When it comes to entitlement programs, Social Security tends to hog all of the glory, as beneficiaries see the tangible benefits of the program on a monthly basis in the form of a payment. But don’t discount the importance of government-sponsored Medicare, even if you may not see benefits from the program every month.
Medicare, which has been in place for more than 50 years now, is designed to help protect American seniors’ physical and financial health during their golden years by ensuring they have access to medical care when they need it.
16 things you probably don’t know about Medicare
But the truth is that many seniors, and even pre-retirees for that matter, don’t have a very good understanding of the Medicare program. With that in mind, here’s a list of 16 important things you should know about Medicare.
1. Medicare isn’t just for seniors
First and foremost, Medicare isn’t designed solely for seniors. The disabled, as well as patients with end-stage renal disease (ESRD), qualify for Medicare coverage. Back in 2007, based on AARP data, about a sixth of Medicare beneficiaries were disabled, while another 0.5% of Medicare members were covered for having ESRD.
2. Seniors are enrolling at an incredible pace
That said, make no mistake about it — this program is primarily here for our nation’s growing population of seniors. With roughly 48 million current beneficiaries, the program is expected to grow to an estimated 79 million beneficiaries by 2030. With every day that passes, roughly 10,000 seniors becomes eligible for Medicare.
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3. When you can enroll
Perhaps the greatest mystery of all is when eligible consumers can enroll. For original Medicare, the enrollment period runs from Oct. 15 to Dec. 7. Thankfully, these dates have stayed the same since 2011, and they’re likely to remain the same for the foreseeable future.
Additionally, there’s a special period between Jan. 1 to Feb. 14 each year that allows enrollees in Medicare Advantage plans (we’ll get to what these are in a moment) to switch back to original Medicare. However, the opposite — switching from original Medicare to a Medicare Advantage — is not allowed during this time period.
4. What each part covers
You may also be wondering what the sum of Medicare’s parts actually covers. Part A, also known as hospital insurance, covers inpatient hospital stays, hospice, and skilled-nursing facility stays. Part B, which is known as medical insurance, covers outpatient services, such as preventative care, laboratory tests, ambulance services, medical equipment, and necessary doctor services. Part D helps to cover the cost of eligible prescription drugs for seniors. Part C is the fancy name given for Medicare Advantage plans. We’ll have more to say about Medicare Advantage plans further down this list.
5. How much Medicare pays
Part A and Part B, which cover basic medical services, will pay 80% of your eligible medical expenses after you’ve paid your deductible. This means you’re responsible for paying the remaining 20% — and it should be noted that there is no annual out-of-pocket limit on expenses when it comes to Medicare. Also be aware that some services will cost you extra, while others might not be covered at all. You can check Medicare.gov to find out whether a particular service is covered.
As for Part D, the amount Medicare will cover depends on your plan and the prescriptions you purchase.
6. Part A may require a premium
Part A, the hospital insurance portion of Medicare, rarely requires consumers to pay a premium. However, beneficiaries who don’t have enough work credits over their lifetime may have to pay.
In order to enjoy Part A benefits without paying a premium, beneficiaries must have at least 40 work credits (the same number required to receive Social Security retirement benefits). Workers can earn a maximum of four credits per year, with one credit in 2016 equating to $1,260 in earned income. In simpler terms, if you make well beyond $5,000 per year for 10 consecutive years, then you’ll qualify for free Part A when you become eligible for Medicare. Beneficiaries with 30 to 39 work credits pay $226 per month for Part A coverage, while those with less than 30 lifetime work credits pay the maximum $411 per month for Part A in 2016.
7. If you buy this, you have to buy that
Medicare has some funny intricacies you’ll need to be aware of, and choosing what you buy and what you don’t buy is one of those quirks. For example, you can enroll in Part B for medical insurance and not enroll in Part A for hospital insurance. However, if you enroll in Part A for hospital insurance, you must enroll in Part B for medical insurance. Yet to get Part D you only have to be enrolled in Part A or Part B.
8. Part B covers more than you think
Known traditionally as medical/outpatient insurance, Medicare Part B actually covers more than you’d think. In 2013, Part B paid out $20.9 billion to cover drugs (mostly of the injectable type) administered by physicians within the office setting. Part D will still cover the vast majority of your prescription drugs, but in-office drug administration just might be covered by Part B.
