Managing Medicare

Medicare offers comprehensive health insurance coverage to people 65 and older. But the decisions and choices you face can be confusing and overwhelming. Here's our step-by-step guide for getting the most out of Medicare.

What's covered by parts A, B, C,and D

Medicare comes in three parts:

• Part A covers hospital inpatient care, some types of home health care, hospice care, and care in skilled nursing facilities. There is no premium for Part A if you or your spouse has earned at least 40 Social Security work credits.
• Part B covers doctor services, outpatient hospital care, preventive care, and some types of home health care. You have to pay a monthly premium for Part B. In 2014, it's $104.90 for individuals with an income of less than $85,000 a year and couples with an income of less than $170,000. Higher-income beneficiaries pay more.
• Part C, also known as Medicare Advantage, is an alternate way of getting your Part A and Part B benefits. Instead of the government paying your provider directly, Part C plans are run by Medicare-approved private insurance companies. If you elect to get your benefits through Part C, you must also be enrolled in Part A and Part B.
  
• Part D covers prescription drugs. This is an optional benefit that is only available through private insurance companies. Most Medicare Advantage plans include Part D. 
  

For details on exactly what each part of Medicare covers, see Medicare's website.

No matter how you choose to receive your Medicare benefits, you will receive certain preventive services for free, such as immunizations and screening tests for breast and colon cancer.

Click on the image at right for rankings of health insurance plans nationwide. Use the tool to:

• Choose a plan category such as private HMO or PPO, or Medicare HMO or PPO.
• Choose a state.
• Customize your search to compare plans' scores and their performance in measures such as consumer satisfaction and providing preventive services.

Signing up for Medicare for the first time

The "initial enrollment period" for Medicare consists of the three months before, the month of, and the three months after your 65th birthday.

If you already receive Social Security, Medicare will automatically enroll you. If not, you must enroll on your own either online through Medicare.gov or at a Social Security office.

Nearly everyone who becomes eligible for Medicare should enroll in Part A immediately, because it has no premium. (If you do not have enough Social Security credits to qualify for premium-free Part A, you should defer enrollment until you quit working.)

When to sign up for Part B

If you don't sign up for Part B when you should, you will be hit with a harsh penalty: a permanent increase in your premium of 10 percent for every year that you should have been enrolled but weren't. In 2014 the standard Part B premium is $104.90 a month.

Most people should sign up for Part B either when they turn 65 or when they or their spouse stop working, whichever comes later. Sounds simple, but no one is going to come after you to enroll, there are some exceptions, and it's easy to make a mistake. Here are the rules for people in the following situations:

• You receive a subsidy to purchase an individual health plan through your state's Health Insurance Marketplace. Once you become eligible for Medicare, you are no longer entitled to this subsidy. You should enroll in all parts of Medicare as soon as you are old enough, and cancel your marketplace plan.
• You have an individual health plan but don't receive a subsidy to help pay for it. If you keep this plan instead of enrolling in Medicare when you should have, you'll be hit with the late enrollment penalty. Cancel it and enroll in Medicare.
  
• You are still working at a large employer. You can delay Part B enrollment without penalty if you have health insurance through your own or a spouse's current job at a workplace with 20 employees or more. Once the last working spouse leaves his or her job, even if they're getting COBRA or retiree insurance, it's time to sign up for Part B. You have eight months, starting the month after the job ends, to get this done without penalty.
• You are still working at a small employer. If your workplace has fewer than 20 employees, sign up for Part B at 65. Your employee health plan then becomes a secondary plan that kicks in after Medicare has paid its share of the bills. Workplaces this size are allowed to drop you from their employee plan after you reach 65, something that's against the law for larger employers. If you ignore this rule, and your group health plan finds out you're over 65, it may refuse to pay claims that Medicare would have paid.
  
• You or your spouse is on COBRA. Even though the COBRA plan is exactly the same as your former group health plan, once you turn 65 you must switch to Medicare. But COBRA can still function as the main insurance for the younger spouse, and you can keep parts of your COBRA plan that Medicare doesn't cover, such as your dental benefit. Learn more about Medicare and COBRA.
• You have a retiree plan. If you have a retiree plan from your old job, you must sign up for Part B when you turn 65, even if your retiree plan doesn't change at all. After you go on Medicare, the retiree plan becomes a secondary plan (but may still function as the main insurance for your younger spouse). If coverage is meager and premiums high, compare the cost of keeping and using it the cost of a Medigap or Medicare Advantage plan instead. Also ask your retiree plan's administrator if you can rejoin the plan later if circumstances change; sometimes plans allow this and sometimes they don't.
  
