A significant part of the U.S. population is insured under Medicare. Medicare is a federal health insurance program for persons who:
- Are age 65 and older
- Have permanent kidney failure
- Have a qualified disability
Medicare provides hospital and medical insurance under Medicare Parts A and B (called traditional or Original Medicare) or through several Medicare Advantage plans, known collectively as Medicare Part C. In addition, prescription drug coverage is available to Medicare recipients under Medicare Part D. Be careful to not confuse Medicare with Medicaid. Medicaid is government medical insurance coverage for low-income individuals.
Most Medicare beneficiaries are covered under traditional Medicare. Traditional Medicare has two parts, known as Part A and Part B. Part A provides hospital coverage, while Part B provides coverage for doctors and medical services. Traditional Medicare requires that beneficiaries pay certain deductibles and coinsurance amounts that may not be required under Medicare Advantage. However, traditional Medicare offers beneficiaries the highest level of freedom with respect to obtaining medical care.
Part A Coverage
Medicare Part A provides Medicare beneficiaries with a range of institutional health care services, home health care, and hospice care. Individuals who apply for Social Security retirement benefits at age 65 are automatically enrolled in Medicare Parts A and B. Part B coverage requires a premium to maintain, and new enrollees who do not want Part B coverage must contact the Centers for Medicare and Medicaid Services to opt out. At the time they become eligible for Original Medicare, enrollees may instead opt for Part C (Medicare Advantage) coverage.
A person who wants to enroll in Medicare at age 65 but chooses to defer Social Security retirement must take steps to enroll in Medicare. In other words, Medicare enrollment is not automatic if done before a person applies for Social Security retirement benefits. A person can enroll in Medicare up to three months before or up to three months after the month the enrollee first becomes eligible for Medicare (which is age 65 for those who are not disabled). In other words, the initial enrollment period (IEP) equals a seven-month period including the month in which the recipient turns age 65. Early enrollment is encouraged; in fact, those who wait for the last four months of their IEP to enroll will have a delayed start date of coverage of up to three months beyond their eligibility date.
Hospital Inpatient Care
Part A covers many services when a person is hospitalized, such as semi-private room and board, nursing services, inpatient drugs, laboratory testing, X-rays, coronary care, intensive care, operating room services, rehabilitative care, anesthesia, and medical supplies and equipment. Medicare Part A does not cover private-duty nursing, televisions, or phones in a hospital room, or personal care items. (Doctors’ services while an inpatient would be covered under Medicare Part B.)
When a Medicare beneficiary receives in-patient care in a hospital, the following charges apply under Part A:
- The patient must first pay a deductible at the beginning of each benefit period before Medicare begins paying benefits. In 2017, the deductible applicable to hospital care was $1,316. (If the patient has been out of the hospital for a period of 60 days or longer and is readmitted, a new benefit period begins and another deductible applies).
- After the deductible has been paid, Medicare pays for the first 60 days of a hospital stay. During days 61 through 90, a daily coinsurance payment is required, and Medicare pays the daily balance. In 2017, the daily coinsurance payment for the 61st through the 90th hospital day was $329.
- For days 91 through 150, a person can use his or her lifetime reserve days and must pay a daily coinsurance amount ($658 in 2017).
Skilled Nursing Facility Care
Medicare Part A also provides coverage for skilled nursing facility care, including the cost of a semiprivate room, meals, skilled nursing and rehabilitative services, and other services and supplies considered medically necessary. The following charges and requirements apply to Medicare-provided skilled nursing facility care:
- To be eligible for skilled nursing facility care, a Medicare beneficiary must have been hospitalized for at least three days before entering a skilled nursing facility.
- The skilled nursing facility care must be for the same or related condition for which the person needed hospital care, and the care must be ordered by a physician who certifies that daily skilled care, such as intravenous injections or physical therapy, is necessary.
- Medicare pays 100 percent of the costs for skilled nursing care for the first 20 days. For days 21 through 100, the Medicare beneficiary must pay a daily coinsurance amount ($1614.50 per day in 2017). No Medicare benefits are paid for skilled nursing facility care after 100 days.
