Medicaid, Medicare, and Medigap — A 5-Minute Crash Course

Are you overwhelmed?

If you’re nearing that lovely age of 65, you’re probably getting hounded with information.

It can all be confusing, especially when some of the information you’re getting may not even be accurate.

Grab your favorite drink, a snack, and a cozy blanket, because we’re about to get comfortable.

In the next 5 minutes, we’re going to give you a crash course on Medicaid, Medicare, and Medigap — everything from what they are to what you should do about it.


Medicaid

Medicaid and Medicare — they sound so alike, but they are completely different forms of health coverage. Simply put, Medicaid is health coverage for people with very low incomes. Medicare is health coverage for anyone that is 65 or older. It’s possible that you could be eligible for both (also called “dual eligible”) but only if you meet the requirements for both.

We’ll get into the details of Medicare in a minute, but here’s a comparison chart to help bring it all together for now.

Medicaid Medicare
State and federal health program Federal health program
For those with very low incomes For those that are 65+ and/or severely disabled
Patients pay nothing except for a small-copayment on rare occasions Patients pay deductibles and monthly premiums
Varies from state to state No variation between states

To find out if you qualify for Medicaid, visit the HealthCare.gov website here.


Medicare

Medicare is publicly-funded medical insurance. There’s three “branches” of Medicare — Part A, Part B, and Part D. What about C, you might ask? Great question, and hang tight, because we’ll get there.

Medicare Parts A, B, D

If you’ve worked for at least 10 years, you’ve been paying for Medicare benefits through your taxes. When you reach the age of 65, you’ve “aged into Medicare,” meaning that it’s time to take advantage of this health coverage.

Part A

Part A is the coverage that’s completely free to you. It covers the majority of inpatient charges (charges that happen in the hospital). You’re still responsible for additional costs like the deductibles and coinsurance (generally about 20%).

Medicare Part A

That sounds pretty thorough, but that Part A coverage will not cover everything life will throw your way. Let’s take a look at how Part B fits into the puzzle.

Part B

Part B is outpatient charges. It covers “medically necessary services” and “preventative services.”1 With Part B, you pay a set monthly premium, and you’re also still responsible additional costs like the deductible (which is $183 as of 2017) and the coinsurance (generally about 20%).

Medicare Part B

You might have noticed that Part B can cover some prescription drugs, but definitely not all. That’s where Part D fits in.

Part D

Part D, also called a “Prescription Drug Plan” or “PDP” for short, helps cover pharmacy charges. This plan also has a monthly premium (which varies between carriers) and other additional costs like deductibles and coinsurance.

Medicare Part D

So, here’s what we have so far:

  • Medicare Part A covers inpatient charges.
  • Medicare Part B covers outpatient charges.
  • Medicare Part D covers pharmacy charges.

And here’s what the costs look like for these pieces of the Medicare puzzle:

  • Part A is free if you’ve worked for 10 years.
  • Part B is on a sliding scale based on income. Most people will pay $134/month (as of 2017). You can see the full chart here.
  • Part D varies based on a variety of factors:
    • The insurance provider
    • The drugs you need
    • The pharmacy you choose

We can help you determine the exact annual costs for a Part D plan when the time comes.

What about Part C?

Filling in the missing letter is Medicare Part C, which is also known as “Medicare Advantage” or “MA” for short.

This is an alternative option to Medicare A & B that can provide additional benefits for an often lower premium.

The catch is that your coverage is limited to certain hospitals and doctors, and the deductibles and co-pays are high. You can learn more about the pros and cons of Part C here.


Medigap

You may have noticed that both Part A and B require you to cover some portions out of your own pocket. Here’s a breakdown of those additional costs you’ll be responsible for:

  • Premium: what you pay each month (probably $134)
  • Deductible: what you pay before the insurance company does (probably $183)
  • Copayments: what you pay for a service regardless of what the deductible is
  • Coinsurance: the percentage of the service the insurance company doesn’t cover (around 20%)
  • Out of Pocket Maximum: how much you will pay out of your pocket each year in an absolute worst-case-scenario situation

While Medicare can really help bring down your health costs, you can see there’s still a lot that you’re responsible for (and you may not have it ready when the time comes). What do you do?

Medicare Supplements help to fill the gap between what Medicare covers and what you’re responsible to pay out of your pocket. That’s why Medicare Supplements are also called “Medigap.”

Let’s look at an example scenario of how Medigap can be a life-saver.

Let's say you need to visit a doctor, for a regular checkup visit. The doctor charges $150 for this service.

Under Medicare, the doctor bills $150. Medicare negotiates it down to $75, cutting it in half. You don’t have a copay. Medicare then determines you have a $150 deductible, and removes the $75 from that, leaving $75 for the year. You then receive a bill for the remaining $75.

Not so bad yet, right?

Two months later, you go in for a series of tests, x-rays, and eventually outpatient surgery. This is expensive, but it doesn’t require you to be hospitalized. The doctor charges $4000 for this.

Under Medicare, the doctor bills the $4000. Medicare negotiates it down to $2700, reducing it by $1300. Again, there’s no copay. Medicare then determines you have met the deductible, and the remaining $75 is removed. They then pay 80% of the remaining $2625, or $2100. You then receive a bill for $600, which is the $75 deductible, plus the 20% of $525.

You’re still doing OK. That’s doable.

Then, several months later, you have a major surgery. It requires three weeks in the hospital, and is very expensive, costing $100,000.

Under Medicare, the doctor bills $100,000. Medicare negotiates it down to $72,000, cutting off $28,000. It then pays 80%, since you have no copay, and met your deductible, or $57,600. You receive a bill for $14,400.

Are you able to fork over that kind of money for an unpredictable event like major surgery? Most people can’t, and no one wants to. That’s why Medigap (again, this is the same thing as Medicare Supplements) are recommended to everyone who is aging into Medicare.

Medigap covers those extra costs for you, and it can be added onto your current Medicare plan. However, you should be aware that if you have a Part C (Medicare Advantage) plan, you cannot add a Medicare Supplement.

If you’re interested in finding out exactly what it would cost you to add Medigap insurance to your current Medicare plan, let us know, and we will run a free quote for you.

Free Worksheet

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Posted on April 21, 2017

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