One cannot speak of Affordable Health Care and Beyond for ALL Americans without placing Medicare center stage. Why? Medicare is a social insurance program that provides a health (and financial) security foundation for American citizens (or legal residents who have lived in the United States continuously for at least five years) and are aged 65 (and older) or have certain disabilities (all ages). Unlike Medicaid, Medicare eligibility is not tied to individual need.
In addition to impacting the quality, productivity, and longevity of beneficiaries’ lives directly, the mere existence of Medicare impacts the lives of all Americans indirectly. The number of Medicare beneficiaries is growing faster than in the past (baby boomers are now retiring) and its costs are consuming more and more of the government’s budget. In 2015, it paid out $638.7 billion in benefits and covered 55.3 million people (17% of the U.S. population).
Because Medicare is such a large percent of the total health spending, it affects the number, type, geographical distribution, and even the behavior of all healthcare providers serving Medicare and non-Medicare patients alike. If Medicare coughs (e,g,, reduces reimbursements to specialists), the rest of the healthcare system catches a cold (specialists will try to get more from private health insurers and/or threaten to not accept Medicare patients). Let’s begin with a general Medicare introduction.
Medicare Introduction–Basic Information
Medicare is administered by the Centers for Medicare and Medicaid Services (CMS) and is divided into four separate parts:
- Part A, Hospital insurance
- Part B, Medical insurance
- Part C, (Part A + Part B run by private health insurance companies)
- Part D, Prescription drug insurance
The combined coverage provided under Part A + Part B is a basic health insurance benefit package that covers “medically necessary” and preventive care for its beneficiaries. This benefit package is different from the Essential Health Benefits employer-sponsored health plans must provide. Medicare does not cover all healthcare expenses (e.g., hearing, vision, and dental) or long-term care. The medical services provided are not defined in statute or regulations, but rather have been developed over time and put into detailed databases that are continuously changing. Part A includes in-patient hospital services, skilled nursing facility services, some home health care, and hospice services. Part A is premium-free for most Americans. Part B includes physician services, home health visits, a limited number of outpatient prescription drugs, and a variety of additional healthcare services not covered under Part A. In 2016, the Part B monthly premium is $104.90 for most beneficiaries (higher for new beneficiaries and for people with higher incomes). Both Part A and Part B Medicare have deductibles and coinsurance that beneficiaries are required to pay out-of-pocket. For people who are financially unable to pay for Medicare premiums and cost share, the federal and state governments have programs to help.
Initial Medicare enrollment is anytime in the 3 months before your 65 birthday month and 3 months afterward. If you wait longer, you may have to pay higher Part B premiums than those who enrolled within the expected time window. For those under 65 and eligible for Medicare benefits, the enrollment specifics are different. Detailed information about Medicare enrollment is available online and you are encouraged to investigate well before you are eligible for coverage.
Traditional (Original) Medicare
When Part A and Part B health insurance benefits are paid on a fee-for-service basis, Medicare is called traditional or original Medicare. The Centers for Medicare and Medicaid Services (CMS) sets the prices (Medicare-approved amount) it will pay for every service/ medical product it covers and the government pays its cost share directly to providers. Traditional Medicare does not define a maximum out-of-pocket cost-share and therefore there is no limit in financial liability.
Traditional Medicare is run by CMS and coverage is accepted at over 90% of all hospitals/ doctors’ offices/medical suppliers across the country. Traditional Medicare beneficiaries (69% of all Medicare beneficiaries in 2015) are free to seek the services of any specialist without going through a primary care physician-gatekeeper.
Medicare Advantage (Part C)
When Part A and Part B health insurance benefits are delivered through private health insurance companies as managed care plans, Medicare is called Part C or Medicare Advantage. Under Parts C, Medicare pays private health insurance companies a monthly per person amount (called the capitated payment) to provide Part A+Part B coverage. These payments are calculated using a complicated formula, differ from location to location, and are adjusted to reflect performance (5 star rating) and differences in the relative cost of sicker beneficiaries.
