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18.3: Medicare

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    24586
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    Learning Objective

    In this section we elaborate on the portion of the Social Security program known as Medicare:

    • Medicare Part A—hospital insurance
    • Medicare Part B—supplementary medical insurance
    • Medicare Part C—managed care medical insurance
    • Medicare Part D—prescription medication insurance
    • Beneficiary costs under all Medicare parts

    Medicare Part A: Hospital Insurance Program

    Anyone who is eligible for Social Security or railroad retirement benefits at age sixty-five is also eligible for Medicare Part A—hospital insurance benefits. No premium is required because workers have already paid Medicare A taxes. A worker does not have to retire to be covered for hospital benefits; however, Medicare is the secondary payer for persons who continue to work between ages sixty-five and sixty-nine and have medical coverage through their employers. Individuals age sixty-five and over who are not eligible for Social Security or railroad retirement benefits may enroll in Medicare Part A by paying premiums. The Medicare Part A plan provides the following hospital-related benefits:

    • In-patient hospital services
    • Posthospital home health services
    • Hospice care

    For Medicare Part A, the deductible paid by the beneficiary was $1,068 in 2009, up $44 from the deductible of $1,024 in 2008.

    Medicare Parts B, C, and D: Supplementary Medical Insurance Program

    Anyone eligible for Part A, the basic hospital benefits plan, and anyone age sixty-five or over is eligible for Medicare Part B—medical benefits, Medicare Part C—managed care benefits, and Medicare Part D—drug benefits. Those receiving Social Security or railroad retirement benefits are enrolled automatically unless they elect not to be covered. The monthly premium paid by beneficiaries enrolled in Medicare Part B, which covers physician services, out-patient hospital services, certain home health services, durable medical equipment, and other items, is $96.40 in 2009, the same as in 2008.

    Charges that are not covered through Medicare parts A and B include routine physical examinations; routine care of the eyes, ears, and feet; prescription drugs; most immunizations; and cosmetic surgery. Coverage for such options may be available through Medicare Part C, discussed below. Doctors must bill Medicare directly, rather than having patients file Medicare claims. Some physicians and surgeons accept as full payment the amount that Medicare considers reasonable, but others charge patients an additional fee. However, doctors are limited in the additional amount they may charge patients.

    Medicare Part C, also known as Medicare+Choice, was authorized by the Balanced Budget Act of 1997. Through Medicare Part C, eligible participants can elect to receive the benefits of Medicare Parts A and B through private health plans, in addition to certain items not covered by Medicare Parts A and B. These supplemental benefits might include dental care, vision care, and health club memberships. Medicare Part C may also cover routine physical examinations, unlike Parts A and B, thereby encouraging preventive care. Medicare+Choice became known as Medicare Advantage plans with the addition of prescription drug coverage through the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. Medicare Part C enrollees are limited to a network of benefit providers, a feature similar to managed care health plans (discussed in "22: Employment and Individual Health Risk Management"). Going outside the network causes some expenses to be passed on to participants.

    Medicare Advantage plans are offered to eligible persons through managed care, preferred provider organization (PPO), private fee-for-service, and specialty arrangements. You will learn about all of these concepts in "22: Employment and Individual Health Risk Management". Membership cards are issued to Medicare Part C participants by plan providers. Because the range of covered services varies among Medicare Advantage providers, premiums for Medicare Part C benefits are not fixed by the Social Security Administration. Participants typically pay an amount equal to Medicare Part B premiums plus an additional charge for the added benefits of Medicare Part C. Medicare Advantage providers who choose to cover less for certain benefits than would be paid by Medicare Parts A and B typically lower out-of-pocket costs for plan participants so that they do not pay more for proportionately less coverage. Providers are compensated by the government. Additionally, benefit formulas that overpay providers of Medicare Advantage plans relative to traditional Medicare benefits result in a net extra benefit value for participants.

    Medicare Part D is the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (P.L. 108–173), enacted December 8, 2003. It requires the Social Security Administration to undertake a number of additional Medicare-related responsibilities. Under Medicare Part D, the Social Security Administration and the Centers for Medicare & Medicaid Services (CMS) work together to provide persons with limited income and resources with extra help paying for their prescription drugs. The start date of this program was January 1, 2006. Insurance companies and other private companies work with Medicare to provide a choice of plans that cover both brand-name and generic drugs. To enroll, a beneficiary must have Medicare Part A and/or Medicare Part B. The combination of Part C Medicare Advantage plans with Part D prescription drug benefits are known as Medicare Advantage Prescription Drug (MAPD) plans.

