Understanding Medicare and Federal Health Plans

What Medicare Is and How It Works

Medicare is a federal health insurance program run by the Centers for Medicare & Medicaid Services (CMS), a division of the Department of Health and Human Services. It was created in 1965 and currently serves more than 67 million people in the United States. Unlike private insurance, which is offered by companies seeking profit, Medicare is a government-run program funded through payroll taxes, general revenue, and premiums paid by beneficiaries.

The program operates through four main parts, each covering different types of care. Part A covers inpatient hospital stays, skilled nursing facility care, hospice, and home health services. Part B covers outpatient services like doctor visits, preventive care, medical equipment, and certain procedures. Part D covers prescription drugs. Part C, also called Medicare Advantage, is an alternative way to receive Parts A and B coverage through private insurance companies approved by Medicare.

Medicare works on a calendar year basis, running from January 1 through December 31. During certain times of year, people can make changes to their coverage or switch between plans. These enrollment periods have specific dates and rules that determine when changes can be made. Understanding these timing windows is important because missing them may mean waiting until the next year to make changes.

The program uses a cost-sharing model, meaning beneficiaries pay part of their healthcare costs through deductibles, copayments, and coinsurance. A deductible is an amount a person must pay before Medicare starts paying its share. A copayment is a fixed dollar amount paid for a specific service. Coinsurance is a percentage of the cost that the person pays after the deductible is met.

Practical takeaway: Medicare has multiple parts serving different purposes. Learning which part covers which services helps you understand what costs you might face and what your coverage includes. The program is structured around calendar years and enrollment periods, so knowing these timeframes helps you make informed decisions about your coverage.

Medicare Parts and Coverage Details

Medicare Part A covers hospital insurance and includes inpatient hospital care, skilled nursing facilities, home health services, and hospice care. For inpatient hospital stays, a beneficiary pays a deductible of $1,632 for the first 60 days in 2024, then coinsurance amounts for additional days. The program considers each benefit period separately, which begins the day you enter the hospital and ends 60 days after you leave without returning.

Skilled nursing facility care is covered when it follows a hospital stay of at least three days. Medicare covers up to 100 days per benefit period, with the patient paying nothing for the first 20 days and coinsurance of $408 per day for days 21 through 100 in 2024. Home health services are covered when ordered by a doctor and include nursing care, therapy services, and medical equipment. There is no deductible for home health services, though some equipment may require a 20 percent coinsurance payment.

Medicare Part B covers medical insurance and includes doctor services, outpatient care, medical equipment, and preventive services. It has an annual deductible of $240 in 2024, after which Medicare typically pays 80 percent of approved charges while the beneficiary pays 20 percent. Part B covers services like office visits, laboratory tests, X-rays, surgeries performed in outpatient settings, and cancer screenings.

Preventive services under Part B include annual wellness visits, mammograms, colonoscopies, diabetes screenings, cardiovascular disease screenings, and other age-appropriate screenings. These preventive services are covered at no cost when provided by a network provider. Part B also covers durable medical equipment like wheelchairs, oxygen equipment, and dialysis machines, with a 20 percent coinsurance after the deductible.

Medicare Part D covers prescription medications through private insurance plans approved by Medicare. Each plan has its own formulary, which is a list of covered drugs. Part D includes a deductible (up to $545 in 2024), cost-sharing during the initial coverage period, and additional protections called catastrophic coverage that begin after a beneficiary reaches a certain out-of-pocket spending threshold.

Practical takeaway: Different Medicare parts cover different services with different cost structures. Understanding which part covers your specific healthcare needs helps you predict your out-of-pocket costs and make decisions about supplemental coverage that might help manage expenses.

Medicare Advantage and Supplemental Coverage Options

Medicare Advantage, also called Part C, is an alternative way to receive Medicare coverage. Instead of getting Part A and Part B through the traditional Medicare program, beneficiaries can choose a private insurance company approved by Medicare to provide these services. The private plan must cover everything that original Medicare covers, but plans can offer additional services like dental, vision, hearing, or fitness programs. Approximately 50 percent of Medicare beneficiaries are now enrolled in Medicare Advantage plans, according to CMS data.

Medicare Advantage plans typically have network requirements, meaning beneficiaries must use doctors and hospitals within the plan's network to receive coverage. Some plans are Health Maintenance Organizations (HMOs), which generally have more restrictive networks, while others are Preferred Provider Organizations (PPOs), which offer more flexibility in choosing providers outside the network at higher out-of-pocket costs. Medicare Advantage plans often have lower or no monthly premiums compared to original Medicare with supplemental coverage, but they may have higher deductibles and copayments for individual services.

Medigap, also called supplemental insurance, is coverage purchased from private insurance companies to help pay the costs that original Medicare does not cover. There are different standardized Medigap plans labeled with letters (Plan A, B, D, G, K, L, M, and N). Plan G is currently the most popular option for new enrollees. Each lettered plan offers the same benefits regardless of which insurance company sells it, though premiums vary by company and location.

Medigap plans cover costs like the Part B deductible, coinsurance percentages, and copayments. Some plans also include coverage for foreign travel emergencies and skilled nursing facility coinsurance. Medigap does not cover prescription drugs, long-term care, dental, vision, or hearing services. If someone has original Medicare and wants to add Medigap, they must apply to a private insurance company directly and pay a monthly premium in addition to their Medicare premiums.

The choice between Medicare Advantage and original Medicare with Medigap depends on individual circumstances. Medicare Advantage may cost less upfront but has network restrictions. Original Medicare with Medigap offers more provider choice but requires paying both Medicare premiums and supplemental premiums. Someone might choose Medicare Advantage if they prefer lower premiums and are comfortable with network restrictions, or they might choose original Medicare with Medigap if they have established relationships with specific providers outside a network area.

Practical takeaway: Medicare Advantage and supplemental coverage represent different approaches to managing healthcare costs and provider choice. Learning the differences between network-based private plans and traditional Medicare with gap coverage helps you understand which approach might fit your healthcare needs and financial situation.

Federal Health Plans and the Federal Employees Health Benefits Program

The Federal Employees Health Benefits (FEHB) program is a health insurance program available to current federal employees, retired federal employees, and their families. The program includes over 200 health plans offered by private insurance companies, nonprofit organizations, and health maintenance organizations. Approximately 9 million people are covered under FEHB plans. Federal employees have the opportunity to choose from multiple plan options during annual enrollment periods.

FEHB plans vary significantly in their structure, coverage, and costs. Some plans use a preferred provider network model, others use HMO structures, and some operate on a point-of-service basis that allows more flexibility. Each plan has its own deductible, copayments, coinsurance, and out-of-pocket maximums. The government typically pays a portion of the premium (about 72-75 percent on average), and employees pay the remainder through payroll deductions.

Federal employees become Medicare-eligible at age 65, but their FEHB coverage does not automatically change. Federal retirees who are covered by FEHB can continue their FEHB coverage while also enrolling in Medicare. When both FEHB and Medicare are in place, they work together with FEHB as the primary payer and Medicare as the secondary payer, or in some cases, Medicare may be primary depending on the circumstances. This coordination means that both plans share the costs of care.

Federal employees who retire before