How Medicare Works

Traditional Medicare is broken down into two primary parts: Part A and Part B.

Medicare Part A: This is the hospital part of your insurance. Any inpatient, hospital stays, some skilled nursing care, some hospice care, and some general healthcare procedures are covered under Medicare Part A. This is one of the simplest parts of your Medicare coverage, however depending on hospital coding and labeling, it can get complex.

For example, the healthcare status used in hospital paperwork between triage and admittance, or between admittance and dismissal, is called "under observation" and can be trouble for a patient. When a patient is "under observation" they are not meeting the requirements of hospitalization by Medicare to engage their nursing care benefit. Medicare says you must be admitted to the hospital for three full days before you can engage the nursing care benefit. Just be careful to pay attention to your status if you are ever hospitalized under Medicare.

For now, a good way to remember is "Part A covers your stay" (in most cases).

Medicare Part B: This is the doctoring part of your coverage, your typical health insurance coverage. It covers two types of medical services:

1. Preventive medical services such as vaccinations, illness screenings, exams, and lab tests are all covered under Part B. The lines here can become blurry, but essentially any sort of screenings or lab work done in an attempt to prevent major illness is considered preventive care under Medicare. Additionally, coverage can extend to necessary durable equipment like walkers or wheelchairs, when a diagnosis requires it.
2. Necessary treatment is covered when patients require treatment and care to treat existing conditions and illnesses. Included in this category are x-rays, outpatient services, and routine doctor's visits that are necessary per the condition.

When you go to the hospital or doctor, the institution then turns around and bills Medicare for your procedures. So, let's say you had a knee replacement. The hospital says to Medicare "the knee replacement costs $10,000 here." Medicare says "No way- according to our DRG, (diagnoses-related groups, basically Medicare's master list of codes and amounts they cover) this procedure costs $5,000, so we will give you $4,000."

In this case, the hospital takes their $4,000 from Medicare and then bills you, the patient, for the remaining $1,000. Traditional Medicare only covers 80 percent of the approved amount, leaving you to pay for the remaining 20 percent.

Medicare Part D: This is the part of Medicare that helps to cover prescription drug costs. Though it is the smallest part of Medicare, it is incredibly important. The only time to change is during the Annual Election Period (Oct. 15- Dec. 7) and these plans require reviews annually. The plan costs and benefits can change each year, so it's always important to review your drugs and budget for the year with an advisor.

This is how Medicare works in a general sense. The remaining 20 percent that is left for the insured is the reason why people elect to buy Medicare Supplement or Medicare Advantage plans. Medicare supplement plans almost always cost more in monthly premium, but they have little to no out-of-pocket costs or co-payments. Whereas, Medicare Advantage plans have low monthly premiums (sometimes even $0) but high out-of-pocket costs.

Now we'll get into a breakdown of pros and cons to both types of Medicare insurance plans.

Medicare Supplement Plans (Medigap) Versus Medicare Advantage Plans (MAP)

We'll start with Medicare Advantage.

PROS

• Medicare Advantage monthly premiums are fairly inexpensive. Some can cost $0 per month.
• Part D drug plans are typically included. (*Note: This is a pro for convenience because it’s “all-in-one” but it is a con for efficiency because you can’t choose your plan based on your medication list.)
• Sometimes they include fitness memberships or other extra incentives/benefits such as dental, vision, etc.

CONS

• Designated medical networks determine your available medical providers. In many cases, you may have to change your doctor to become "in-network" before your plan will cover claims.
• You run the risk of high out-of-pocket costs (OPCs) when you start using your insurance.
• If your OPCs get too high due to illness or injury, you are unable to enter back into original Medicare with a supplement (due to medical underwriting) and can get stuck paying the high OPCs forever.
• Limited nationwide coverage due to network restrictions. Traveling becomes an issue because your insurance is usually not applicable at remote medical facilities. (*Note: The Mayo Clinic is one of those major hospitals that will NOT take Medicare Advantage plans, and there are many hospitals following this trend.)
• You can only change your plans during the Annual Election Period (October 15 through December 7)