How the Medicare Drug Price Reforms Are Reshaping Part D
Pretty much everyone in the U.S. has heard of Medicare, but many people don’t understand how it works. In addition to mix-ups over Medicare vs. Medicaid – two separate programs – there’s a lot of confusion over the different parts of Medicare. If you’ll be enrolling in Medicare soon, it’s important to learn about Parts A through D and what they’ll mean for you.
Key Takeaways
- Original Medicare (Parts A and B) covers hospital and medical costs, but leaves gaps for prescriptions and out-of-pocket expenses.
- Medicare Part D adds prescription drug coverage, sold separately through private insurers.
- Medicare Advantage (Part C) bundles Parts A, B, and usually D into one private plan, often with added benefits.
- Medigap works only with Original Medicare and cannot be paired with Medicare Advantage.
- Choosing between Original Medicare and Medicare Advantage is the biggest decision at enrollment.
What Is Medicare?
Medicare is a federal health insurance program. It provides health coverage for people age 65 and above as well as for some younger individuals who qualify for Medicare enrollment, based on disability or health conditions. In comparison, Medicaid is a joint federal-state program that provides coverage based on financial need. Some people qualify for both Medicare and Medicaid.
Although Medicare is a federal program, various health insurance companies sell private Medicare plans. To understand how the government program works with the private plan offerings, you need to know a little about the four parts of Medicare.
Who Is Eligible for Medicare, and When Can You Enroll?
Most people become eligible for Medicare at age 65. You can also qualify earlier if you have a qualifying disability or certain health conditions, such as end-stage renal disease. Your Initial Enrollment Period starts three months before the month you turn 65 and runs for seven months total, so it’s worth reviewing your options well before that window closes. Outside of initial enrollment, most people can only make changes during specific periods each year — so if your current plan changes at renewal, it’s important to know your next opportunity to switch. For the most current enrollment deadlines and rules, Medicare.gov is the best source to check.
The Four Parts of Medicare: A, B, C, and D
The four parts of Medicare have distinct coverage and costs.
The government-run program consists of Parts A and B. Combined, these two parts are often called Original Medicare or Traditional Medicare.
- Part A provides hospital insurance. It covers inpatient hospital care as well as a few other services, including hospice care and skilled nursing care. Most people qualify for premium-free Medicare Part A based on their work history, but there are out-of-pocket costs when you use your coverage.
- Part B provides medical insurance. It covers things like doctor’s visits and durable medical equipment. You have to pay a monthly premium, plus out-of-pocket costs when you use your coverage. If you can’t afford coverage, you may qualify for financial assistance through the Medicare Savings Programs.
Private health insurers sell Parts C and D in accordance with Medicare regulations.
- Part D provides prescription drug coverage. Since Original Medicare (Parts A and B) does not cover most prescriptions, it’s important to buy a prescription plan. You have to pay a monthly premium plus out-of-pocket costs when you use your coverage, so it’s worth taking the time to compare Medicare Part D plans in your area. Part D costs and rules have also shifted recently — see how drug price reforms affect Part D coverage.
- Part C is more commonly known as Medicare Advantage. It’s a private option that bundles Medicare Parts A, B, and (usually) D into one plan. If you choose Medicare Advantage, you will still have to pay your Medicare Part B premium plus any premium associated with the Medicare Advantage plan, although this may be as low as $0 and some plans even offer a giveback benefit that reduces the Medicare Part B premium.
What About Medigap (Medicare Supplement Insurance)?
You may have noticed that the four parts of Medicare leave something out: Medigap. Also called Medicare Supplement Insurance, Medigap plans are supplemental policies designed to work with Original Medicare. In exchange for a monthly premium, you receive coverage for many out-of-pocket costs. This makes your health-related expenses more predictable while also protecting you from catastrophic expenses if you suffer a serious health event.
Although both Medigap and Medicare Advantage are private plans offered by various insurance companies, they are NOT the same and do NOT work together.
Medigap supplements Original Medicare, while Medicare Advantage replaces it. Medigap does not provide prescription coverage (some plans used to, but they no longer exist), while Medicare Advantage plans usually do. This means that if you choose Medigap, you’ll also need to secure a prescription drug plan.
Original Medicare vs. Medicare Advantage: Understanding Your Options
To summarize, you have two basic options.
- Option One: Original Medicare. If you need prescription drug coverage, you’ll need to buy a Medicare Part D plan. If you want to control your out-of-pocket expenses, you can also buy a Medigap plan.
- Option Two: Medicare Advantage. This option bundles your coverage, meaning you won’t need another Medicare plan. Just make sure you enroll in a Medicare Advantage Prescription Drug plan if you need prescription coverage.
People like Medicare Advantage because it is often a simple and affordable option, with many plans providing additional benefits. One downside, though, is that plans often have provider networks and may require prior authorization for care.
One more thing: not all Medicare Advantage, Medicare Part D, or Medigap plans are the same. Most beneficiaries have access to several, if not dozens of Medicare Advantage and Medicare Part D plans in their area. In addition, Medigap plans have different levels of coverage and costs. In Heffernan’s experience, the Original vs. Advantage decision usually comes down to keeping current doctors/network vs. cost.
Not Sure Which Medicare Option Fits Your Situation?
Original Medicare, Medicare Advantage, Part D, and Medigap all work differently — picking the wrong combination can mean paying for coverage you don’t need or missing coverage you do. Heffernan’s Medicare advisors help you choose with confidence, not guesswork.
