Entering Medicare can be the start of a great and rewarding retirement. The program is designed to do that very thing: improve quality of life during retirement by making health insurance and health care more affordable. Although the basic program, Original Medicare, is very comprehensive, we all know that it suffers from some shortcomings. These shortcomings are manifested in two ways:

• Gaps in benefits (some services and procedures you want are not covered under Original Medicare)

• Gaps in coverage (Original Medicare doesn’t pay 100% of the cost for your care, so you’re expected to pay for some of the cost out of pocket)

Reducing or eliminating these gaps is a critical component of a sound retirement plan. This guide will dive into the basics of Medicare coverage, review the holes you’ll be facing, and summarize your options for closing these gaps. By the end of this guide, we will have reviewed all the Parts of Medicare and helped you get started making your own Medicare Insurance plan.

To make a wise choice about your overall Medicare coverage, you need to understand what the basic program covers. As you likely know, Medicare is split into two Parts:

• Part A – hospital insurance, which generally covers institutional care, like hospitalization

• Part B – medical insurance, which covers typically routine medical treatment like doctor’s and specialist visits

Remember here that there will likely be an interplay between Part A and B when you use Part A services. For example, if you’re admitted to the hospital due to an accident or health condition, your Medicare coverage will be at work in two ways:

• Your Part A range will cover your room and board and other institutional costs

• Your Part B coverage will cover your medical expenses during your stay. This includes visits from your attending physician, tests you might receive, physical therapy, and the like.

Between Parts A and B, Original Medicare provides comprehensive coverage for health care, including services and procedures like:

• Surgeries (inpatient and outpatient)

• Lab work and diagnostic testing

• Physician services, including primary care doctors, specialists, and therapists

• Durable Medicare Equipment like diabetes monitoring supplies and wheelchairs

• Cancer treatments like chemotherapy and radiation

Crafting your Medicare strategy around what Medicare doesn’t cover is essential. Some of the significant gaps in Original Medicare coverage include:

• Routine dental

• Routine vision and hearing

• Prescription drug coverage

• Emergency coverage outside the United States

These are some pretty severe misses; most people enjoy having dental coverage, and people who are Medicare age and above are very likely to have vision and hearing issues. Since Medicare doesn’t cover these services, you’ll need to pay cash or get private coverage to help with the cost.

We just reviewed some of the gaps in terms of what Medicare actually covers. Now we’ll review the spending gaps – what amounts are you expected to pay out of pocket?

There are several categories of costs you’re expected to pay, including:

• Monthly premiums

• Annual deductibles

• Ongoing co-insurance and co-payments

Most people qualify for premium-free Part A, assuming that they’ve worked long enough, or that their spouse has. Generally ten years of fulltime work will qualify you to receive premium-free Part A. If you don’t qualify based on work history or marriage, you can still sign up for Part A, but you will have to pay a monthly premium.

As for Part B, you’ll have to pay at least the standard Part B monthly premium when you enter Medicare. You don’t pay before that time. You’ll pay the standard Part B premium each month (it goes up slightly each year) for the rest of your life. If your income exceeds certain thresholds, you may have to pay more than the standard premium. On the other side of the coin, if you have very little income and you qualify for your state’s Medicaid program, you may not have to pay the Part B premium at all.

There are deductibles for both Part A and Part B. These deductibles for 2022 are:

• Part A Deductible – $1,556

• Part B Deductible – $233

The Part B deductible is on an annual basis; you only pay it once per year. The Part A deductible is based on “benefit periods” and you may have to pay it more than once during the year.

Once you’ve satisfied the Part A and B deductibles, you’ll then pay co-insurance or co-payments for care. Far and away the most common cost you’ll pay is Part B co-insurance. You’ll pay 20% of the cost for every Part B service or procedure you receive during the year.

The most important fact to understand about these costs is that there is no annual or lifetime cap to your spending. Your costs are theoretically unlimited.

The gaps in Medicare tend to make people uncomfortable, because they represent the possibility of uncontrolled out of pocket spending. Because of this, most people choose to use some kind of private Medicare plan. These plan options include:

• Standalone Part D Drug Plan

• Medicare Supplement Insurance

• Part C Medicare Advantage plan

You can combine coverage between a Part D drug plan and a Medicare Supplement plan, but you can’t combine a Medicare Advantage plan with a Supplement plan, or with a standalone drug plan (expect in very limited circumstances).

