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Understanding your health insurance options is an important part of creating a financial plan. Medicare and Medicaid are two well-known health care coverages. However, many people do not know the specifics.
After reading this article, you will know if Medicare and Medicaid are right for you. You’ll learn about what Medicare is and the different aspects of Medicaid. The article talks about Medicare Part A, B, C, and D. It also discusses the no medicare wage base cap, the requirements for the different parts, and the different costs associated with it.
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No Medicare Wage Base Cap
For Medicare tax, there is no ceiling for earnings that are subjected to the hospital insurance portion (HI) of the social security tax. The HI tax is 1.45% for the employee and the employer, and 2.9% for self-employed taxpayers. Additional Medicare tax can be imposed if the taxpayer’s wages, other compensation, or self-employment income exceeds the threshold for the taxpayers’ filing status. In this case, they will be taxed at a tax rate of 0.9%.
The threshold is as follows:
- $250,000 for married filing jointly
- $125,000 for married filing separately
- $200,000 for single
- $200,000 for the head of household
- $200,000 for a qualifying widow with a dependent child.
The 0.9% tax is only paid by the employee, and not by the employer. The 0.9% tax is in addition to the 1.45% of the regular Medicare tax. The tax is applied to the amount of income that is above the threshold for the taxpayer’s filing status.
A planning tip is that S corporation earnings other than salaries are not considered self-employment income. Therefore, they would not be subjected to this tax. In some cases, it is also possible to decrease salaries to avoid a portion of the tax. However, the salary has to be reasonable. A shareholder in an S corporation may want to accumulate the fund's in the S corporation instead of personally in order to avoid the increased FICA tax.
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An Inside Look at Medicare
Medicare has four components to it. The first two are Part A that covers hospital care, skilled nursing care, hospice care, and home health care, and an optional Part B, which covers physicians’ fees and outpatient services.
Medicare coverage should be secondary to any health insurance coverage that individuals already have from their employer. Health plans from employers should be exhausted before any Medicare benefit would be paid.
Almost everyone that is age 65 and older is eligible for Part A of Medicare. People of any age with end-stage renal disease (ESRD) are also eligible for Medicare Part A. If a person is age 65 and receiving monthly Social Security or Railroad Retirement Benefits, that person is also automatically covered under Part A.
Individuals who are eligible for Medicare but are still working have to be given an option to participate in their employer's group insurance. People who have been receiving Social Security Disability Benefits for longer than 24 months are also eligible for Medicare.
Most people do not have to pay a monthly premium because they or their spouse have 40 or more quarters of Medicare-covered employment. However, for people that only have 30-39 quarters, they have to pay $240 (2019), and $437 (2019) for people with fewer than 30 quarters. Part B monthly premium is $135.5 (2019) but can be higher for those with annual incomes greater than $85,000.
People that are eligible for Part A coverage are automatically enrolled in Part B coverage. However, the individual may choose to opt-out of Part B if wanted.
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Part A Benefits
Medicare pays for hospital services for up to 90 days in each benefit period, which ends when the patient is out of the hospital for 60 days. A lifetime reserve of 60 additional days is also available for individuals that have exhausted the regular 90 days of benefit. In each period, the hospital expenses are paid in full for 60 days, subject to a deductible of $1,364 (2019). For days 61-90, the patient coinsurance is $341 per day (2019), and $682 (2019) for the patient lifetime reserve coinsurance.
Skilled nursing care benefits are also available for individuals that no longer require continuous hospital care. However, a physician has to certify that skilled nursing care or rehab is needed for a condition that was treated in the hospital for the past 30 days. The prior hospitalization must have lasted for at least three days. Medicare will pay benefits in full for the first 20 days of skilled nursing care, and $170.5 (2019) per day for days 21-100. Medicare is not provided after 100 days.
Custodial and long-term care coverage is not provided for Medicare and Medicare Part A should not be considered a substitute for long-term care insurance. Hospice benefits are also available for individuals that are certified as terminally ill with a life expectancy of six months or less. There is a limit of 210 days of hospice care unless the individual is recertified as terminally ill.
