Understanding Medicare can be tricky, and a lot of it comes down to language – there are so many terms and definitions to know! But it doesn’t need to be complicated. If you’re about to enroll in Medicare or just need a quick refresher, here are some of the most commonly used Medicare terms, what they mean and why understanding them can help you choose the right plan or get the most out of your current plan.
Helpful Medicare terminology made simple
Deductibles, coverage gaps, drug formularies – there are a lot of terms to juggle. Some may seem self-explanatory, and some are a little murky, but knowing them can help you become a better consumer. It’s easier to know what you need when you know what things mean, right? Let’s get started.
Annual Election Period (AEP)
Medicare’s Annual Election Period (AEP) is the time of year during which current Medicare members can re-evaluate and switch their Medicare plans.
Also known as the Medicare Annual Enrollment Period, this enrollment window runs from Oct. 15 through Dec. 7 each year. During this time frame, a Medicare enrollee can:
- Switch to a different Medicare Advantage plan
- Move from Original Medicare to a Medicare Advantage plan (or vice versa)
- Join or drop a Medicare Part D prescription drug plan
- Switch to another Part D plan
During the AEP, any changes you make to your coverage will become effective on Jan. 1.
Annual Notice of Changes (ANOC)
The Annual Notice of Changes (ANOC) is a notice you receive from your Medicare Advantage or Part D plan that details any changes in your plan’s coverage and costs.
Typically, Medicare enrollees will receive their ANOC, either by mail, email or however else a plan chooses to make this information available, in September. Any changes to a plan will be effective Jan. 1 of the upcoming year. Once you receive your ANOC, you can review it to determine whether your plan is still meeting your health care and financial needs. After reviewing your ANOC, you can make changes to your coverage or switch between plans during the Annual Enrollment Period.
The benefit period is a specific span of time that Medicare and your plan uses to measure your use of hospital and skilled nursing facility (SNF) services.
The cost of a hospital stay or a visit to an SNF is often applied per benefit period. Your benefit period begins the day you’re admitted to an inpatient hospital or SNF. It ends when you haven’t received inpatient hospital care or care in an SNF for 60 days in a row.
Coinsurance is the percentage you pay out of pocket for the cost of a health care service after your Medicare plan has contributed.
Depending on your plan, you may have to pay a coinsurance after you’ve reached your deductible. This amount is typically laid out when you enroll in your plan so you know what to expect. For example, if you need to get an X-ray and it costs $400, your Medicare plan will cover a percentage of the cost. If your plan pays 80%, that means you’ll be responsible for the remaining 20% – in this case, you’d pay $80. You can check your plan documents to see what benefits apply the coinsurance cost-sharing.
A copayment is the flat dollar amount you pay out of pocket for the cost of a health care service.
Similarly to coinsurance, your copayment is another form of contributing to your share of care costs. After you’ve reached your deductible, you may have to pay a copay, which is typically outlined per service by your plan. For instance, if you need to get an X-ray and it costs $400, your Medicare plan will cover a majority of the cost, and then you will owe the predetermined copay amount for that service.
Coverage gap (The Medicare donut hole)
The coverage gap, also known as the donut hole, is the phase of Part D coverage where you have to pay for prescriptions yourself.
After you and your Part D plan have spent a certain amount of money on prescriptions, there’s a period of time when you have to pay for them yourself. Once you’ve reached your yearly spending limit, your plan will start helping you pay for prescriptions again.
Creditable prescription drug coverage
Creditable prescription drug coverage is a coverage standard under Original Medicare.
Original Medicare has a standard for Part D coverage (known as creditable coverage). The government requires everyone on Medicare to have prescription drug coverage that meets that standard, either through Part D or through other coverage. If your coverage doesn’t meet the standards of Part D in the form of creditable prescription drug coverage, you’ll likely get hit with a Part D penalty.
The drug formulary is the list of medicines your plan covers.
Different drug formularies cover specific drugs depending on what’s outlined by your plan. If you’re wondering whether your prescription is covered, you can check your Part D plan’s formulary. It’ll tell you if the drug is covered, which tier the drug is in and if there are any special requirements.
Evidence of Coverage
Evidence of Coverage (EOC) is the annual notice you receive, either by mail, email or however else a plan chooses to make this information available, from your Part D prescription drug plan or your Medicare Advantage plan.
