Your Guide to the Basics of Medicare Coverage

If you’ve just celebrated your 65th birthday, or it is coming up in the next year, your mailbox is probably full of postcards, flyers and letters about your health care needs as you become eligible for Medicare.

Contrary to popular belief, Medicare is not free, and it is important to understand the ins and outs of Medicare before you sign up to avoid unexpected costs. Even if you’ve been on Medicare for years, you may want to reevaluate your options annually to verify that your plan is still the best choice for you. The annual open enrollment period, during which you can switch Medicare plans, runs from October15 through December 7.

“It is never a good idea to be complacent,” says Diane J. Omdahl, founder of 65 Incorporated, a Wisconsin-based company that helps people choose Medicare coverage. Plans, benefits and premiums can change from year to year. It’s especially important to reevaluate your options if you have a Medicare Part D drug or Medicare Advantage plan. These plans can change annually, dropping and adding drugs and doctors or changing copays and deductibles.

It’s always good to be aware of changes to health care legislation. For instance, the Inflation Reduction Act (IRA) of 2022, which takes effect in 2023, lowers prescription drug costs for Medicare beneficiaries and caps out-of-pocket drug costs. For instance, it caps the Medicare Part D copay for covered insulin at $35 per month. However, this does not mean that all Medicare companies must cover all insulins. You still need to choose insulin from your health plan’s formulary. Also, beginning in January 2023, Medicare Part D now covers vaccines, including shingles and tetanus, at no cost to beneficiaries. Copays will be waived for all Medicare-covered vaccines.

“Even if they’re completely happy with their plan, people have to look because things change,” Omdahl says.

[READ: Medicare Mistakes to Avoid.]

Medicare Plans

As you may know by now, there is a virtual alphabet soup of Medicare plans. Here are the parts that you ought to know about:

Part A covers hospital care, skilled nursing, hospice and some home health care. If you or your spouse has at least 10 years of Social Security work history, Medicare Part A will probably not cost you anything. Your premium amount is determined by your number of Social Security work credits. You can find this information on the government’s Social Security website. Credits are based on your total wages, including self-employment income, for the year. The earnings it takes to gain credit may change each year. In 2023, you could earn one Social Security or Medicare credit for every $1,640 earned in covered wages. You must earn $6,560 to get the maximum four credits for the year.

Part B covers doctor visits, preventive care, outpatient care and hospitals, and some home health care. In 2023, the standard monthly premium for Medicare Part B enrollees is $164.90, a $5.20 decrease from 2022. However, premiums are higher for individuals earning more than $123,00 per year. Many people find they need a Medigap plan in addition to parts A and B to cover all the services and medications they need or may need in the coming year.

Part C is also known as a Medicare Advantage plan. These are Medicare health plans offered by private companies that contract with Medicare to provide you with all your parts A and B benefits. Many plans also offer Part D drug coverage. Premiums range by region and plan. The Centers for Medicare & Medicaid Services, or CMS, says that average monthly plan premiums for Medicare Advantage enrollees will be about $18 per month in 2023.

Part D covers prescription drugs. Monthly premiums in 2023 are $31.50 in 2023.

[READ: What Medicare Does Not Cover.]

Finding the Right Plan for You

“The first big decision Medicare beneficiaries must make is whether to go with traditional Medicare (parts A, B and D with supplemental coverage from a Medigap plan) or a Medicare Advantage plan (Part C),” says Meredith Ramsey, an independent insurance agent in New Orleans, Louisiana. “Medicare Advantage plans can have low or no monthly premiums, but they usually require members to get their care only from network doctors and hospitals.”

“Both options may have deductibles, copays and coinsurance, where you pay a percentage of the bill, ” Ramsey adds. With either option, “you need to make sure you have prescription coverage (Part D).”

Those who choose original Medicare may add a Medigap policy, which is a supplemental policy that covers what Medicare doesn’t. Depending on where you live and when you’re eligible for Medicare, there are up to 10 types of Medigap policies offered by private insurers or via groups such as AARP, and costs vary considerably.

“You can go through your life with just parts A and B, but the out-of-pocket costs will get you,” Omdahl says. The reason is traditional Medicare lacks a maximum for out-of-pocket costs. But with a Medigap policy, many of those costs are covered.

In 2023, Medicare Advantage plans, a combination of HMOs and PPOs, have a maximum out-of-pocket limit of $8,300 for in-network services and $12,450 for plans that also allow out-of-network services. When you reach this limit, the plan typically pays your out-of-pocket costs for all covered services for the rest of that year. On the other hand, original Medicare has no cap on the amount you may spend on medical costs in a given year.

But with Medicare Advantage, you’ll have access to fewer doctors and hospitals. Some Advantage plans include vision, dental and hearing coverage, which original Medicare does not cover, but those services are offered from a limited network of providers. For those who absolutely can’t afford to purchase a Medigap supplement, and who don’t mind adhering to a limited network of providers, a Medicare Advantage plan will likely be the best option.

However, original Medicare combined with a Medicare supplemental plan offers greater access to specialists and doesn’t require the insurance company to approve specific treatments. Comparing copays is crucially important, as well.

[Read: 5 Steps for Picking a Medicare Plan.]

You’ve Turned 65: What’s Next?

No matter your retirement age, you become eligible for Medicare when you turn 65. You can sign up three months before your birthday, during your birth month or throughout the months after. If you don’t sign up during these seven months, even if you’re still working, you may face a long-term penalty.

Those signing up for Medicare must pay attention to the specifics of their chosen plan, or they may risk being, enrolled in a plan that doesn’t work for them in the long-term. Insurance companies are allowed to automatically reenroll members in their Medicare Advantage plan unless the subscriber explicitly says that they don’t want the plan. To opt out, they must respond to a letter from their current carrier, which can easily get lost in all the ads for Medicare plans.

If you start with original Medicare and a Medigap supplement, your supplement rate is not based on your health record. But if you start with a Medicare Advantage plan and then switch to original Medicare later, the company offering the supplemental coverage will base your premium on your health history and may even deny coverage. For this reason, it is best to start with original Medicare and a Medigap plan, switching to Medicare Advantage later if you’d like, rather than vice versa.

Get the Facts, Just the Facts

Americans with very low income ( an individual income of about $1200) may be eligible for extra help with Medicare premiums and health care costs.

The system is complex, and most people should seek help when choosing a plan. The U.S. News Best Medicare Plans site can help you navigate the options and get the proper medical coverage. You can also find information on the Medicare website. If you’re deciding among several Medicare Advantage plans, call the company that offers each one to verify that the coverage is what you think it is.

It is important to seek information from these and other reliable sources, Omdahl stresses, because the onslaught of mailings and TV commercials can be overwhelming. She notes that CMS is aware that some of this information can be misleading, and starting January 1, 2023, Medicare Advantage plan commercials have to be approved by the agency.

You can find ratings of Medicare Advantage plans from the National Committee for Quality Assurance. You can also get help via phone or in person from your State Health Insurance Assistance Programs. Those agencies often maintain office hours at senior centers or other locations.

U.S. News also highlights the Best Medicare Advantage Plans and Best Medicare Part D Plans.

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Your Guide to the Basics of Medicare Coverage originally appeared on usnews.com

Update 01/18/23: This story was previously published at an earlier date and has been updated with new information.

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