Medicare is the federal government’s principal health care insurance program for people 65 years of age and over. In addition, the program covers people of any age who are permanently disabled or who have end-stage renal disease (people with kidney ailments that require dialysis or a kidney transplant). The Medicare program insures 49 million Americans and spends $551 billion a year on their care. Eligibility for Medicare is based upon an applicant’s work history, not financial need.
In addition to paying a monthly premium, Medicare recipients are often required to pay a portion of the cost of the services they receive in the form of a deductible or co-insurance amounts. Deductibles, co-insurance amounts and premiums increase each January. In addition, there are many services and items that Medicare does not cover, such as long-term unskilled nursing home and in-home care.
Medicare consists of three major programs: Part A, which covers hospital stays; Part B, which covers physician fees; and Part D, which covers prescription medications. In addition, Medicare beneficiaries often purchase private insurance policies called “Medigap” policies to help pay for services and items that Medicare does not cover.
Medicare Part A: Hospital Coverage
Medicare Part A covers institutional care in hospitals and skilled nursing facilities, as well as certain care given by home health agencies and care provided in hospices.
Any person who has reached age 65 and who is entitled to Social Security benefits is eligible for Medicare Part A without charge. That is, there are no premiums for this part of the Medicare program.
Medicare pays for 90 days of hospital care per “spell of illness,” plus an additional lifetime reserve of 60 days. A single “spell of illness” begins when the patient is admitted to a hospital or other covered facility, and ends when the patient has gone 60 days without being readmitted to a hospital or other facility. There is no limit on the number of spells of illness. However, the patient must satisfy a deductible before Medicare begins paying for treatment. This deductible, which changes annually, is $1,260 in 2015.
After the deductible is satisfied, Medicare will pay for virtually all hospital charges during the first 60 days of a recipient’s hospital stay, other than telephone and television expenses. If the hospital stay extends beyond 60 days, the Medicare beneficiary begins shouldering more of the cost of his or her care. From day 61 through day 90, the patient pays a coinsurance of $315 a day in 2015. Beyond the 90th day, the patient begins to tap into his or her 60-day lifetime reserve. During hospital stays covered by these reserve days, beneficiaries must pay a coinsurance of $630 per day in 2015. This reserve is not reset after each “spell of illness.” Once it has been exhausted, the beneficiary will receive coverage for only 90 days when the next spell of illness occurs. However, studies show that the average length of a hospital stay covered by Medicare is eight days.
Medicare Part A also pays for stays in psychiatric hospitals, but payment is limited to a total of 190 days of inpatient psychiatric hospital services during a beneficiary’s lifetime.
Medicare Part B: Coverage for Doctor’s Bills
Medicare Part B basically covers “outpatient” care: office visits to medical specialists, ambulance transportation, diagnostic tests performed in a doctor’s office or in a hospital on an outpatient basis, physician visits while the patient is in the hospital, and various outpatient therapies that are prescribed by a physician. Part B also covers a number of preventive services. In addition, Part B covers home health services if the beneficiary is not enrolled in Medicare Part A. The specifics of what is covered and what is not covered under Part B are complex and change periodically in response to efforts to contain health care costs.
Medicare recipients who are eligible for Part A are automatically enrolled in Part B unless they opt out. Part B enrollees pay a monthly premium that is adjusted annually. This premium, which is $104.90 a month in 2015, pays for about one-quarter of Part B’s actual costs; the federal government pays for the other 75 percent through general tax revenues. This cost-sharing makes Part B something of a bargain, and many Medicare recipients buy it unless their present or former employer provides comparable coverage.
Higher income beneficiaries pay higher Part B premiums. Following are the higher premium rates:
- Individuals with annual incomes between $85,000 and $107,000 and married couples with annual incomes between $170,000 and $214,000 in 2015 will pay a monthly premium of $146.90.
- Individuals with annual incomes between $107,000 and $160,000 and married couples with annual incomes between $214,000 and $320,000 in 2015 will pay a monthly premium of $209.80.
