The baby boomers are all turning the infamous “Medicare Eligible” age. Hate to say, but I hear this in my own social circle. But even, amongst my educated friends they are all concerned about what does Medicare really cover and how do I know what all of it means. It is definitely a tangled web of information when reading all of the different options.
In Part Two of this blog series, I have attempted to outline the high-level definitions for each of the different types of Medicare plans. Each has into own unique areas of coverage and regulations. Hopefully, by the time I reach “Medicare Eligible” age I will be an expert in which plan to buy.
If you missed out on Healthcare 101 – Part One, you can find it here.
Medicare is a social insurance program administered by the United States government, providing health insurance coverage to people who are aged 65 and over, or who meet other special criteria. Medicare operates as a single-payer health care system. The Social Security Act of 1965 was passed by Congress in late-spring of 1965 and signed into law on July 30, 1965, by President Lyndon B. Johnson as amendments to Social Security legislation. At the bill-signing ceremony President Johnson enrolled former President Harry S. Truman as the first Medicare beneficiary and presented him with the first Medicare card.
The original Medicare program has two parts: Part A (Hospital Insurance), and Part B (Medical Insurance). Only a few special cases exist where prescription drugs are covered by original Medicare, but as of January 2006, Medicare Part D provided more comprehensive drug coverage. Medicare Advantage plans are another way for beneficiaries to receive their Part A, B and D benefits. All Medicare benefits are subject to medical necessity.
Part A: Hospital Insurance
Part A covers inpatient hospital stays (at least overnight), including semiprivate room, food, tests, and doctor’s fees. Part A covers stays in a skilled nursing facility if certain criteria are met.
Part B: Medical Insurance
Part B medical insurance helps pay for some services and products not covered by Part A, generally on an outpatient basis. Part B is optional and may be deferred if the beneficiary or their spouse is still actively working. There is a lifetime penalty (10% per year) imposed for not enrolling in Part B unless actively working. Part B coverage includes physician and nursing services, x-rays, laboratory and diagnostic tests, influenza and pneumonia vaccinations to name a few.
Part C: Medicare Advantage plans
With the passage of the Balanced Budget Act of 1997, Medicare beneficiaries were given the option to receive their Medicare benefits through private health insurance plans, instead of through the original Medicare plan (Parts A and B). These programs were known as “Medicare+Choice” or “Part C” plans. Pursuant to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, “Medicare+Choice” plans were made more attractive to Medicare beneficiaries by the addition of prescription drug coverage and became known as “Medicare Advantage” (MA) plans.
Traditional or ‘fee-for-service’ Medicare has a standard benefit package that covers medically necessary care members can receive from nearly any hospital or doctor in the country. For people who choose to enroll in a Medicare Advantage health plan, Medicare pays the private health plan a capitated rate, or a set amount, every month for each member. Members typically also pay a monthly premium in addition to the Medicare Part B premium to cover items not covered by traditional Medicare (Parts A & B), such as prescription drugs, dental care, vision care and gym or health club memberships. In exchange for these extra benefits, enrollees may be limited on the providers they can receive services from without paying extra. Typically, the plans have a ‘network’ of providers that you can use. Going outside that network may require permission or extra fees.
Medicare Advantage plans are required to offer coverage that meets or exceeds the standards set by the original Medicare program, but they do not have to cover every benefit in the same way. If a plan chooses to pay less than Medicare for some benefits, like skilled nursing facility care, the savings may be passed along to consumers by offering lower copayments for doctor visits. Medicare Advantage plans use a portion of the payments they receive from the government for each enrollee to offer supplemental benefits. Some plans limit their members’ annual out-of-pocket spending on medical care, providing insurance against catastrophic costs over $5,000, for example. Many plans offer dental coverage, vision coverage and other services not covered by Medicare Parts A or B, which makes them a good value for the health care dollar, if you want to use the provider included in the plan’s network or ‘panel’ of providers.
Medicare Advantage Plans that also include Part D prescription drug benefits are known as a Medicare Advantage Prescription Drug plan or a MA-PD.
Part D: Prescription Drug plans
Medicare Part D went into effect on January 1, 2006. Anyone with Part A or B is eligible for Part D. It was made possible by the passage of the Medicare Prescription Drug, Improvement, and Modernization Act. In order to receive this benefit, a person with Medicare must enroll in a stand-alone Prescription Drug Plan (PDP) or Medicare Advantage plan with prescription drug coverage (MA-PD). These plans are approved and regulated by the Medicare program, but are actually designed and administered by private health insurance companies. Unlike Original Medicare (Part A and B), Part D coverage is not standardized. Plans choose which drugs (or even classes of drugs) they wish to cover, at what level (or tier) they wish to cover it, and are free to choose not to cover some drugs at all. The exception to this is drugs that Medicare specifically excludes from coverage. Plans that cover excluded drugs are not allowed to pass those costs on to Medicare, and plans are required to repay CMS if they are found to have billed Medicare in these cases.
Neither Part A nor Part B pays for all of a covered person’s medical costs. The program contains premiums, deductibles and coinsurance, which the covered individual must pay out-of-pocket. Some people may qualify to have other governmental programs (such as Medicaid) pay premiums and some or all of the costs associated with Medicare.
Most Medicare enrollees do not pay a monthly Part A premium, because they (or a spouse) have had 40 or more quarters in which they paid Federal Insurance Contributions Act taxes. Medicare-eligible persons who do not have 40 or more quarters of Medicare-covered employment may purchase Part A for a monthly premium.
All Medicare Part B enrollees pay an insurance premium for this coverage; the standard Part B premium for 2012 is $99.90 per month. A new income-based premium schema has been in effect since 2007, wherein Part B premiums are higher for beneficiaries with incomes exceeding $85,000 for individuals or $170,000 for married couples.
Medicare Part B premiums are commonly deducted automatically from beneficiaries’ monthly Social Security checks.
Part C and D plans may or may not charge premiums, at the programs’ discretion. Part C plans may also choose to rebate a portion of the Part B premium to the member.
Medigap or Medicare Supplement (Med Supp)
Medigap refers to various private supplemental health insurance plans sold to Medicare beneficiaries in the United States that provide coverage for medical expenses not or only partially covered by Medicare. Medigap’s name is derived from the notion that it exists to cover the difference or “gap” between the expenses reimbursed by Medicare and the total amount charged.
A person must be enrolled in part A and B of Medicare before they can enroll in a Med Supp plan. During the open enrollment period which begins within 6 months of turning 65 or enrolling in Medicare Part B at 65 or older, a person may obtain a Med Supp plan on a guaranteed issue basis (i.e. no medical screening required). Outside of open enrollment, the issuing insurance company may require medical screening and may obtain an attending physician’s statement if necessary. Med Supp insurance is not compatible with other forms of private Medicare coverage, such as a Medicare Advantage plan.
Med Supp, offerings have been standardized by the Centers for Medicare and Medicaid Services (CMS) into defined plan types, sold and administered by private companies. Each Med Supp plan offers a different combination of benefits. The coverage provided is roughly proportional to the premium paid. Since Med Supp is private insurance and not government sponsored, the rules governing the sale and offerings of a Med Supp insurance policy can vary from state to state. Some states such as Massachusetts, Minnesota, and Wisconsin require Med Supp insurance to provide additional coverage than what is defined in the standardized Med Supp plans. Some employers may provide Med Supp coverage as a benefit to their retirees.
In the Part Three of Healthcare 101, I will cover Consumer Direct Health Plans. Knowing about HSA‘s can help you put money away for your future healthcare needs.