Medicare is our country’s health insurance program for people age 65 or older. Certain people younger than age 65 can qualify for Medicare, too, including those who have disabilities and those who have permanent kidney failure or amyotrophic lateral sclerosis (Lou Gehrig’s disease). The program helps with the cost of health care, but it does not cover all medical expenses or the cost of long-term care. Medicare is financed in part by payroll taxes paid by workers and their employers. For every $100 an employee earns, the employer and employee each pay $1.45 in payroll (FICA) taxes to fund the Medicare program. The program is also financed by monthly premiums deducted from Medicare enrollees’ Social Security checks.
Today’s Medicare program has four parts:
Medicare recipients (or beneficiaries, as they’re often called) can choose the Original Medicare plan, which consists of Part A and Part B, or they can opt to enroll in a Medicare Advantage (MA) plan, if one is available in their area, for the delivery of their Part A and B services.
The Original Medicare plan is a fee-for-service plan managed by the federal government. Fee-for-service means that participants are usually charged a fee for each health-care service or supply they receive. In addition, for some services, they pay a deductible before Medicare pays its share of the cost. Then, when a Medicare-covered supply or service is provided, Medicare pays its share, and the participant pays his or her share—the coinsurance or co-payment. Under the Original Medicare plan, participants may use any doctor, supplier, hospital, or other facility that accepts Medicare.
Medicare Advantage, or MA, is a way in which Medicare-covered services are delivered. These plans combine all of the benefits of Part A and Part B and may, depending on the plan, include the coverage provided by Part D. MA plans are offered and administered by private companies and have been approved by Medicare. Compared to Medicare’s traditional fee-for-service approach, MA plans are characterized by greater flexibility and the ability to offer enhanced care management services. Many Medicare Advantage plans take the form of a health maintenance organization, or HMO, and beneficiaries are required to seek care and services from providers who are part of the HMO network.
Lastly, as mentioned, Medicare Part D provides coverage for prescription drugs. Those enrolled in the Original Medicare plan may choose to enroll in a separate Part D plan; those in a Medicare Advantage plan may have, as part of their plan, coverage for Part D.
With that brief background, let’s examine in more detail the specifics of Medicare Parts A, B, C, and D.
Most people age 65 and older who are citizens or permanent residents of the United States are eligible for free Medicare Part A Hospital Insurance.
Part A covers most inpatient hospital care, some inpatient skilled nursing care, some home health care, and hospice care. A monthly Part A premium is not required for people who have 40 or more quarters of Social Security credits, which equates to about ten years of full-time work. Those with 30 to 39 Social Security quarters may buy Part A but will have to pay a small monthly premium. People with fewer than 30 Social Security quarters may purchase Part A also but will have to pay a larger monthly premium.
Part A benefits are paid once the beneficiary has met a deductible ($1,156 in 2012). The Part A deductible applies to each benefit period. A benefit period starts when an individual enters the hospital and ends when there has been a break of at least 60 consecutive days since inpatient hospital or SNF care was provided. Hospital stays longer than 60 days require the beneficiary to meet a daily co-payment.
Anyone who is eligible for the free Medicare Part A can enroll in Part B Medical Insurance by paying a monthly premium. Even those who are not eligible for the free Medicare Part A can purchase Part B if they are age 65 or older and are U.S. citizens or lawfully admitted noncitizens who have lived in the U.S. for at least five years.
Part B covers a portion of the Medicare-approved costs for the following:
Part B coverage is optional. Some people with other medical coverage do not require this part of Medicare until they are no longer covered under other systems, such as their employer’s health-care plan. Part B requires the payment of a monthly premium, which is automatically deducted from a beneficiary’s Social Security check ($99.90 per month for those who enroll in Part B in 2012). Those who do not receive Social Security will be billed quarterly for their Part B premiums. (High-income wage earners are charged slightly more for their monthly Part B premiums.)
In addition to the monthly premium, Part B coverage requires the payment of an annual deductible ($140 in 2012). After the deductible is met, Medicare pays for 80 percent of covered and approved charges; the beneficiary is responsible for the balance. In addition, if the charge is greater than the amount allowed by Medicare—referred to as the excess charge—the beneficiary is responsible for the difference.
Medicare is not a complete system of health care. Even though it pays for some preventive services and covers most medically necessary services, Medicare pays for less than half of what seniors typically spend for their total health-care expenses. Medicare does not pay for hearing aids, eyeglasses, or dental care. More significantly, it does not pay for long-term care at home or in a nursing home when this care is primarily personal care services or custodial care.
Those who have Medicare Parts A and B can join an MA plan. With an MA plan, a Medigap policy, discussed later in this chapter, is generally unnecessary, because MA plans cover many of the same benefits that a Medigap policy would cover—for example, extra days in the hospital after having exhausted the number of days that Medicare covers.
MA plans are offered through private health insurance companies and private health-care provider organizations. They typically provide expanded benefits depending on the type of plan. MA programs provide all of the Part A Hospital Insurance and Part B Medical Insurance coverage. Some may also provide the Part D Prescription Drug coverage. To join an MA plan, participants must have both Medicare Part A and Part B and live in the plan’s service area.
The plan may have special rules, such as requiring beneficiaries to see doctors who belong to the plan or requiring them to go to certain hospitals to receive services. While Medicare pays a set amount of money for beneficiaries’ care each month to these health plans, beneficiaries may have to pay from their own pockets a monthly premium for extra benefits.
MA plans include the following:
Part D Prescription Drug coverage arose from the passage of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, otherwise known as the Medicare Modernization Act, or MMA. Anyone who has Medicare Part A, Part B, or a Medicare Advantage plan is eligible for prescription drug coverage under Part D. Joining a Medicare Prescription Drug plan is voluntary, and an additional monthly premium is required for the coverage. Part D is considered by most as very complex.
In 2006, the prescription drug benefit began. Everyone covered by Medicare must make choices with respect to Part D. Beneficiaries are eligible to
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