- Individuals with annual incomes between $160,000 and $214,000 and married couples with annual incomes between $320,000 and $428,000 in 2015 will pay a monthly premium of $272.70.
- Individuals with annual incomes of $214,000 or more and married couples with annual incomes of $428,000 or more in 2015 will pay a monthly premium of $335.70.
Moreover, there is a financial incentive not to delay enrollment; those who wait to enroll in Part B after they become eligible for Medicare will pay a penalty. For each year that an individual puts off enrolling, his or her monthly premium increases by 10 percent — permanently. Thus, a person who waits five years to enroll in Part B will pay premiums 50 percent higher than she otherwise would.
Medicare Part B recipients must satisfy an annual deductible of $147 (in 2015). Once the deductible has been met, Medicare pays 80 percent of what Medicare considers a “reasonable charge” for the item or service. The beneficiary is responsible for the other 20 percent.
However, in most cases what Medicare calls a “reasonable charge” is less than what a doctor or other medical provider normally charges for a service. Whether a Medicare beneficiary must pay part of the difference between the Medicare-approved charge and the provider’s normal charge depends on whether or not the provider has agreed to participate in the Medicare program.
If the provider participates in Medicare, he or she “accepts assignment,” which means that the provider agrees that the total charge for the covered service will be the amount approved by Medicare. Medicare then pays the provider 80 percent of its approved amount, after subtracting any part of the beneficiary’s annual deductible that has not already been met. The provider then charges the beneficiary the remaining 20 percent of the approved “reasonable” charge, plus any part of the deductible that has not been satisfied.
Medicare Part D: Prescription Drug Coverage
Medicare offers a federally subsidized drug program for seniors, in which private health insurers offer limited insurance coverage of prescription drugs to elderly and disabled Medicare recipients. The drug benefit is available only through insurers that contract with Medicare to market drug plans.
Medicare recipients who elect to be covered by the drug benefit will pay premiums averaging $33.13 a month in 2015. This is an average; some plans will charge more, some less.
After meeting a $320 (in 2015) deductible, you will pay 25 percent of drug costs up to $2,960 (in 2015) in a year, with Medicare footing the bill for the other 75 percent. The plan will pay $2,220 and you will pay $760. Previously coverage stopped completely at this point until total out-of-pocket spending reached a certain amount. (This coverage gap is sometimes called the “doughnut hole”.) However, the Affordable Care Act is slowly eliminating the doughnut hole. In 2015, until your total out-of-pocket spending reaches $4,700, you’ll pay 45 percent for brand-name drugs and 65 percent for generic drugs. Although you will be paying a discounted rate for drugs, the total cost of the drug will count toward your out-of-pocket costs. Once total spending for your covered drugs exceeds $6,680, Medicare will pay about 95 percent of costs above $6,680 (called “catastrophic coverage”). These discounts and Medicare coverage gradually increase until 2020 when the doughnut hole is fully closed.
Bear in mind that only payments for drugs that are covered by your plan (see below) count towards the out-of-pocket threshold. Drugs purchased abroad (such as from Canada) will not be covered by the Medicare benefit and will not count toward the out-of-pocket limit.
All Part D enrollees should have at least two Medicare private drug plans to choose from. The insurers choose the medicines — both brand-name and generic — that they will include in a plan’s “formulary,” the roster of drugs the plan covers and will pay for. However, each plan formulary must include at least two drugs in each drug class, and must cover a majority of the drugs in certain classes, such as antidepressants and anti-cancer agents.
Since each drug plan offers a different formulary, and the same drug may vary in price from plan to plan, the most important job for a Medicare beneficiary signing up for Part D is to determine whether the prescription drugs they need or anticipate needing — are covered under a particular plan and how much they cost.
Plans differ in the monthly premiums they charge, deductibles, the drugs they cover, the cost of those drugs, limitations on drug purchases, and the convenience of the plan’s pharmacy network, among other factors. A comparison tool is available on Medicare’s Web site that allows you to search for Medicare private drug plans in your region and compare their costs, covered drugs and pharmacy networks.