Much like the ANOC, information on how you can access your EOC usually arrives in September, and it outlines the benefit and cost changes that will take effect on Jan. 1 of the following year. This time frame allows you to review your coverage needs before the Annual Enrollment Period so you can make any necessary changes.
Initial Enrollment Period (IEP)
The Initial Enrollment Period (IEP) is the 7-month window when you’re first eligible to enroll in Medicare.
The IEP starts three months before you turn 65 and continues through your birth month and the three months that follow. If you enroll in a plan during this period, coverage will begin the month after you sign up. Those who are younger than 65 years old and are eligible for Medicare, often due to disability, will get this seven-month period as well. However, instead of being centered around turning 65, this enrollment period is triggered around your 25th month of receiving disability payments.
Maximum out-of-pocket limit for Medicare
Your out-of-pocket maximum is the most you’ll pay for covered services in one year with a Medicare Advantage plan.
Unlike Original Medicare, most Medicare Advantage plans limit the amount you’ll pay for covered services each year. Once you’ve hit your plan’s maximum out-of-pocket, your plan will generally pay all covered services at 100% for the rest of the calendar year.
Medicare Advantage HMO
A Medicare Advantage health maintenance organization (HMO) is a specific type of network-based private health plan that requires you to receive care from in-network providers.
When you have an HMO plan, you must stick to in-network doctors, clinics and hospitals to receive coverage, though this often does not include emergency and out-of-network urgent care services. HMOs differ from other plan types because they tend to have smaller networks with more plan rules. You also may need to select a primary care doctor and receive referrals before getting care and coverage for specialist visits.
Medicare Advantage Open Enrollment Period
The Medicare Advantage Open Enrollment Period is a period of time when current Medicare Advantage enrollees can change plans.
This enrollment window is available for Medicare Advantage plan members between Jan. 1 and March 31, giving beneficiaries more time to ensure that their coverage suits their needs. During this period, you can switch to a different Medicare Advantage plan or choose to transition from Medicare Advantage to Original Medicare.
If you choose to switch to Original Medicare and will need prescription drug coverage, you can enroll in a Part D plan by March 31.
Medicare Advantage PPO
A Medicare Advantage preferred provider organization (PPO) is a type of health plan in which in-network doctors, clinics and hospitals provide health services for plan members at a decreased cost.
When you have a PPO plan, going to in-network providers can help keep care costs more affordable. PPOs tend to feature larger networks, and sometimes they may even cover costs for doctors who are not on their list, though at a higher rate than for in-network. With a PPO, you don’t need to select a single primary care doctor, and often, you can make specialist appointments without referrals.
Your Medicare deductible is what you pay out of pocket before your plan kicks in.
Before your Medicare plan starts contributing to health care costs, you have to reach your deductible. This amount is defined by your plan. Let’s say you have an annual deductible of $200. Your plan won’t start paying for care until you’ve paid $200 out of your own pocket. Paying for things like doctor visits and labs counts toward your deductible. Your premium, however, does not.
A Medicare network is a specific selection of health care providers, like doctors, hospitals, clinics and pharmacies, that have contracted with your Medicare Advantage health plan.
Although Original Medicare does not have a specific network of providers, Medicare Advantage plans do. Typically, you get the lowest cost for services when using in-network health care providers. In most cases, your prescriptions are only covered if they’re filled at a pharmacy that’s in your plan’s network.
Medicare plan premium
Your premium is the amount you pay each month to your plan for coverage, whether or not you actually receive care.
In addition to your plan’s monthly premium, you will need to continue to pay your monthly Part B premium (and, if applicable, Part A). Premium amounts can change each year and are determined by the Centers for Medicare and Medicaid Services.
Medicare Advantage plans offer a variety of premiums based on the level of specific plans’ coverage. Typically, if you pay a high premium, you’ll pay lower costs for care. And if you pay a low premium, you’ll pay higher costs for care.
Preferred cost-sharing pharmacy
A preferred cost-sharing pharmacy offers a lower price for covered prescription drugs.
When a Part D or Medicare Advantage plan offers preferred cost-sharing pharmacies, enrollees that use those specific pharmacies will likely pay less for their prescription medicines. Preferred cost-sharing pharmacies vary among Medicare plans, so be sure to confirm with your plan where you will get the best value for your medicine.