    Medicare D premiums are not set in stone. For example, the Center for Medicare and Medicaid Services released the following in September 2005: “The average Part D monthly premium will be $32, about 14 percent lower than had been projected, with plans in virtually all areas of the country available for a premium of under $20 or even less. The drug benefit will provide help with prescription drug costs that for many beneficiaries will exceed the premium cost.”“Medicare Premiums and Deductibles for 2006,” CMS Office of Public Affairs, September 16, 2005, http://www.cms.hhs.gov/apps/media/press/release.asp?Counter=1557, Accessed April 5, 2009.

    Table 18.14 details how the drug card works. For those with limited income and resources, there is a way to qualify for extra help that will cover between 85 and almost 100 percent of drug costs. Most people who are eligible for this extra help pay no premiums, no deductibles, and no more than $5 for each prescription. The amount of extra help depends on income and resources. In the beginning of 2006, the help promised was not in place, so the states helped those in need.

    Table 18.14 How Does Medicare Part D—the “Drug Card”—Work?
    1. You pay the first $250 per year for your prescriptions—the “deductible.” (It is paid on an annual basis.)
    2. After you pay the $250 yearly deductible, you pay 25 percent of your yearly drug costs, from $250 to $2,250, and the plan pays the other 75 percent of these costs, then
    3. You pay 100 percent of your drug costs from $2,251 until your out-of-pocket costs reach $3,600, then
    4. You pay 5 percent of your drug costs (or a small copayment) for the rest of the calendar year after you have spent $3,600 out-of-pocket and your plan pays the rest.

    Here is an example:

    $250 Deductible $250–$2,250 $2,251 Until You Reach $3,600 in Out-of-Pocket Cost After $3,600 in Out-of-Pocket Costs
    What you pay $250 25% up to $500 $2,850* 5%
    What your plan pays $0 75% up to $1,500 $0 95%
    Total drug spending $250 $2,250 $5,100
    *$250 deductible + $500 (25% of $250 to $2,250) + $2,850 = $3,600 out of pocket cost.

    Source: www.medicare.gov/MPCO/Static/Resources.asp#HowPlansWork

    The benefits provided under all Medicare parts are listed in Table 18.15.

    Table 18.15 All Medicare Parts (A to D)

    Medicare has four parts:

    1. Hospital insurance (Part A) helps pay for in-patient hospital care and certain follow-up services.
    2. Medical insurance (Part B) helps pay for doctors’ services, out-patient hospital care, and other medical services.
    3. Medicare Advantage plans (Part C) are available in many areas. People with Medicare Parts A and B can choose to receive all of their health care services through a provider organization under Part C.
    4. Prescription drug coverage (Part D) helps pay for medications doctors prescribe for medical treatment.

    Source: Social Security Administration, SSA Publication No. 05-10024, January 2009, ICN 454930, Accessed April 5, 2009, http://www.ssa.gov/pubs/10024.html#aboutbenefits.

    Key Takeaways

    In this section you studied the features of Medicare, a compulsory social insurance program paying hospital insurance (HI) benefits:

    • Anyone eligible for Social Security benefits at age sixty-five is also eligible for Medicare Part A, which provides hospital-related benefits: in-patient hospital service, posthospital home health service, and hospice care.
    • Anyone age sixty-five and older who is eligible for Medicare Part A is also eligible for Medicare Part B, which provides physician, out-patient hospital, some home health services, and more. Medicare B requires premiums and is voluntary.
    • Medicare Part C (Medicare Advantage) offers coverage of Medicare Parts A and B plus supplemental services through private health plans. Medicare Part C requires premiums and is voluntary.
    • Medicare Part D, effective in 2006, was an enhancement to the Medicare program and provides assistance in paying prescription drug costs and discounts. Medicare D requires premiums and is voluntary.
    • No premium is required for Medicare Part A because workers pay for it through employment taxes, but premiums are required for Parts B and D
    • Annual deductibles apply to all parts of Medicare

    Discussion Questions

    1. What is the difference between Medicare Part A and Medicare Part B?
    2. Explain the concept of Medicare Part D.
    3. Medicare costs have turned out to be much greater than expected when the program was first enacted. The number of people eligible for Medicare and the benefit amounts have increased through the years. For example, Medicare covers not only medical expenses for eligible retirees but also kidney dialysis and kidney transplants for persons of all ages.
      1. Why does Medicare have deductibles, coinsurance, and limitations on benefits that create gaps in coverage for insureds?
      2. Considering the fact that many older people worry about what is not covered by Medicare, do you think the gaps should be eliminated?