Medicare Terms: Terms You Should Know
Medicare can be confusing but understanding some basic terms can help it make sense. Here are some of the most common terms used in comparing Medicare options.
A copay is a flat fee you pay every time you visit a doctor or fill prescriptions. For example, if your doctor charges $100 for a visit and you have a $25 copay, you will pay $25 every time you see the doctor, and your insurance plan will pay the rest. Your copay is not affected by the amount of your deductible.
Some health insurance plans have a coinsurance amount, which is a percentage of a medical cost that you pay out-of-pocket. For example, if you have 20% coinsurance, and you need surgery costing @2000 and have already met your deductible, you will pay 20% of the cost, which is $400, and your insurance will pay the other 80%, which is $1600. Coinsurance amounts are subject to an out-of-pocket maximum. Once you hit this maximum amount, you will not pay any more out-of-pocket amounts for the year, regardless of the price of the medical care you need.
Coverage gap (donut hole)
The coverage gap, sometimes known as the donut hole, is a gap in prescription drug coverage you will encounter if you and your health insurance plan together spend more than a certain amount on prescription medications. That amount may change every year. If you get Extra Help paying your Medicare Part D (prescription coverage) costs, you will not enter the coverage gap or donut hole at any amount of prescription costs.
When you are in the donut hole, you will pay more for prescription medications than you did before you reached the coverage gap. Once you are in the donut hole, if you continue to spend on prescription drugs, you will exit the donut hole, and your out-of-pocket costs for prescription medications will decrease again. This is known as catastrophic coverage, and it is automatic.
A health insurance deductible is the amount you pay before your insurance starts paying. For example, if you have a $1000 deductible, and you need a $1000 MRI procedure and a $2000 surgery, you will pay $1000 out-of-pocket for the MRI, and then $0 for the surgery.
Deductibles usually don't apply to copays, so if you have a copay for a doctor visit you generally won’t have to pay more than the copay to see the doctor. The copay also won’t count toward meeting your deductible. If your doctor orders tests or medical devices, you may need to pay toward your deductible before the costs of those services will be covered.
Coinsurance amounts also usually don't apply to deductibles, so if you pay a coinsurance amount for a medical procedure, it will not count toward meeting your deductible.
A formulary is the list of prescription drugs covered by your health insurance plan. For Medicare, this is the medications covered by the Medicare Part D plan you select.
If your medication is not available on the formulary, you may be able to take a similar medication that does the same thing. You can also ask your healthcare provider to apply for a formulary exception to have the medication covered or pay full price for the medication rather than paying just your copay or coinsurance.
Medicare Supplement Insurance commonly known as Medigap, helps pay the 20% of your medical costs not covered by Medicare, including copays, coinsurance or deductibles.
Original Medicare refers to Medicare Part A and Medicare Part B. Medicare Part A covers hospital charges, while Medicare Part B covers outpatient medicine, like seeing a doctor or physical therapist.
For example, if you were to go to the doctor with an injury, Medicare Part A would pay for your doctor visit. If the doctor said you needed surgery, Medicare Part B would pay for your hospitalization before and after the surgery. If you received physical therapy for rehab after the surgery, Medicare Part A would pay for the physical therapy.
Original Medicare does not cover prescription medication, vision care or dental care. For those services, you may need Medicare Part C or Medicare Part D.
A premium is the monthly payment you make for your health insurance. For example, if your Medicare supplement premium is $200, you will pay $200 every month for your supplemental coverage, no matter how much you use it.