• You receive veteran's benefits. The Department of Veterans Affairs and Medicare operate independently of each other for the most part. Medicare won't pay for care you get at a VA facility, and the VA won't help you with your Medicare co-payments and deductibles (except if the VA authorizes you to get care at a non-VA hospital). The VA encourages veterans to sign up for Medicare A and B to have the flexibility to seek care at non-VA facilities if need be. Moreover, if you are not in one of the VA's higher priority groups, you could lose your coverage suddenly if Congress decided to cut back the VA's budget. At that point, you would have to pay a penalty for late enrollment in Medicare Part B. Learn more about VA and Medicare.
• You have TRICARE for Life. If your military service entitles you to TRICARE for Life, you must sign up for Part B when you turn 65, regardless of whether you are working or have other sources of coverage. If you don't, you lose your eligibility for this valuable benefit. Learn more about how TRICARE works with Medicare.
• You are on the Federal Employees Health Benefits Plan (FEHB). FEHB will continue to cover you after retirement, even if you don't take Medicare at all. But if you delay enrollment in Part B after retiring, and then change your mind later, you'll be hit with the Part B late-enrollment penalty. Because FEHB premiums can be substantial, you need to consider your options carefully. Learn more about how FEHB works with Medicare.

When to sign up for Part D

You should sign up for Part D when you first go on Medicare unless you have equivalent drug coverage from another source, such as a retiree plan (your plan administrator can tell you whether your coverage is equivalent to Part D.)

You may be tempted to skip Part D if you don't take any prescription drugs on a regular basis. That would be a big mistake. There's a penalty—1 percent extra on your premium for every month you could have signed up, but didn't—for enrolling more than three months after your 65th birthday month. So if you are a year late enrolling, your premium will be 12 percent higher than it would have been otherwise. Instead, if you aren't on any regular medications, buy the cheapest plan available in your area. You can switch to another at open enrollment every year if your prescription needs change.

Protecting yourself from high out-of-pocket costs

As soon as you have Part B, your next step is to figure out how to protect yourself from high out-of-pocket Medicare costs.

Original Medicare is the familiar program that's been around since 1965, in which the government pays Medicare's share of your medical bills directly to providers of Part A and B services. You can go to any doctor or hospital anywhere in the country that accepts Medicare reimbursement.

But Original Medicare has some substantial deductibles and co-insurance (for example, a $1,216 deductible for every hospital stay and 20 percent of outpatient doctor visits). And unlike the private insurance you're used to from your working years, Medicare does not have an out-of-pocket limit. Those deductibles and coinsurance payments can add up fast, especially if you need costly treatments like outpatient chemotherapy.

You may have a retiree plan (a health plan provided courtesy of your former employer) that helps pick up some or all of these costs.

If not, you have two options for limiting your exposure to excessive out-of-pocket costs.

Medigap. These private supplemental plans cover most or all original Medicare's out-of-pocket costs. If you select this option, you will continue to be covered by original Medicare. After Medicare has paid your claims, it will automatically forward them to your Medigap plan, which will then pay its portion of the bill. Learn more about Medigap.

Since Medigap plans do not cover prescription drugs, you must also purchase a  standalone Part D plan if you want drug coverage.

Medicare Advantage. This is a private health plan that substitutes for original Medicare. These plans now cover nearly 3 in 10 Medicare recipients. Every Medicare Advantage plan offers Part A and Part benefits, and most also include Part D. You continue to pay your Part B premium as usual and may also pay an extra premium for the plan itself.

Medicare Advantage plans typically come with deductibles and copays, but unlike Original Medicare, they have an annual out-of-pocket limit. Once your share of the costs of your care hits that amount, the plan will pick up 100% of your bills for the rest of the year. You are not allowed to have a Medigap and Medicare Advantage plan simultaneously.

Medicare Advantage plans work like the managed care plans you may have had during your working years. You will have to receive your care from doctors, hospitals, and other providers within the plan's network or the plan won't pay.

If you have a retiree plan, check with your plan administrator before signing up for a Medicare Advantage plan because it may affect your eligibility for your retiree benefits.

Read more about Medicare Advantage below.

Here's a chart that summarizes the two choices:

Changing to a different plan

Once you are enrolled in Medicare, you can join, switch, or drop a Medicare Advantage or Part D plan once a year during the annual open-enrollment period, which runs from Oct. 15 through Dec. 7.  

You may be uncertain whether you have original Medicare or a private Medicare Advantage plan. The name on your insurance card probably doesn't say "Medicare Advantage." Instead, it might list a plan name, like "Secure Horizons." Here's how to find out which Medicare plan you have:
1. Call 800-MEDICARE (800-633-4227).
2. The system will ask you to say your "Medicare number." That's the number on your red, white, and blue Medicare card (see example). Everyone has this card, even those enrolled in Medicare Advantage plans.
3. The system will give you some options. Select 0 for a customer service representative.
4. When the representative comes on the line, you will be asked for your Medicare number again, as well as some other identifying information such as date of birth and full address.
5. Once your identity has been confirmed, ask the rep: "Could you tell me whether I have original Medicare or Medicare Advantage"? You will be told either: "There's no Medicare Advantage plan on file" OR the name of your Medicare Advantage plan.