But it’s possible that all your diligent research could come to nothing because after you have enrolled in what seems to be the best plan, the plan may discontinue coverage or increase the cost of any particular drug. Even if that happens, however, beneficiaries will be locked into their choice for a full year unless a beneficiary is eligible for both Medicare and Medicaid may switch plans whenever they want.
Anyone who has either Medicare Part A or Medicare Part B (or both) can get Medicare Part D, Medicare’s prescription drug coverage. Bear in mind, however, that Medicare Part D will not pay for drugs that could have been paid for under Medicare Part A or Medicare Part B. These drugs will not be covered even if the beneficiary does not have either Part A or Part B.
To avoid a penalty, you need to enroll during your Initial Enrollment Period (IEP). Your IEP for Part D is the same as for Part B. It is a seven-month period that includes the three months before the month you become eligible, the month you are eligible and three months after the month you become eligible. Medicare beneficiaries may be subject to significant financial penalties for late enrollment. For every month you delay enrollment past the Initial Enrollment Period, the Medicare Part D premium will increase at least 1 percent.
Medigap Insurance: Coverage to Plug the Holes in Medicare
With all the deductibles, copayments and coverage exclusions, Medicare pays for only about half of the medical costs of America’s senior citizens. Much of the balance not covered by Medicare can be covered by purchasing a “Medigap” insurance policy.
Insurance companies may sell only Medigap policies that fall into one of 10 standard benefit packages, ranging from basic coverage to the most comprehensive coverage. The 10 available Medigap policy packages are identified by the letters A, B, C, D, F, G, K, L, M, and N. Plans E, H, I, and J are no longer sold, but, if you already have one, you can keep it. Each plan package offers a different combination of benefits, allowing purchasers to choose the combination that is right for them. All Medigap policies must provide at least the following core benefits:
- The coinsurance for days 61 to 90 of a hospital stay
- The coinsurance for days 91-150 of a hospital stay (lifetime reserve days)
- All hospital-approved costs from day 151 through 365
In addition, plans A, B, C, D, F, and G also cover the following:
- The cost of the first three pints of blood not covered by Medicare
- The 20 percent coinsurance for Part B medical charges
Plan K offers the following benefits:
- 50 percent of the coinsurance for Part B medical services and 100 percent of preventative services
- 50 percent of the first three pints of blood
- 50 percent of hospice care cost sharing
Plan L offers the following benefits:
- 75 percent of the coinsurance for Part B medical services and 100 percent of preventative services
- 75 percent of the first three pints of blood
- 75 percent of hospice care cost sharing
The plans provide a combination of eight other areas of coverage on top of the basic set. These areas of coverage include the coinsurance for days 21 to 100 in a skilled nursing facility, the Part A and Part B deductibles, foreign travel emergencies, and prescription drug coverage.
Medigap policies do not fill all the gaps in Medicare coverage. The biggest gap they fail to bridge is for custodial care in a nursing facility or for skilled care in a nursing home beyond the first 100 days. For coverage of this type of care, you must either purchase long-term care insurance or qualify for Medicaid coverage.
Medigap also does not cover vision care, eyeglasses, hearing aids or dental care unless such treatment or equipment is needed as the result of an injury. In addition, Medigap plans do not cover prescription drugs.
It pays to shop around for a policy as premiums vary widely not only from state to state, but within states as well. To help you find and compare Medigap programs available in your area, the Medicare program offers a Web site called Medigap Policy Search. This interactive tool gives contact information for insurance companies in your state that sell Medigap policies, and offers basic information about the policies of some of these insurers, including which plans they offer; how they price their plans based on what rating method they use; and if you need to be a member of a certain organization to buy one of their plans.
For more on the basics of Medicare, Medicare.gov has a booklet designed for friends and family of Medicare members. To download the booklet, click here.
To learn more about the qualifications of Vanarelli & Li, LLC, visit: https://vanarellilaw.com/law-firm-profile/
(This article was adapted from several articles on Medicaid on the ElderLaw Answers website.)
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