Many Americans think Medicare Part A will cover all of their healthcare costs; however, that's not the case. Medicare Part A, the traditional form of Medicare that is funded through payroll taxes, only covers costs associated with inpatient healthcare, skilled nursing, some home healthcare, and hospice.
Since paying for costly healthcare is one of the biggest risks to a financially secure retirement, knowing what you can expect to receive in health insurance coverage through Medicare Part A is critical to planning for your financial future.
Who gets Medicare Part A?
Medicare Part A was born in 1965 under XVIII of the Social Security Act, but while it was created under Social Security, the program is run by the Centers for Medicare and Medicaid Services, which are part of the Department of Health and Human Services.
People become eligible for Part A after they have paid into the system through payroll taxes for a required period of time. That payroll tax is currently 2.9% annually, and it's split between employees and employers. High income earners pay an additional 0.9% per year.
Typically, someone who pays payroll taxes for 10 years amasses enough credits to qualify to receive Medicare Part A.
Since 10 years is also the typical amount of time required to qualify for Social Security, people who qualify for Social Security, including those who qualify as a spouse, usually also qualify for Medicare Part A.
People with certain disabilities, or with specific diseases including Lou Gehrig's disease and end stage kidney failure, may also qualify for Medicare Part A coverage regardless of their age and work history.
Also, people who don't qualify for Medicare Part A can choose to pay as much as $407 per month to buy it.
By admission only
A visit to the doctor isn't going to be covered by Medicare Part A, however Medicare Part A will cover healthcare costs if you're admitted to a hospital for a period that includes at least "two midnights."
Once that two midnight threshold is met and the patient pays his or her deductible, Medicare Part A pays 100% of the expenses associated with the first 60 days in the hospital. In 2015, the deductible that a patient has to pay is $1,260 per benefit period.
After 60 days, patients pay $315 per day in co-insurance until day 90 and then $630 per each "lifetime reserve day" beyond 90 days. Overall, each Medicare Part A recipient has 60 lifetime reserve days. Once those 60 lifetime reserve days are paid, then Medicare Part A no longer pays anything.
Medicare Part A also pays for skilled nursing facilities, but it does so differently.
Once the two midnight threshold at a skilled nursing facility is reached and the deductible is paid, Medicare Part A picks up 100% of the costs for days one through 20. On days 20 through 100, patients will need to pay $157.50 per day in coinsurance. After 100 days, Medicare Part A doesn't pay anything toward skilled nursing.
Medicare Part A will also help pay for some home healthcare, but strict limitations and qualifications apply. Generally, Medicare Part A will pay for eligible nursing care, physical therapy, speech-language pathology services, and continued occupational services, but only if a patient is under the care of a doctor, is home bound, and needs only part-time care.
If a patient is terminally ill and opts out of receiving additional treatment for their illness, Medicare Part A will pay for related hospice care, with exceptions. Medicare Part A won't pay room and board for hospice care where you live, including in a nursing home, and patients may have to pay a 5% co-payment on prescriptions and respite care.
The fine print
One thing that every Medicare Part A recipient should realize is that Medicare part A pays for inpatient healthcare costs on a per benefit period basis.
That means a Medicare Part A recipient will be responsible for meeting their deductible for each separate hospital admission before Medicare Part A begins picking up the tab.
Each of these benefit periods begins when a patient meets the two midnight guideline and ends when a patient hasn't received inpatient care for 60 consecutive days. That means if you are readmitted within the 60 day window, Medicare Part A will continue paying inpatient expenses, however if you're admitted on day 61 or later, then you'll be on the hook for that deductible again.
Filling the gaps
Medicare Part A is a valuable program that provides peace-of-mind to millions of seniors, many of whom will require hospitalization at some point during their golden years.
However, Medicare Part A is far from comprehensive, and that means if retirees want the financial security offered by health insurance coverage that stretches beyond inpatient care covered by Medicare Part A, then they'll need to buy additional coverage. Retirees can purchase Medicare Part B, which covers outpatient costs, and Medicare Part D, which covers drug costs.
Retirees can also buy Medicare Part C plans, otherwise known as Medicare Advantage plans, that replace Medicare Part A coverage and include outpatient and drug coverage, too. Buying that additional coverage will cost you, but given the limitations of Part A, the additional financial protection offered by them could make paying for these plans money well spent.