Medicare Advantage plans are similar to the managed care, employer-sponsored health insurance plans with which most people are familiar during their years working. For these plans, the federal government pays the “employer” share of the premium (the capitated payment) and the beneficiaries pay the “employee” share when the capitated payment falls short. Those opting for Medicare Advantage pay the Part B premium directly to the government just like those in traditional Medicare. Medicare Advantage plans have been encouraged to offer additional coverage (e.g., vision, hearing, and dental) with capitated payments that have been historically higher than Medicare pays for traditional Medicare beneficiaries.
In 2016, the majority of Medicare Advantage plan enrollees were in HMOs (64%) followed by PPOs (23% local and 7% regional) according to the Kaiser Family Foundation. Medicare Advantage plans have deductibles, copays, coinsurance, and maximum out-of-pocket for in-network services ($6700 in 2016). If beneficiaries go to out-of-network service providers, they will have to pay a higher cost share and sometimes all of the charges incurred. Medicare Advantage PPOs often have a maximum out-of-pocket for out-of-network providers and $10,000 is common in 2016. The in-network provider pool is much more limited and localized than found in the nationwide network available to traditional Medicare beneficiaries. In 2016, 31% of all Medicare beneficiaries opted for Medicare Advantage plans over traditional Medicare.
Expanding Medicare to include managed care plans was supposed to bring efficiency into the fee-for-service world of traditional Medicare and therefore save taxpayers money. Except in some very limited urban locales with established HMO presences, Medicare Advantage actually costs the government more than traditional Medicare.
Prescription Drug Insurance
Part A covers the drugs administered for a Medicare-covered stay in a hospital or skilled nursing facility. Medicare Part B covers a limited number of outpatient prescription drugs that are administered in a physician’s office, dialysis facility, or hospital outpatient department. These specific drugs are either part of a sustained clinical treatment (chemotherapy) or drugs that patients cannot self administer (e.g., injectables like vaccines or certain eye treatments). Since 2006, the majority of outpatient, patient self-administered prescription drugs are covered under a Medicare Part D plan (as a stand-alone plan or as part of a Medicare Advantage plan (MA-PD)). Any drugs covered under Medicare Part B are excluded from Medicare Part D coverage. This separate benefit comes with its own premiums, copays, coinsurance, deductibles, and maximum out-of-pocket costs. Beneficiaries are free to purchase Medicare Part D (or an MA-PD) plan or not and in 2015, 41.8 million out of 55.3 million did.
Under Part D, Medicare pays the private health insurance companies that provide this coverage in several ways: (1) a direct subsidy payments (to reduce individual premiums), (2) reinsurance payments, (3) low-income subsidy payments, and (4) risk-sharing payments.
The vast majority (99.3%) of eligible enrollees sign up for Medicare Part A since it is almost universally premium-free with Part B enrollees not far behind (91.7%). Eligible beneficiaries cannot sign up for Part C or Part D unless they are enrolled in Part A and Part B. Because most Medicare beneficiaries live on fixed or declining incomes and are more likely to get sick than younger Americans, most eligible beneficiaries have some form of supplemental health insurance to pay for some or all of the cost-share incurred. In addition, Medicare doesn’t cover all health care needs (e.g. acupuncture, dental, long-term care, private-duty nursing) and supplemental coverage often fills these benefit gaps. I will describe supplemental health insurance is a later blog post. I have summarized the information in this Medicare introduction in the figures below.
If you are eligible, you are free to sign up for either traditional (original) or Medicare Advantage and Medicare Part D. After your initial enrollment, you can make changes to your choices once a year during open enrollment (October 15-December 7) or under specific circumstances at other times.
For a look at Medicare details, I highly recommend that you investigate further at the website links throughout this post and get a printed copy of Medicare & You 2016 . I also like Understanding Medicare Part C & D Enrollment Periods, a handy tip sheet with most scenarios covered. In addition, The National Council of Aging does an excellent job in a different format . Other helpful Medicare websites to explore include: Medicare Interactive, My Medicare Matters, and Medicare Rights. If you come across a good website you would like to share, I will include it on a future update.
This Medicare introduction is not meant to be an “everything you need to know” summary and is the first of many blog posts on Medicare with emphasis on the healthcare for persons over the age of 65. My second blog post in this series will be about the Medicare Advantage, the alternative for traditional Medicare.