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5 Important Medicare Details You're Likely Overlooking

By Sean Williams - May 29, 2016 at 10:41AM

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From Medicare's shaky financial situation to what it covers, here's what you need to know.

Social Security may get all of the glory because it puts money into the pockets of more than 40 million seniors on a monthly basis, but Medicare, the program that's designed to help cover the eligible medical costs of seniors during their golden years, is arguably just as important. With life expectancies lengthening, and medical costs rising faster than the national rate of inflation, the importance of Medicare is only expected to grow.

However, Americans' understanding of Medicare is iffy at best. While surveys generally show that Americans like the program and support maintaining benefit payments for future generations, the finer details of Medicare can occasionally be overlooked.

Here are five examples of important details even you may be overlooking regarding Medicare.

1. Medicare may be in worse shape than Social Security

Arguably the biggest shock might be in realizing that Medicare, not Social Security, is in more immediate trouble.

Social Security's woes derive from two major demographic shifts. First, baby boomers are leaving the labor force in incredible numbers and entering retirement, which is weighing on the worker-to-beneficiary ratio. The second issue is that people are living longer lives, which means the Trust must make payments to seniors for a longer period of time than expected. Added together, the Social Security and Medicare Board of Trustees is forecasting that the Old-Age, Survivors and Disability Insurance Trust will exhaust its cash reserves by 2034.

However, this same Board of Trustees has an even grimmer outlook for the Hospital Insurance Trust in its 2015 report. According to the report, the HI Trust is forecast to burn through its remaining cash reserves by 2030. This cash outflow is a direct response to a rising number of beneficiaries (i.e., baby boomers turning 65), as well as high medical cost inflation. It's also a direct confirmation that we're receiving much more in Medicare lifetime benefits than we're paying into the system, based on data from Urban Institute.

Image source: Social Security and Medicare Board of Trustees report. 

2. But it's not going bankrupt

One aspect both Social Security and Medicare share is that in spite of the expectation that they're going to exhaust their cash reserves, neither program is going bankrupt. Lawmakers do have time to propose legislation to fix both programs, but cutting benefits is always a way to ensure their survival.

In the case of Medicare's Hospital Insurance Trust, the program is forecast to pay out full benefits through 2030, unless medical cost inflation really begins to skyrocket, in which case the cash exhaustion date could move forward. If Congress hasn't enacted some form of new payroll tax, benefit cut, or some combination of the two by 2030, Medicare's HI Trust would continue to operate, but it would essentially be budget-neutral, reimbursing hospitals and physicians based solely on the proportion of revenue generated from payroll taxes. This reduction in reimbursement rates could be bad news for seniors, as it may cause hospitals and physicians around the country to drop the widely accepted form of insurance. This is why it's important for Congress to act sooner rather than later, and for you to have enough saved come retirement that you don't have to count on the government to "bail you out."

3. Not all drugs are covered by Part D

Medicare itself isn't just one giant plan; it's comprised of multiple components, including Part A (hospital insurance), Part B (medical or outpatient insurance), Part D (prescription drug coverage), and Part F (an optional Medigap policy that helps fill in the gaps on how much you might owe for services rendered). All components of Medicare appear pretty straightforward, but in reality, not all drugs you're prescribed are necessarily going to fall under a Part D prescription plan.

Medicare Part B primarily covers outpatient services, such as doctor visits, but it can also cover prescription medicines delivered by durable medical equipment. For example, IV-based cancer medications that are administered in the confines of a hospital or clinic likely fall under Part B covered services -- and as such, if you don't have a Medigap policy in place, you could be responsible for roughly 20% of the cost of your injected medicines. Remember, with original Medicare, there are no out-of-pocket limits on a year-to-year basis. As injectable drug prices increase, especially cancer drugs, Medicare could find that Part B costs rise much faster than costs in other program components.

4. Wealthier individuals pay more for Medicare

There have been calls for decades for wealthier individuals to pay more into the Social Security system to prop it up, but no changes, with the exception of normal inflationary-based increases to the payroll tax earnings cap, have been made. The same isn't true for Medicare, where well-to-do persons could actually pay quite a lot more for their healthcare coverage compared to the middle-class American retiree. Yet, when the Kaiser Family Foundation asked respondents last year if they were aware that wealthier individuals pay more for their coverage, just 3 in 10 were.  

Image source: Flickr user Javier Parra.

For individual Medicare recipients in 2016 who've met 40 work credits throughout their lifetime, Part A premiums are $0. However, Part B premiums are as low as $104.90 for individuals who earn up to $85,000, but they move up from there. If you happen to earn more than $214,000 per year, your monthly premium for Part B is $389.80 in 2016, or almost quadruple that of someone earning less than $85,000 during the year. Premium surcharges are also in place for Medicare Part D plans for well-to-do individuals.

5. One in six Medicare beneficiaries aren't seniors

Lastly, while the program itself is dominated by retired enrollees, Medicare isn't used exclusively by people age 65 and up. Around a sixth of all Medicare beneficiaries aren't traditional retirees, but are instead long-term disabled persons, or people with end-stage renal disease who qualify for coverage under Medicare. Thus, it's a program that could directly affect you, or someone you care about, well before age 65.

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