Page 2 of 5
Original Medicare works directly through Social Security Medicare and consists of Part A — Hospitalization; Part B—Doctors' visits and outpatient services; and Part D— Prescription Drug benefits.
Under this Original Medicare system you can choose any doctor who is "Medicare approved." About 80% of all doctors in the U.S. are Medicare approved. Most doctors affiliated with hospitals take Medicare patients. Doctors are paid a fixed amount for each medical service as determined by Medicare. They agree, under most circumstances, to accept the fee Medicare will pay. These fees are generally lower than what a doctor will charge privately on a fee-per-service basis. Yet doctors participate because so many patients are covered, or because of medical institutional imperatives.
Unlike a Managed Care system or HMO you can choose any doctor or specialist that you wish to see. There is no necessity for choosing an in-plan doctor, or needing a plan referral for a specialist. In many cases, you can go to a doctor yourself; in other cases you simply need your own doctor to say that a procedure or a visit to a specialist is "medically-necessary." This is one of the advantages of Original Medicare as opposed to Medicare Advantage; see below.
Medicare Supplement policies
Part A and Part B cover only 80% of covered medical costs. Hence a person would be required to pay 20% of most medical bills. To meet these extra costs, private insurance companies offer what are generically called Medicare supplement policies. These policies for a premium cost paid by you cover the 20% gap, as well as deductibles, and offer some extra services as well. To be effectively covered, one should, if possible, buy a Medicare supplement policy. Under Medicare Parts A and B, with a Medicare supplement policy, most medical procedures and visits are covered. Institutional nursing home care, except for skilled nursing care, is not covered.
Prescription Drug Coverage—Part D
The last part of Original Medicare is prescription coverage—Part D. When you are accepted by Medicare, you will be given an opportunity to purchase, for a monthly premium, Medicare Part D prescription drug coverage from a private insurance company. You should do so if at all possible, since to do so at a later time incurs significant financial penalties. Some companies offer only one plan; other companies have different plans at different costs which offer a either decreased or increased benefit options.
Most prescription drug plans offer 3 levels of coverage. The costs can vary considerably amongst the Medicare contracted companies and by plan selected.
These plans use formularies (preferred drug and price lists) and a tier system, usually 3 tiers, with an additional top tier for specialty drugs (advanced treatments for illnesses like cancer or MS) which are paid at a determined percentage of cost. It is important to compare coverage for your routine medications under several company plans, because some plan formularies can be quite limited.
Co-payments can also vary by plan and increase by each tier, and those in the highest tier can be quite costly. This is another important consideration or even challenge when doctors might like to try you on some of the newly released drugs. Bring your formulary book with you to appointments, so you can determine whether you can afford a particular medication.
There is cap on the money spent by yourself and your plan towards covered drugs—this amount can change (in 2009, the cap was $2700), at which point, you enter "coverage gap" (aka a "donut hole"). You will then have to pay approximately the next $3,000 out-of-pocket. After this threshold is reached, you will obtain comprehensive coverage. Some "premier" plans provide some coverage within the "donut hole."
Paying for Medicare
Under Original Medicare, in addition to the cost for a Medicare supplement policy, Social Security deducts money from your Social Security check as a payment for Part B. When you are first offered Medicare insurance, you are given an option whether or not to take Part B. Some people who are insured on another policy or feel they cannot afford the deduction will consider not accepting Part B. However, it must be considered that there will be a heavy dollar penalty which increases with each month, should the person later want or need Part B. The same is the case with Part D. There is a premium for Part D. If you do not take Part D when it is first offered, again there will be a serious penalty should you want it or need it in the future.