The A, B, C, and D of Medicare, Chapter Two

April 23, 2018             About this Blog:  Click here

Chapter Two:  Parts  C  and  D

In our last post, we mentioned two parts to Medicare, called Part A and Part B.   If it seems complicated, you’re right – it is.

Well, it so happens that those aren’t the only letters!  There’s also Medicare Part C and Part D.  So, buckle up for an introduction.

Part A and Part B – recap:

 Medicare Part A and Part B, called “original” Medicare, were the only parts that Medicare had when it was created in 1965.  They pay for medically necessary doctor and hospital care, and some other medical care.

With Parts A and B, the government directly pays the medical providers roughly 80% of the bill.  The remaining part is paid to the doctors and hospitals — for most people — by a Medicare Supplemental insurance policy that you buy.  If you don’t have a policy, then you pay the remaining parts of the bills out of your pocket.

For more on Parts A and B, read our April 16 post.

Enter Part C

– the other kind of Medicare coverage:

A couple of decades later, Congress decided to create a second version which works in a very different way.  Instead of directly paying doctors and hospitals, the federal government, in version two (Part C), pays a monthly flat amount to an insurance company of your choice.

In effect, the government gives all of your Medicare money to the insurance company – in the ballpark of $800 or so a month.  You also pay a monthly premium to that company.

Then, the insurance company uses all that money to pay the doctor and hospital bills.  You likely still have to pay deductibles and co-pays, but an important point is there is an upper annual limit to what you could have to shell out.

This option was at first called “Medicare HMOs.”  Later on, in 2003, Congress decided to change the name to “Medicare Advantage.”   They also gave it an official technical name, which is Medicare Part C.

Never heard of Medicare Part C?  That’s because nobody except bureaucrats use that term.  Instead, you hear the term “Medicare Advantage insurance policies”, in all the advertising for this by the insurance companies.

There are big differences between the Medicare Supplement policies that work with Part A and B, and the Medicare Advantage policies that are actually Part C.  We’ll explain that in the future.

Part D is for Drugs

(easy to remember):

The last letter to deal with is Part D.  This is for prescription drugs, which you get from a pharmacy and take at home.  It was dreamed up and enacted by Congress in 2003, but it didn’t start getting implemented until 2006.

 The way that Part D works is very similar to Part C (aka Medicare Advantage), in this way:

The federal government does NOT pay any money to your pharmacy.  Instead, it pays a flat amount of money per month (ballpark of $120) to, you guessed it:  an insurance company.

And, similar to Medicare Advantage, the insurance company collects a monthly premium from you.  Then, with the money from the government’s payment plus your premium, it pays the pharmacy.

And, again in a similar way, your Part D Drug policy probably has a deductible and co-pays.

In fact, you can buy a Medicare Advantage policy and a Part D Drug policy all rolled into one if you want to.

But wait – there’s a twist!

When Congress created Part D, they also invented a new feature for these policies, which never existed before for any kind of insurance.   Basically, it is a second deductible in the middle of the year.  This second deductible quickly earned its own nickname:  the dreaded Donut Hole.

What the heck is the Donut Hole??

Most insurance policies for health, cars, and homes have an Annual Deductible.  That means, starting each January 1, the first specified amount of expense (such as $200, $500 or more) has to be paid by you, out of your own pocket.

Once you’ve paid out that much, then the insurance finally kicks in and pays the bills, although you may to handle some co-pays yourself.   That’s the way normal insurance works.

Part D, however, is not normal insurance Once you have satisfied the annual deductible, then the insurance kicks in, but ONLY up to a certain point.  When your total drug expense (including what you paid for the deductible) rises to a certain level, SURPRISE!  The insurance stops paying out anything more.

If you are unlucky enough to rack up very large expenses of several thousands of dollars in drug expenses in the year, then good news:  Lucky you – the insurance kicks in again.

Until of course, December 31…… and then come January you’re back to square one, with the “normal” annual deductible  — that is, the first of the two deductibles.  Weird, right?

For 2018, the Donut Hole starts when your total prescription drug expense hits $3,750. That’s when the insurance stops.  If your expenses  continue to climb as high as $5,000, then the Donut Hole ends, and your coverage kicks in again, until December 31.

Most people who enter the Donut Hole never get out of it by the end of the year. That means their drug coverage ended for the year when they first fell in the hole, even though they have to keep paying monthly premiums for the rest of the year.

 And, since drug prices keep climbing out of sight, each year more people fall into the Donut Hole, and they fall into it earlier in the year than before.

However, there is some relief while you’re in the Donut Hole, which we’ll describe later.

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