Home Health Services
Part A also provides coverage for certain home health services that are considered medically necessary. Covered services include:
- Skilled nursing care
- Physical therapy
- Speech-language pathology services
- Occupational therapy
No prior hospitalization is required for these services to be covered, nor is there a maximum number of allowable home health care visits. However, a doctor must certify that a beneficiary requires home health services and must order the care. In addition, a Medicare-certified home health agency must provide the care. Medicare Part A pays 100 percent of the approved amount for home health care services.
Hospice care is specialized care for the terminally ill that is usually provided in the patient’s home or other facility in which the patient lives. Part A will cover hospice care if a doctor certifies that the beneficiary is terminally ill and has a life expectancy of six months or less. While Medicare beneficiaries pay nothing for Medicare-covered hospice care, they are responsible for paying a co-payment of up to $5 per prescription for prescription drugs to alleviate pain and manage their symptoms. Although hospice care does not normally cover a Medicare beneficiary’s room and board in a facility, Medicare hospice coverage includes:
- Drugs for pain relief and symptom management
- Medical, nursing, and social services
- Certain durable medical equipment
- Spiritual and grief counseling (services not normally covered by Medicare)
The hospice benefit period consists of two 90-day periods followed by any number of 60-day periods.
Respite care—that is, care given to a Medicare beneficiary so that a caregiver can take a break—is limited to no more than five consecutive days. Although Medicare pays the bulk of the expenses for providing such care, respite care requires the payment of coinsurance of 5 percent of the amount Medicare pays.
Medicare Part B Coverage
Unlike Medicare Part A coverage that generally covers inpatient care, Medicare Part B covers other medically necessary services, such as:
- Doctors’ and other health care providers’ services
- Ambulatory surgical centers
- Diabetes supplies
- Durable medical equipment
- Emergency department services
- Flu and pneumococcal shots
- Home health services
- Laboratory services without charge
- Mental health care
- Occupational therapy
- Physical therapy
- Annual health care provider wellness visits
- Various screenings (e.g., prostate cancer, obesity, HIV, EKG, colorectal cancer, etc.)
Part B requires the insured to pay a monthly premium, which is normally withheld from the beneficiary’s Social Security payments. For 2017, the monthly premium for most Medicare beneficiaries was $109. However, for some beneficiaries (those who first enrolled in Part B in 2017, higher-income beneficiaries, individuals who are eligible for both Medicare and Medicaid (known as “dual eligibles”), and those not collecting Social Security benefits), the monthly base premium rose to $134 in 2017. And some higher-income beneficiaries pay an additional amount that is based on their adjusted gross income.
In addition, the insured must pay an annual deductible ($183 in 2017). After paying the deductible, Part B pays 80 percent of Medicare-approved health care charges, and the patient is responsible for a 20 percent coinsurance payment.
Medicare Advantage (Part C) – Alternative to Traditional Medicare
The bulk of Medicare-eligible individuals are covered under the traditional Medicare coverage just discussed. However, several million Medicare-eligible individuals have opted to be covered under the alternative to traditional Medicare: Medicare Advantage. Medicare Advantage plans are offered by private companies approved by Medicare and are sometimes referred to collectively as Medicare Part C.
Medicare Advantage plans are required to cover all services covered by traditional Medicare plans except hospice care, which continues to be provided under traditional Medicare Part A to Medicare Advantage enrollees. Although Medicare Advantage plans must provide coverage for all services covered under traditional Medicare, they may also offer enrollees additional benefits. Such additional benefits may include:
- Vision benefits
- Prescription drug benefits
- Dental benefits
- Health and wellness benefits, such as discounts on gym fees
Medicare pays a fixed amount for a Medicare beneficiary’s health care each month to the Medicare Advantage plan providers. However, Medicare Advantage plans may vary with respect to their out-of-pocket costs and rules applicable to obtaining care. Enrolling in a Medicare Advantage program eliminates the need for a Medicare beneficiary to purchase Medicare supplement coverage. In most cases an enrollee in a Medicare Advantage plan must stay enrolled for the calendar year starting on the day coverage begins. However, an enrollee can join or leave a plan at certain times during the year. Therefore, if an insured becomes unhappy with the Medicare Advantage plan he or she can switch back to traditional Medicare.
