed by calling 1-800-686-1578, has volunteer counselors throughout Ohio to help you . . .

  1. select an appropriate insurance program.
  2. decide if your insurance coverage is adequate.
  3. get the benefits to which you are entitled.
  4. deal with and make sense of the medical bills and statements you receive.
  5. better understand insurance and Medicare/Medicaid.

These fact sheets should in no manner be considered as a replacement for consulting with estate planning professionals, nor should the general principles in these fact sheets be applied to specific situations without consulting with an attorney. 


Your Response

Fact Sheet 11

1. You should apply for Medicare . . .

_____ before you are 65.

_____ the day you turn 65.

_____ during the month of your 65th birthday.

2. Medicare has two parts, Part A and Part B.

Which part is free? _____

For which part is a monthly premium charged? _____

3. Medicare is like medical insurance. You pay the government for a premium for Part B, and in return, part of your medical expenses are covered. Medicare, like insurance, has deductibles, or fees that you must pay before Medicare pays anything.

What is the deductible for Part A, the part that pays hospital bills? _____

What is the deductible for Part B, the part that pays doctor bills and non-hospital expenses? _____

4. Part B of Medicare pays a portion of medical expenses other than hospital bills. After you pay the $162 deductible, the government pays ____ % of Part B expenses and you pay ____ %.

5. Do you plan to investigate buying Medigap insurance?      Yes _____      No _____


Answers

Fact Sheet 11

1. You should apply for Medicare . . .

__X__ before you are 65.

_____ the day you turn 65.

_____ during the month of your 65th birthday.

Apply before you are 65. To start Medicare benefits as soon as possible, you should apply between three months before the month of your 65th birthday, and the month before your 65th birthday. Even if medical insurance is available to you free-of-charge, you should apply for at least Part A, as there is no cost to you for such coverage. Medicare and You describes the delays in coverage if you apply the month of your 65th birthday or after.

2. Medicare has two parts, Part A and Part B.

Which part is free? __A__

For which part is a monthly premium charged? __B__

Medicare does not charge participants a premium for coverage for Part A. However, the premium charged for Part B is $99.90 per month.

3. Medicare is like medical insurance. You pay the government for a premium for Part B, and in return, part of your medical expenses are covered. Medicare, like insurance, has deductibles, or fees that you must pay before Medicare pays anything.

What is the deductible for Part A, the part that pays hospital bills? _$1,156

What is the deductible for Part B, the part that pays doctor bills and non-hospital expenses? _$140__

You pay the $1,156 deductible before Part A pays anything. Then, Part A generally covers hospitalization costs through the 60th day of your hospital stay. You pay the $140 deductible before Part B pays anything.

4. Part B of Medicare pays a portion of medical expenses other than hospital bills. After you pay the $140 deductible, the government pays _80_ % of Part B expenses and you pay _20_ %.

Part B generally pays only 80% of nonhospital medical expenses. You or your insurance is responsible for the remaining Part B expenses. With sizable medical expenses, your 20% can be very expensive.

5. Do you plan to investigate buying Medigap insurance?      Yes _____       No _____

This answer varies for each person. If you decide to buy Medigap insurance and can afford the premium for a Medigap policy that has the benefits that you desire, you are lucky! Remember, you do not need to duplicate coverage. Therefore, there is no need for two Medigap policies, a managed health plan (HMO) and a Medigap policy, or one Medigap policy if you are already covered by other medical insurance.

If you determine that Medigap insurance is for you, definitely call 1-800-633-4227 to request Choosing a Medigap Policy. Also consider talking to a counselor at the Ohio Senior Health Insurance Information Program (OSHIIP) at 1-800-686-1578.

Program Area(s): 
Ohioline http://ohioline.osu.edu