What is Medicare?

What is Medicare?

Sometimes, taxes can feel like death by a thousand paper cuts.  One of these “paper cuts” is the Medicare Tax, a 2.9% tax that is deducted from every dollar we earn during our working careers. These paycheck deductions are essential to qualifying for Medicare later in life. The employee pays half of the tax (1.45%), and the employer pays the other half. Medicare is a government-subsidized program that ensures medical coverage for individuals aged 65 and older, as well as individuals who have either End-Stage Renal Disease or ALS (Lou Gehrig’s Disease). Basic Medicare coverage consists of two parts: Medicare Part A and Medicare Part B. Medicare Part D covers prescription drug costs and is purchased separately from Parts A and B.

If you or your spouse worked and paid into the Medicare system for at least 10 years (40 quarters), Medicare Part A is free! If you or your spouse paid into the Medicare system for 30-39 quarters, Medicare Part A costs $278 per month.  If you or your spouse worked for less than 30 quarters, the cost per month increases to $506. If you are nearing Medicare age and do not currently have 40 quarters, you can consider adding a part-time job (if you are not currently working). Not only will this provide extra income, but it will also add valuable quarters of working to your Medicare record. Medicare Part A covers inpatient services for the insured, such as hospital stays and short nursing home stays. However, Medicare Part A still requires a deductible, as well as some coinsurance payments that increase over time.

While Medicare Part A is usually free, Medicare Part B carries a premium for the insured. Assuming that you are under the income limit ($97,000 for a single individual and $194,000 for a married couple filing jointly), Medicare Part B costs about $165 per month.  This cost is projected to increase to about $175 per month in 2024. If you are taking Social Security Retirement Benefits from the Government while on Medicare Part B, the cost will automatically be deducted from your monthly check. Medicare Part B covers outpatient services, including doctor visits and therapy.

Although “basic Medicare” solely consists of Parts A and B, these do not cover the cost of prescription drugs, which can become burdensome over time.  As such, it is often advisable to purchase a Medicare Part D Plan.  These plans are designed to help bear the burden of prescription drug costs. Medicare Part D Plans are offered to Medicare eligible individuals through private insurance companies that have contracts with the Government.

It is important to note that the deductibles and copays for Medicare Part D vary by plan.  However, the Government sets the maximum deductible that you could pay for prescription drugs at $505. After the deductible is met, you will have to pay a reasonable copay (that varies per plan/prescription drug). Once the total RETAIL cost (not the cost that you pay) of the medication that you have received for the year reaches $4,660, you enter the phase called the “coverage gap”, which is more commonly known as the “donut hole”.  In this phase, you will pay a flat 25% copay, and the medicine manufacturers will give 70% of the cost as a credit to you.  Once your total out of pocket costs AND the 70% credit from the manufacturers in the Coverage Gap Phase reach $7,400, you will only pay a 5% copay on additional prescription drug needs for the year. In 2024, that copay drops to 0%! This last phase is called the Catastrophic Phase.

Medicare Part D Plans vary greatly by location and covered drugs. It is important to go to Medicare’s website to search drug plans in your local area.  You can select the drug plans that specifically cover the medications that you take.  Furthermore, your coverage is customizable each year. During Medicare’s Open Enrollment Period (OEP) each year, which runs from October 15th to December 7th, 2023, you can purchase a different Drug Plan that specifically fits your coverage needs.

As mentioned, there are “gaps” in the coverage that Medicare Part A and Part B provide. In the next article, we will discuss Medicare Supplement Plans, which provide options for covering the “gaps”.

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