Medicare 101

Medicare is an incredible health insurance program for older folks. If we didn't have the program, open market health insurance for those in their 60's and 70's would be brutally expensive. But, the system does have some holes in it, and there are some wrinkles anyone aging into eligibility would do well to understand.

The biggest thing to consider is the fact that Medicare has some holes in its coverage, and those holes could become a serious financial trauma if left open. The good news is there are very nice options for closing those gaps.

Medicare has a 20% copay on doctor visits.

If you ever have a serious health condition, the 20% copay could be catastrophic, with care for serious conditions like cancer or diabetes potentially mounting up into the hundreds of thousands or even millions of dollars. The 20% you are on the hook for can pile up quickly.

Luckily there are many options to close that gap, some of which cost you money, others that don't. There are pros and cons to each that we can discuss under our "Medigap vs Medicare Advantage" section.

Medicare does not cover prescription drugs.

To get covered for your drugs, you'll either want to enroll in a Prescription Drug Plan or enroll in a Medicare Advantage plan that offers a prescription plan for free.

Medicare has deductibles and co-payments for hospital stays.

You are on the hook for $1,632 each time you're admitted to a hospital before Medicare starts paying. After that, if you stay beyond 60 days, you'll have to start paying $419 per day, and $838 per day if you're in the hospital longer than 90 days. After day 150, you pay 100% of all costs, with no limit.

Again, these costs can be completely or mostly eliminated through either a Medigap or Medicare Advantage plans.

Medicare does not cover dental, vision or hearing.

Again, if you want these covered, you'll want to enroll in plans that work alongside Medicare, or enroll in a Medicare Advantage plan that includes them.

Medicare has Specific Complexities for Veterans.

If you get some or all of your care through the VA (or use the VA pharmacy, which is usually very cost effective) you'll want to consider this when you choose your Medicare coverage. You'll qualify for certain benefits that should be carefully explained to you.

If you have Tricare coverage, you must tread very very carefully. Make sure you aren't put into an HMO Medicare plan, and do not enroll in a prescription drug plan.

Medicare does not cover prescription drugs.

To get covered for your drugs, you'll either want to enroll in a Prescription Drug Plan or enroll in a Medicare Advantage plan that offers a prescription plan for free.

Medicare does not cover dental, vision or hearing.

Again, if you want these covered, you'll want to enroll in plans that work alongside Medicare, or enroll in a Medicare Advantage plan that includes them.

Considerations for those still working.

If you plan to work past 65, it is very important that you get good advice. You want to make sure you aren't caught in a nightmare between huge bureaucracies. If you delay enrolling in Medicare, make sure you do it correctly, and don't lose your legal window in which you can enroll in Medigap plans without being screened and potentially denied by insurance companies.

Medicare vs Medigap

After spending more than 20 years collectively advising folks on Medicare, we believe that in most cases (though definitely not all) it is worth it to pay for a solid Medigap plan if you can afford it. Medigap fills in just about every hole (except for prescription drugs) in the Medicare 101 discussion above, and caps your total liability if anything serious happens.

In addition, the government has banned the insurance companies from using your pre- existing or current health condition (or putting you through health screenings and other hoops in an attempt to deny or re-price you) during your "aging in window" to Medicare. This can be extraordinarily valuable. So once you are in Medigap, if you stay in the program, you can't be re-priced if you run into expensive health issues. This is invaluable.

However, there are times when you should consider a Medicare Advantage plan. If you have Medicaid, you will almost certainly not want to spend precious financial resources paying for Medigap. There are also incredibly generous plans called D-SNP plans designed just for those on Medicaid, and these plans are legitimately fantastic plans filled with benefits at no cost to you.