Caregivers can make this call on behalf of a Medicare enrollee, if they have the identifying information.

Your mailbox may be overflowing with sales brochures from Medicare Advantage plans, but our advice is to ignore them. Instead, use the government's Medicare plan finder and NCQA's rankings of Medicare HMO and PPO plans. We also recommend checking out MedicareRights.org. That site has an excellent tool that will walk you through a comparison of original Medicare and Medicare Advantage.

Choose carefully

Before you choose a plan, make sure you understand these key points.

• Understand the difference between a PPO and an HMO.  In general, in an HMO it is very difficult to get care out of network. In a PPO, it's allowed but you will have to pay more of the cost yourself.
• Find out which doctors and hospitals are in the plan's provider network. Ask your doctors which Medicare Advantage plans they take part in, and which they would recommend.
• If you regularly take prescription drugs, check the Medicare plan finder to see whether they are on the plan's formulary, its list of preferred drugs. But before you sign up, double-check with the plans themselves to be sure.
• Look at all expenses you'll be paying, not just premiums. Deductibles, co-insurance, co-payments, and out-of-pocket maximums can vary greatly from plan to plan. Because you're not allowed to purchase a Medigap supplement plan alongside Medicare Advantage, you'll be responsible for paying those expenses out of your own pocket.
• If you have retiree coverage from an employer, do not sign up for a Medicare Advantage plan without checking first with your plan administrator. In some cases, it could void your retiree coverage.
• Find out what coverage you will have outside the plan's service area. Many HMOs and PPOs will only pay for emergency care when you are away from home. That is an especially important consideration if you, for example, spend the winters or summers in different locations, or pay extended visits to your adult children.

Here's what you need to know about Medigap.

Medigap plans come in standardized varieties

In most states, Medigap plans are available in 10 standardized benefits packages, which vary according to how much of your expenses they will pick up. The more generous the plan, the higher the premium.

The most popular plan is F, which pays for pretty much everything Medicare doesn't, including the 15 percent excess charge that you can be billed by doctors who don't accept Medicare as payment in full. Here's a chart of the various Medigap plans.

You can find a complete list of Medigap carriers in your area on Medicare.gov.

The search engine will give you a range of prices for each category of plan, and the names and contact information for companies that sell them. But it's up to you to contact the carriers directly to get their specific pricing information.

The type of premium pricing method you choose will affect your future costs

A policy that looks inexpensive when you first buy it at age 65 could end up being the most expensive when you hit 80.

Carriers use three pricing models (though in some states you may have a choice of only one or two):

• Community-rated (also called no-age rated). The same premium is charged to everyone, regardless of age. Medigap experts say these plans are the least expensive over time, though not necessarily when you first purchase them.
• Issue-age-rated. The premium is based on your age when you buy the policy. It won't go up as you age, but will increase due to cost inflation.
• Attained-age rated. The premium starts low but goes up as you get older. Over time, this type of policy is the most expensive.

Learn more about policy pricing.

Medigap plans can turn you down or charge you more for pre-existing conditions at certain times

In every state, you have a guaranteed right to buy a Medigap policy for six months starting the first day of the month you are at least 65 and enrolled in Part B.

After that, you're only entitled to guaranteed issue Medigap in specific situations, such as:

• Your Medicare Advantage plan shuts down or you move out of its service area.
• Your retiree plan shuts down.
• You joined Medicare Advantage at 65 but decide to switch back to original Medicare within a year.
• Your Medigap plan shuts down.

The minimum rules for when Medigap must sell you a plan are explained in this publication from Medicare. But some states have chosen to go beyond these minimums, for example, by requiring insurers to sell Medigap plans to applicants at any time. Your State Health Insurance Assistance (SHIP) program or state insurance department can give you information on your state's rules.

Signing up

You can sign up for Medicare Part D, which helps cover prescription drug costs, along with other components of Medicare starting three months before your 65th birthday. It's important to be prompt because there's a permanent premium surcharge for enrolling more than three months after your 65th birthday if you don't have equivalent drug coverage from another source, such as a retiree plan. (Your plan administrator can tell you whether your plan is equivalent.)

If you are already enrolled in a Part D "standalone" plan or a Medicare Advantage plan that incorporates drug coverage, you can switch plans during theopen-enrollment period, which runs from Oct. 15 to Dec. 7 every year.

