Medicare's Four Parts, and the One Choice That's Hard to Undo

Quick answer: Part A pays for the hospital, Part B for the doctor, Part D for prescriptions. Part C, called Medicare Advantage, is a private plan that bundles them. Every fall, from October 15 to December 7, you can change plans, and a free, unbiased counselor through SHIP (1-877-839-2675) will sit down and compare them with you.

Sometime around the end of September, a thick envelope lands in the mailbox. It's called the Annual Notice of Change, and if you're in a Medicare Advantage or drug plan, your plan has to send it by September 30. Most people glance at it and put it on the pile.

About the same week, the television starts shouting. Celebrity pitchmen. A toll-free number. "Benefits you may be entitled to."

Skip the television. Keep the envelope. It's the most useful piece of Medicare mail you'll get all year, and it only makes sense once you know what the letters mean.

The four letters, in one sitting

Part A is hospital insurance. It covers you when you're formally admitted to a hospital, plus hospice, some home health care, and short stays in a skilled nursing facility after a qualifying hospital stay. If you or your spouse paid Medicare taxes for about ten years, you won't pay a monthly premium for it. You'll still owe a deductible when you're admitted.

Know this before you ever need it. If the hospital keeps you "under observation," you're technically an outpatient, even in a hospital bed. Observation days don't count toward the three-day inpatient stay Original Medicare requires before it'll cover a nursing facility. Ask the staff directly: "Am I admitted, or under observation?"

Part B is medical insurance. It covers doctor visits, outpatient care, lab work, preventive screenings and equipment like walkers or oxygen. Nearly everyone pays a monthly premium, and people with higher incomes pay more, based on the tax return they filed two years earlier. After a yearly deductible, you generally pay 20 percent of the approved cost. And in Original Medicare, that 20 percent has no ceiling.

That missing ceiling is the reason Parts C and D, and Medigap, exist.

Part D is prescription drug coverage, sold by private insurers and approved by Medicare. There's now a yearly cap on what you pay out of pocket for covered drugs. The amount is set each year, so check Medicare.gov for the current figure.

Part C, Medicare Advantage, is a private plan that replaces Parts A and B with one card. Most include drug coverage. Many add dental, vision or hearing benefits, and every one has an annual limit on your out-of-pocket costs. You still pay your Part B premium.

Parts A and B together are called Original Medicare. The government runs it. Everything else comes from private companies following Medicare's rules.

The fork in the road

Every Medicare decision comes down to one choice. You take one of two routes.

Route one: Original Medicare, plus a Medigap policy, plus a Part D plan. Medigap is supplemental insurance that picks up most of that open-ended 20 percent. The plans are standardized and labeled with letters, so a Plan G from one company covers the same things as a Plan G from another. Only the price differs.

• You can see any doctor or hospital in the country that accepts Medicare.
• You rarely need referrals or permission in advance.
• Your costs are predictable. Higher monthly premiums, fewer surprise bills.
• Several Medigap plans include some emergency coverage abroad, which Original Medicare alone doesn't.

Route two: Medicare Advantage.

• Often little or nothing in premium beyond Part B.
• Extras Original Medicare doesn't include.
• A hard cap on your yearly costs.
• But usually a network of doctors, plus prior authorization, meaning the plan has to approve certain care first. The network and benefits can change every January.

Plenty of sensible people choose Advantage. The woman who ran a hardware store for thirty years, stays put, likes her local health system and wants a firm cap on the numbers has a strong case for it. The couple who winter in Arizona and summer in Michigan usually do better with Original Medicare. So does anyone who wants a specialist at a major hospital two states away.

The part the ads leave out

In most states, the switch from Advantage back to Medigap isn't guaranteed.

You get a six-month Medigap Open Enrollment Period. It starts the month you're both 65 or older and enrolled in Part B. During those six months, any Medigap insurer has to sell you any policy it offers, at its standard rate, no matter your health.

After that window closes, most states let Medigap insurers ask health questions. They can charge you more or turn you down. So the grandfather who picks an Advantage plan at 65 for its low premium, then wants out at 76 after a heart diagnosis, may find the door shut.

There are exceptions. If you join Advantage when you first get Medicare and change your mind within 12 months, you generally have a "trial right" to buy Medigap without health questions. Some states offer broader protections. A SHIP counselor will know your state's rules.

Decide at 65 as if you might not get another clean chance. For many people, you won't.

Deadlines that cost money

• Your Initial Enrollment Period is the seven months around your 65th birthday: three months before, the month itself, and three months after.
• Miss Part B without a good reason, and you'll pay a penalty of 10 percent for each full 12-month period you went without it. That surcharge stays for as long as you have Part B.
• Still working with employer coverage? You may be able to delay Part B without penalty. It has to be coverage from current work, yours or your spouse's. COBRA and retiree coverage don't count, and that trips up a lot of people.
• Go 63 days or more without Part D or other creditable drug coverage after you're first eligible, and a lifetime Part D penalty kicks in.

If you're unsure, call Social Security at 1-800-772-1213 (TTY 1-800-325-0778) before any deadline passes, not after.

Your yearly checkup, every October

This takes about an hour, and it's worth it every single year.

1. Open the Annual Notice of Change. Look for new premiums, changes to the drug list (called the formulary) and doctors leaving the network.
2. Write down every prescription with its exact dose.
3. List the doctors and hospital you won't give up.
4. Enter both into the Plan Finder at Medicare.gov, or bring the list to a SHIP counselor.
5. Compare the total yearly cost, not the monthly premium. A zero-premium plan that charges heavily for your inhaler isn't a bargain.
6. Enroll by December 7. Your new plan starts January 1.

If you're already in Medicare Advantage and regret your choice, there's a second window from January 1 to March 31 to switch Advantage plans or return to Original Medicare, once.

Money tight? Extra Help, a federal program run through Social Security, lowers drug costs for people with limited income and savings. Your state's Medicare Savings Program may help pay the Part B premium. SHIP can walk you through both applications.

The free help, and the calls to ignore

SHIP stands for State Health Insurance Assistance Program. Every state has one. The counselors are trained, many are volunteers, and they don't earn commissions. They'll sit with you in person, often at a senior center or library, or talk it through by phone.

Call 1-877-839-2675 or visit shiphelp.org to find yours. Medicare itself answers at 1-800-MEDICARE (1-800-633-4227), any hour.

Brokers aren't villains, but they're paid by insurance companies and may only represent some of them. A SHIP counselor represents you.

And nobody from Medicare will call you out of the blue to sell you a plan or ask for your Medicare number. If someone does, hang up. Report it to 1-800-MEDICARE or at ReportFraud.ftc.gov.

When you go to your SHIP appointment, bring the envelope. Bring your pill bottles in a grocery bag, too. The counselor has seen that bag a thousand times, and knows exactly what to do with it.

This is general information, not medical, financial or legal advice. For help with your own Medicare choices, talk to a free SHIP counselor, and ask your doctor or pharmacist about your prescriptions.