9. The wealthy will pay more
If you make a lot of money, you’re liable to pay more for Medicare. To be clear, while Part A has no premium for the vast majority of people, Part B does come with an attached premium — and if you make too much in annual income, you’ll pay an additional surcharge.
For 2016, the standard Part B premium for individuals with incomes below $85,000, and joint-filers with incomes below $170,000, is $121.80. However, for single filers earning between $85,000 and $107,000, the surcharge jumps to $48.70 per month; those earning between $107,000 and $160,000 pay another $121.80 per month; and those earning $160,000 to $214,000 pay a surcharge of $194.90 per month; and any income above $214,000 would increase the surcharge to $268 per month. Similar (though much lower) surcharges exist for Part D plans.
10. Wait on Part D and it’ll cost you — forever
If you’re thinking about cutting costs and holding off on purchasing Part D coverage, keep in mind that this could have some lifelong consequences. For every month you delay enrollment, you’ll incur a penalty when you eventually purchase Part D — and you’ll pay that penalty each month for the rest of your life.
11. Skilled-nursing facility stays can be costly
Should you need to stay in a skilled-nursing facility following a qualified inpatient hospital stay of three or more days, you’ll want to be aware of just how costly it could be if you need extended skilled-nursing care.
Assuming you qualify for skilled-nursing facility care in the first place, the first 20 days are covered by Medicare Part A at no cost to you. Each additional day up until the 100th day (days 21-100) requires a $161 coinsurance charge. Beyond that, all costs fall back onto the patient.
Additionally, should you refuse skilled-nursing facility care or therapy, you could lose your skilled-nursing facility coverage.
12. Medicare doesn’t cover all services
It’s important to note that while Medicare is designed to be there for seniors during their golden years, it can’t do everything. In fact, Medicare does not cover preventive vision, dental, or hearing services. Seniors who need some or all of these services will need to enroll outside Medicare to obtain coverage.
13. Medicare won’t work out of country
Thinking of taking a trip to Europe or Asia? Finally ready to embark on that African Safari you’ve always dreamed of? Keep in mind that as soon as you leave the confines of the United States, Medicare ceases to cover your medical needs. If you’re planning to vacation or leave the country for any extended period of time, then you might want to consider a supplemental health insurance plan from a private insurer.
14. Options exist beyond Medicare
Original Medicare is, in a sense, a one-size-fits-all package. There is no competition. Consumers simply choose whether to enroll in Part A and Part B or not. However, an alternative option does exist: Medicare Part C, or Medicare Advantage.
Medicare Advantage plans are run by private insurers, which means the consumer has more choices available to find the plan that best suits their needs. Medicare Advantage plans also roll Part A, Part B, and Part D into one plan, often with options for adding vision, dental, and/or hearing coverage. Furthermore, Medicare Advantage plans have annual out-of-pocket limits on Part A and Part B expenses of $6,700 as of 2016.
There can be disadvantages with these plans, too. Doctor networks tend to be smaller and more prone to change with Medicare Advantage plans, and out-of-pocket costs can sometimes be higher for certain services. There’s also no limit on out-of-pocket expenses for prescription drugs.
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15. You’re getting way more than you’re paying for (on average)
In general, you’re probably making out like a bandit in terms of how much you’ll pay into the Medicare program over your lifetime versus how much you’ll receive in benefits.
Among single Medicare beneficiaries who turned 65 years old in 2010 and earned an average of $44,600 per year (in 2012 dollars), the average contribution is $61,000 over their lifetime, according to the Urban Institute. On average, though, Medicare will provide single males with $180,000 in lifetime benefits, and single females with $207,000 in lifetime benefits (as women have longer average life expectancies than men). This gap between benefits paid versus benefits received is only expected to grow as time passes.
16. Medicare is in trouble
Last, but not least, Medicare is in hot water. All eyes might be on the Social Security program’s anticipated cash reserve exhaustion by 2035, but the Medicare Hospital Insurance Trust is slated to burn through its remaining cash reserves by 2030. Baby boomers are retiring en masse, our population is living longer than ever, medications and procedures are rapidly growing more expensive, and the aforementioned pay-versus-benefits gap is widening. These are all reasons why the HI Trust could be in trouble.
Update: This story has been updated to clarify how much of medical expenses Medicare pays.