Part A will also pay for the cost of blood when furnished by a hospital or skilled nursing facility during a covered stay, the covered individual is responsible for the first three pints of blood per the calendar year.
Some services are not covered by Part A, such as:
- Services of physicians or surgeons
- Private rooms, televisions, or other luxuries
- Cosmetic surgery
- Custodial care
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Part B Benefits
Part B Medicare benefits have a $185 (2019) deductible that the insured has to pay. Of this deductible, 80% will be covered and 20% is the insured person’s responsibility.
Covered expenses include:
- Physicians’ services
- Home health services not requiring a hospital stay
- Diagnostic tests
- Medical equipment
- All outpatient services of a hospital
Part B pays 100% for x-rays and pathology services. Medicare Part B also covers a free annual visit, where the beneficiaries receive a personal prevention plan based on their health needs. However, it does not cover all benefits such as routine immunizations, cosmetic surgery (unless needed because of an accident), dental care, eyeglasses and hearing aids, orthopedic shoes and routine foot car.
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Medicare Part C: Medicare Advantages Plans
Medicare Advantage Plans are health plan options that are part of Medicare. It allows individuals to choose an alternative to Parts A and B. However, participants must pay the Part B premium.
Different plan types are available: Medicare health maintenance organizations (HMOs), Preferred provider organizations (PPOs), Private fee-for-service plans, and Medicare special needs plans.
Participants use an insurance card that is plan-provided. Usually, there are extra benefits and it lowers the coinsurance provisions compared to the original Medicare plan. Participants may have to see doctors that belong to the plan or go to certain hospitals while paying a monthly premium in addition to the Part B premium. Medigap policies do not pay any deductibles, co-payments, or other cost-sharing under the Medicare Advantage Plan.
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Medicare Part D: Prescription Drug Coverage
Part D provides protection for people who have drug costs that are extravagant. Part D covers both brand-name and generic prescription drugs at participating pharmacies. Everyone covered under Medicare is eligible for Part D coverage regardless of income, resources, health status, or current prescription expenses.
Individuals can obtain Part D in either two ways: Medicare prescription drug plan or Medicare advantage plan (Part C) or other Medicare Health Plans that have drug coverage. Individuals usually pay a monthly premium that varies from plan to plan, and a yearly deductible. They also have copayment or coinsurance.
Part D also has a coverage gap, individuals that reach a specified level of drug costs have to pay 100% of their drug expenses until their out-of-pocket expenses reach a specific amount. Costs vary depending on the drug plan chosen and the financial status of the individual. Some plans offer more coverage and additional drugs for a higher monthly premium. Individuals with limited resources may be able to qualify to receive the coverage without having to pay a premium or deductible.
Medigap policies are supplemental policies that are differentiated by letters with A being the most basic and inexpensive policy. Each has different benefits. Part A gets reimbursement for some of the insured’s hospitalization costs, while Part B gets reimbursement of the insured’s 20% share of expenses, all hospital expenses are covered for an additional 365 days, and free blood for the first three pints.
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An Inside Look at Medicaid
Medicaid is a federal and state medical insurance program for people in need. It is funded by both the federal and state governments but is administered by each state according to federal guidelines. Each state sets its own guidelines for eligibility and determines the health services that are covered.
Federal law requires that inpatient, outpatient, laboratory, x-ray, skilled nursing, and home health services be provided for people aged 21 and older. For children under 21, federal guidelines require that physicians’ services be provided. The Affordable Care Act of 2010 made a national Medicaid minimum eligibility level of 133% of income equal to the federal poverty level for nearly all Americans under age 65.
Medicaid assets and mandatory benefits:
- Checking and savings account
- Stocks and bonds
- Certificates of deposit
- Real property other than a primary residence
- Additional motor vehicles
Medicaid assets that generally do not count:
- Primary residence with some limitations
- Personal property and household belongings
- One motor vehicle
- Life insurance with a face value under $1,500
- Up to $1,500 in funds set aside for burial
- Assets held in specific trusts.
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