Since prescription drug costs are a huge component of medical expense as you age, closing this gap is very important. You have two ways to do this:

• A standalone drug plan, or

• A Medicare Advantage plan that includes drug coverage (MAPD)

You can’t combine these two coverages. You’ll need to choose between them. Most people who go with a standalone Pat D plan also elect to add Medicare Supplement coverage. Otherwise, they choose a Medicare Advantage plan that provides drug coverage.

With a Part D drug plan, you can expect to pay these kinds of costs:

• Monthly premium

• Annual deductible (many plans don’t have a deductible, especially MAPD plans)

• Per-prescription co-payments and co-insurance

Part D plans don’t cover every available medication, so it’s very important to make sure that any plan you’re considering will actually cover the medications you take.

Of the two main options for limiting your out of pocket costs for medical care (Medicare Advantage is the other one), Medicare Supplement Insurance has been around the longest. Ever since Original Medicare went live as a federal program, Medicare Supplement Insurance has been in existence.

Medicare Supplement, which is also known as Medigap, is an insurance coverage provided by private insurance companies designed to work with Original Medicare. Medigap is technically known as secondary coverage. That’s because Medigap pays second – after Original Medicare.

Medigap coverage is standardized – there are ten levels of coverage, all known by “Plan Letter.” The Plans available are: A, B, C, D, F, G, K, L, M, and N. There are high deductible versions of Plans F and G. Currently, the most popular plans are G and N. Plan F used to be the most popular plan, but it is no longer available to new Medicare Beneficiaries (those who became eligible for Medicare on or after January 1, 2020).

All of the various Medigap plans cover different mixtures of the gaps in Original Medicare. This allows you to choose a level of coverage that suits you based on your needs and budget. With either of the two most popular plans for newly-eligible people, Plans G and N, you can limit your out of pocket costs to just a few hundred dollars per year.

If you choose Medicare Supplement Insurance, you will also need to enroll in a standalone Part D Prescription Drug Plan. The Medigap plans that are currently available do not cover prescription drugs.

The other option available to close the gaps in the various Parts of Medicare is Medicare Advantage. The Medicare Advantage program – all of the rules, regulations, and benefits, is technically Part C of Medicare. So, it’s not a part of Original Medicare, which only refers to Parts A and B. Instead, Part C plans are an alternative way to receive your Part A and B benefits through a private insurance company.

When you’re only on Original Medicare, your doctors and other providers are paid by Medicare (through CMS, the Centers for Medicare and Medicaid Services). When you enroll in a Medicare Advantage plan, on the other hand, your providers are paid by your insurance plan. Medicare is no longer involved in claims paying.

It’s important to understand that Medicare Advantage plans are required by law to cover everything covered by Parts A and B of Original Medicare. The coverage is identical in terms of the services and procedures covered. The amounts you pay for those services and procedures can be different, though. Generally speaking, Medicare Advantage plan costs are similar to or lower than what you’d experience under Original Medicare. One of the most important upgrades over Original Medicare is that all Medicare Advantage plans have an annual Out Of Pocket Maximum (OOPM) cap. This prevents you from incurring overwhelming health care costs due to major illness.

Most Medicare Advantage plans are offered in one of two forms:

• Preferred Provider Organizations (PPO)

• Health Maintenance Organizations (HMO)

PPOs are the more open and flexible option. You have access to a network of providers; if you use these, you’ll save money. However, you’re free to see providers outside the plan network. HMOs are much more restrictive. You must stay in the network in order for the plan to cover your services and procedures, except in the case of emergency or urgent care.

For many people, the real draw to Part C is that these plans usually offer several valuable Extra Benefits. These are benefits that are not available from Original Medicare, or from Medicare Supplement Insurance. These extras can vary widely, but often include some of these:

• Prescription Drug coverage

• Vision coverage

• Hearing coverage

• Dental coverage

• Fitness benefits like free gym memberships

• Healthy living and food benefits like grocery gift cards

There are other extra benefits, too. The general point of them is to foster healthy living, with an aim to preventing serious illness.