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Why is Medicare so complicated?

Posted at 8:23 PM, Oct 21, 2022
and last updated 2022-10-21 21:23:15-04

By the government's last count in 2021, 64 million adults were enrolled in Medicare. But that doesn't mean it's simple to navigate. The Medicare maze is growing more entangled over the years, as Congress adds new benefits, exceptions, and penalties.  

Let's break it down:

Once you turn 65, you are eligible to enroll in Medicare. There are four different parts.

Part A: Covers hospital stays. 

Part B: Covers medical insurance, like doctor appointments and outpatient care.

Part C: Also known as Medicare Advantage, covers the same benefits as A and B – but is offered by private insurers.

Part D: Covers prescription drugs. 

Medicare Adviser Nate Rubenstein said, the first thing you need to know is whether you even need Medicare at all. 

"The most common confusion is when people are going to continue to work past their 65 birthday. If they have what's called Creditable Coverage, they do not need to do anything with Medicare. They can delay their Medicare enrollment until they ultimately decide to retire," said Rubenstein. 

Creditable Coverage is something like employer health insurance, and must be at least as good as what Medicare provides. 

But if you aren't covered when you turn 65, you'll have to decide whether to enroll in original Medicare or Medicare Advantage. 

Sung said both programs will cover the same services, but there are key differences.  Original Medicare is made up of parts A and B, and the federal government is negotiating prices on your behalf. 

"Medicare works directly with health care providers. So, you receive a Medicare card when you enroll, and you can see any doctor or health care provider across the country who accepts Medicare," said Sung.

Under original Medicare, 80% of your approved medical costs are covered. Most prescription drugs are not covered, unless they're administered by a professional, like chemotherapy.  And there are multiple deductibles a year — around $1,500, but only if you don't have supplemental coverage. 

Here's the good news: Most Americans won't have to pay a monthly premium for Part A because they've paid into Medicare taxes for at least 10 years. But, if you haven't, premiums will cost you anywhere from $274 to $499 a month, depending on your income. And if you don't qualify for a free Part A and don't sign up when you are first eligible, those premiums may go up 10%.

Once you've got that squared away, it's time to think about Part B.   

"Part B is the part of Medicare that pays for things like doctor's visits and outpatient services and most of your kind of routine medical care," said Sung. 

SEE MORE: Social Security Admin. Announces Benefits Will Jump By 8.7% Next Year

Part B pays up to 80% of your medical costs. And there is no limit on out-of-pocket costs under original Medicare, you can either cover the remainder yourself or by supplemental coverage called Medigap to help lower the costs. 

"Medigap, are these private plans that kind of wrap around the Medicare program and the secondary coverage to help you pay for those and shares of your costs, like those co-payments and deductibles and things like that," said Sung. 

There are also annual deductibles and monthly premiums, which will cost at least $165 a month next year, depending on your income. Part B isn't required, but experts highly recommend buying it. In most cases, if you don't sign up for Part B when you're first eligible, there's a 10% penalty increase for every full year you could've had Part B, but didn't. 

"The idea behind the penalty is that Medicare is encouraging people to sign up early so that the coverage is there when you need it and not to wait until you have a problem before seeking out how to pay for that problem," said Sung. 

If you don't want Part B because you are still on employer or a spouse's insurance, most people can apply to delay enrollment and avoid a penalty. You'll also need to sign up for Part D if you want prescription drug coverage. You don't need Part D, but there are penalties if you don't sign up when you're first eligible, unless you have certain exceptions. 

"If you have other comparable prescription drug coverage, some people have this through an employer or through a union," said Sung. "Another exception is, is if you have a low income and you qualify for what's called extra help or a low income subsidy."

Something to note: the Biden administration recently signed the Inflation Reduction Act aimed at helping Medicare users lower their drug costs. The law caps "out-of-pocket" spending at $2,000 for prescriptions and $35 for insulin. And starting in 2026 Medicare will have the power to negotiate prices for certain drugs, which doctors say has big benefits for patients.  

"The less Medicare has to pay for the medication that means there's more money that they can maybe distribute to the patients in the form of maybe lower deductible, lower co-pays," said Dr. Hashim Zaibak, CEO of Hayat Pharmacy.  

SEE MORE: Biden Pushing Lower Prescription Drug Costs In Midterm Press

If you want an "all-in-one" plan that bundles A, B and D Medicare Advantage, also known as Part C, might be the right choice for you. Private insurers like AETNA or Blue Cross Blue Shield are running your plans, instead of the government and this affects which doctors you can see.  

"So instead of just going to any provider across the country, you'd want to make sure that you check to see if your doctors or your health care providers are in the plans network," said Sung. 

Most Medicare Advantage plans cover prescription drugs, or you can choose a plan without drug coverage for a lower monthly premium. It might also offer extra benefits like: vision, hearing and dental.  

Here's the catch, because Medicare Advantage works like private health insurance, your doctor options are narrower because they must be within your plan's network. And you can't buy supplemental coverage like Medigap. But there is a limit on what you pay out-of-pocket each year. So once you hit that number, Medicare covers 100% of your services until the next enrollment period. So, how do you know which plan is right for you? Sung said don't base it all on your monthly premiums, focus on your health care needs instead. 

"You want to also think, well, what am I, health care needs? Do I see the doctor every month? And is that going to require a co-payment or a co-insurance? Every time I visit the doctor, that really elevates the actual price of your coverage at the end of the year," said Sung.  

As for Rubenstein, he advised at the very least, reviewing your prescription drug plans during the open enrollment period this year. 

"These plans change a little bit every year. The premiums of these plans change, the co-pays for medications change a little bit. This is where I see the biggest opportunity to save money," said Rubenstein. 

In the end, the Kaiser Family Foundation said the differences between plans are slim.  

After a review of over 60 studies on both Medicare plans. Kaiser found patients reported the same satisfaction with affordability, utilization and quality. But, Sung acknowledged signing up for Medicare isn't an easy task. 

"At the end of the day, when you look at the the gantlet of choices and decisions and complex understanding that we're asking people to make it in it, it is very difficult," said Sung. 

If you struggle to afford Medicare costs, there are state savings programs that can help lower prices. But it depends on your monthly income and financial assets. Again, don't feel like you have to sign up for Medicare alone. The advice of a licensed processional could make all the difference. 

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