Making Part D work

In 2014 the maximum allowable deductible for a Part D plan is $310, though many plans have lower or even no deductibles.

During your initial coverage period, you will pay an average of 25 percent of the costs of your medications until you and Medicare together have spent $2,850. At that point, you will enter the "doughnut hole" and will have to pay a larger share of your drug costs.

Inside the doughnut hole, you will pay 47.5 percent of the cost of brand-name drugs and 72 percent of the cost of generics until the TOTAL cost of your brand-name drugs and YOUR share of the cost of generic drugs together add up to $4,550. At that point, you will exit the doughnut hole and enter the "catastrophic coverage" period, which lasts until the end of the year, during which you will pay only 5 percent of the cost of your drugs.

For more information on the closing of the doughnut hole, download this guide from Medicare.

Choosing a good plan

Depending on where you live, you might have dozens of private plans to choose from, with different premiums, co-payments, and levels of coverage, including which drugs are covered. Choosing a plan that is right for you can save you thousands of dollars per year in premiums and out-of-pocket drug expenses. It pays to review your Part D coverage every year, especially if you have started taking new drugs.

• Start at Medicare.gov. You can find the basics about the benefit and Part D plans at Medicare's website. There's a link to the Medicare Part D Plan Finder, which allows you to compare offerings and coverage options in your area and includes a helpful formulary finder that allows you to compare plans based on their coverage of your personalized list of drugs. It will even show you your monthly out-of-pocket drug cost for the year.
• Ignore sales pitches. Print, TV, and radio ads and plan brochures are unlikely to offer enough information for you to make a wise choice. Avoid selecting a plan just because it has a familiar name or brand. If possible, consult a trusted broker.  But watch out for brokers pushing plans from just one carrier.
• Learn more. We recommend consulting the website of the nonprofit Medicare Rights Center. There you can find in-depth information on Medicare Part D.

Getting financial help

Individuals with annual incomes of less than $17,235 and financial resources of less than $13,300, or married couples with incomes of less than $23,265 and resources of less than $26,580, might qualify for Extra Help from Medicare to pay their Part D premiums and out-of-pocket drug costs. Download Medicare's instructions on applying for the Extra Help program.

For information and free counseling about Medicare, Medigap, Medicare Advantage, and long-term care, contact your State Health Insurance Assistance Program (SHIP). These federally funded programs are not connected to any insurance company or health plan. SHIPs were established to help beneficiaries with plan choices, billing problems, complaints about medical care or treatment, and Medicare rights.

Alabama 800-243-5463

Alaska 800-478-6065 or 907-269-3680

Arizona 800-432-4040 or 602-542-4446

Arkansas 800-224-6330 or 501-371-2782

California 800-434-0222

Colorado 888-696-7213

Connecticut 800-994-9422

Delaware 800-336-9500 or 302-674-7364

District of Columbia 202-739-0668

Florida 800-963-5337

Georgia 866-552-4464

Hawaii 888-875-9229 or 866-810-4379 (TTY)

Idaho 800-247-4422

Illinois 800-548-9034 or 217-524-4872 (TDD)

Indiana 800-452-4800 or 866-846-0139 (TDD)

Iowa 800-351-4664

Kansas 800-860-5260

Kentucky 877-293-7447

Louisiana 800-259-5301

Maine 800-262-2232 or 800-606-0215 (TTY)

Maryland 800-243-3425 or 410-767-1100

Massachusetts 800-243-4636, 617-727-7750, or 800-872-0166 (TDD/TTY)

Michigan 800-803-7174

Minnesota 800-333-2433

Mississippi 800-345-6347 or 601-359-4929

Missouri 800-390-3330

Montana 800-551-3191

Nebraska 800-234-7119, 402-471-2201, or  800-833-7352 (TDD)

Nevada 800-307-4444 or 702-486-3478

New Hampshire 866-634-9412

New Jersey 800-792-8820

New Mexico 800-432-2080 or 505-476-4846

New York 800-701-0501

North Carolina 800-443-9354 or 919-807-6900

North Dakota 888-575-6611, 701-328-2440, 800-366-6888 (TTY)

Ohio 800-686-1578

Oklahoma 800-763-2828

Oregon 800-722-4134

Pennsylvania 800-783-7067

Rhode Island 401-462-4000

South Carolina 800-868-9095

South Dakota 800-536-8197

Tennessee 877-801-0044

Texas 800-252-9240

Utah 800-541-7735

Vermont 800-642-5119

Virginia 800-552-3402 or 804-662-9333

Washington 800-562-6900

West Virginia 877-987-4463 or 304-558-3317

Wisconsin 800-242-1060

Wyoming 800-856-4398

Consumer Reports has no relationship with any advertisers or sponsors on this website. Copyright © 2006-2014 Consumers Union of U.S.