Original Medicare
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.
Unlike a Managed Care system or HMO, an individual can choose any doctor or specialist that they wish to see — there is no need to choose an in-plan doctor. Nor is a referral needed for specialists. In many cases, an individual can simply make an appointment; in other cases they may simply need their 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.
Part A, covering hospitalizations, is automatically covered under Original Medicare. Part B, covering doctor’s visits and outpatient services is offered as an option, and is paid for through a deduction from Social Security benefit payments. Some people who are insured on another policy or feel they cannot afford the deduction will consider not accepting Part B when it is initially offered. However, there is a penalty for late enrolment (currently 10% of the monthly premium for each year of the delay) should the person later want or need Part B. The same is the case with Part D.
Medicare Supplement Policies
Part A and Part B cover only 80% of covered medical costs. To meet any extra costs, private insurance companies offer what are generically called Medicare supplement policies. For a monthly or yearly premium, these policies cover the 20% gap, as well as deductibles, and may offer some extra services as well. To be effectively covered, one should, if possible, buy a Medicare supplement policy: most medical procedures and visits will be covered under Medicare Parts A and B, plus a Medicare supplement policy. Note that institutional nursing home care, except for skilled nursing care, is not covered.
Prescription Drug Coverage—Part D
When an individual is accepted by Medicare, they will be given an opportunity to purchase, for a monthly premium, Medicare Part D prescription drug coverage from a private insurance company. This is highly recommended, since there is a penalty for late enrolment, as with Part B. Some companies offer only one plan; other companies have different plans with varying levels of benefits.
The costs can vary considerably by company and by plan.
Each Medicare Part D plan has a list of covered drugs, called a formulary and a tier system. There are usually three 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 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. Bringing the formulary book to medical appointments can help determine the affordability of new medications.
There is an annual cap on the money spent on covered drugs by the individual and the plan—this amount can change (in 2024, the cap was $5030.) Above this cap is the “coverage gap” (a.k.a. the “donut hole.”) The individual will then have to pay approximately the next $3,000 out-of-pocket. Comprehensive coverage is provided after this next threshold is reached. Some “premier” plans provide some coverage within the “donut hole.”
Medicare Savings Programs
Many states offer programs to residents with limited incomes that can lower Medicare premiums and prescription costs. In Massachusetts these programs are offered by MassHealth, although applicants do not need to be on MassHealth to qualify. Individuals must have income below a certain limit, but unlike other states and other programs, Massachusetts MSPs do not have an asset limit, meaning that home ownership and savings are not considered.