Types of Medicare Advantage Plans
The different Medicare Advantage plans that are available vary substantially from one another. These plans include:
- Health Maintenance Organization (HMO) plans that generally restrict an enrollee’s ability to obtain health care and services—except in the case of an emergency—to providers in the plan’s network. In addition, enrollees must normally choose a primary care physician and, except for certain services, usually must get a referral from the primary care physician to obtain care from a specialist.
- HMO Point-of-Service (HMO POS) plans that function as HMOs but permit an enrollee to obtain covered services from an out-of-network provider at higher costs.
- Preferred Provider Organization (PPO) plans that have health care provider networks but permit enrollees to access out-of-network providers for covered services at a higher cost. Enrollees do not choose a primary care physician and normally do not need a referral in order to obtain specialist care.
- Private Fee-for-Service (PFFS) plans are somewhat similar to traditional Medicare plans in that an enrollee can generally obtain covered health care from any provider who agrees to treat the enrollee. Some PFFS plans have a network of health care providers from which enrollees are encouraged to obtain needed care; in such plans, an enrollee’s obtaining care out of network may result in higher enrollee costs. No primary care physicians are selected, and no referral is required to obtain specialist care.
- Special Needs plans (SNPs) that provide specialized health care for specific groups of people and limits membership to individuals living in certain institutions, eligible for Medicare and Medicaid, or who have specific chronic or disabling conditions, such as diabetes, HIV/AIDS, chronic heart failure, or dementia.
- Medical Savings Account (MSA) plans that combine a high-deductible health plan with a bank account an enrollee may access to pay for qualified medical expenses not paid by the health plan because of its deductible. Medicare provides funds to the plan each year for an enrollee’s health care, and some of the money given to the plan is deposited in the enrollee’s account. If the balance in the bank account is exhausted, the enrollee must pay for any services out-of-pocket until the health plan’s deductible is reached. Using a Medicare MSA plan’s account for other than qualified medical expenses will result in taxable income and a 50 percent penalty.
Advantages and Disadvantages of Medicare Advantage Plans
The advantages for enrollees of Medicare Advantage plans are generally twofold: increased coverage—vision, dental, prescription drugs, etc.—and somewhat lower costs when compared with traditional Medicare plus a Medicare supplement policy. (Medicare supplement policies vary in coverage and premium cost but generally provide coverage for some or all the deductibles and coinsurance requirements of traditional Medicare.)
The main disadvantages of Medicare Advantage plans include:
- Coverage generally is limited only to a network’s health care providers (increased costs may be imposed for accessing out-of-network providers).
- Plan changes may occur with respect to providers and/or coverage area.
- Plan premiums and/or co-payments may increase.
Part D: Prescription Drug Insurance
In 2006, the Medicare program was expanded to include prescription drug coverage (Plan D). A Medicare Part D Prescription Drug program is available to senior consumers in two ways:
- As a stand-alone plan for those who are enrolled in Part A and/or Part B
- As part of a Medicare Advantage plan
A stand-alone plan is an insurance plan offered by private companies that simply covers prescription drugs through a single policy. Alternatively, Part D benefits may also be available with a Medicare Advantage plan as part of its broad managed care benefits. Part D is a voluntary plan, separate and distinct from Part A and Part B. Part D requires a monthly premium that varies from plan to plan. These plans may or may not involve an annual deductible but normally require beneficiaries to pay a certain amount of coinsurance.
Furthermore, most Medicare drug plans have a coverage gap (informally called the Medicare donut hole) that requires the plan beneficiary to pay all drug costs out-of-pocket after the beneficiary and the plan have spent a certain amount for covered drugs during the year. Once the beneficiary has reached the plan’s out-of-pocket limit during the coverage gap, drug coverage resumes. For the balance of the calendar year, the beneficiary is required only to pay a small coinsurance amount for prescription drugs.
Medicare Supplement Policies (Medigap)
Although Medicare pays for many different types of health care, traditional Medicare (Parts A and B) does not cover certain health care services and supplies completely. Medicare supplement policies (Medigap) are designed to fill the gaps that traditional Medicare does not cover. These policies are underwritten and sold by private insurance companies. Please consult a Scaringi Financial representative for more information on Medigap policies.