Medicare – I know I Needed It, Now That I Have I Don’t Know the First Thing About It
Medicare is the largest healthcare payer in the US, covering around 90 million people last year, and has a gross annual budget of $919 billion, substantially more than the US spent in the same period on defense – around $714 billion. The program began in 1965 with the creation of Medicare for people over 65 in two parts: Part A and Part B.
Part A provides coverage for hospital costs, and is free to Americans over 65 who have paid FICA taxes in 40 quarters (10 years) in the course of their working careers. Part A has a unique benefit period and deductible schema based on 60 day hospitalization periods. It covers almost all hospital costs (after a deductible) for the first 20 days of hospitalization, with a required co-pay in days 21-60. The program has a one-time (lifetime) additional 90-day hospitalization benefit. Each 60 day period begins a new deductible requirement. Part A provides additional coverage for limited nursing home care, home health care, durable medical products, and hospice. The program is comprehensive and free; but is wildly complicated – reflecting the growth of benefits over time through the legislative process. Part A underwent a major restructuring in the mid-1980’s, incorporating diagnostic related groups (DRGs) into payment determinations. As a result, payments to hospitals were regulated based on the nature of the service provided, and hospitals have worked ever since to control costs and limit length of stay for Medicare patients.
Part B provides coverage for physician and other medical professional fees and services including prevention and screening. Part B has a base cost of $148.50 per month, and increases based on income to $504.90 per month for incomes over $500,000 per year. Part B runs on an annual deductible of $203.00, with a 20% co-pay. Part B is voluntary, but there are penalties of 10% of applicable cost, cumulative per year, with no cap. As an example, if you don’t enroll in Part B for 10 years, and do not have approved alternative private coverage (from and employer as an example), then the penalty would be 100% of the applicable rate (10 years * 10% per year). Coverage and payments rates for services under Part B are determined through a complex system of codes approved both by medical societies and CMS and may vary substantially on a regional basis. The misapplication of these codes by medical providers is a common source of billing error and excess costs to Medicare beneficiaries.
Parts A and B
Together Part A and Part B are called original Medicare, as they are the two original Parts of the system.
Part C (also known as Medicare Advantage) operates HMOs and PPOs for Medicare beneficiaries, funded through a public/private partnership. These plans are subsidized at a fixed amount per beneficiary per year by Medicare and require participants to have both Part A and Part B to participate. These plans have a dizzying array of benefits, costs, deductibles, co-pays, and premiums. Drug coverage is normally a part of Part C plans but is typically not explicitly funded by the beneficiary. They are generally very profitable for the plan sponsors, have enormous marketing efforts behind them, and are frequently so complicated as to be incomprehensible to the average consumer.
Part D is the last addition to the basic Medicare alphabet – added in 2003-2006 – to pay for outpatient prescription pharmaceuticals (drugs). Part D has a base monthly premium rate of $33.06, which, like Part B, is subject to adjustment based on income and non-participation penalties. These Medicare prescription drug plans (PDPs) are sponsored and administrated by private insurers and have wildly complicated reimbursement structures including an annual deductible, initial 25% co-pay, a period of no coverage called the donut hole, and then subsequent 5% co-pay after meeting the payment requirements of the donut hole. Further complicating matters, these plans all have different drug formularies for which they will pay – with non-covered drugs simply out of plan coverage.
These four Medicare Plans, A, B, C, and D are the fundamental building blocks of all Medicare coverage and participation. Parts A and B are run by the Federal government directly with government-specified payments to hospitals and providers. Virtually everyone participates in Part A by default, and most participants in original Medicare participate in B and D as well. Part C functions by using limited networks of hospitals and providers, but typically offers lower rates and expanded areas of coverage. Up next – Medicare supplements.