Medicare benefits may not be a titillating clickbaity subject. But it is important and coming to a life near you soon. Few of us look forward to getting old. On the other hand, it is much better than the alternative. We all need to understand some basics of old age benefits. The U.S. government has two major programs to help its aging citizens. Whether you want to help your aging parents or just your future self, knowledge of these programs will give you power.
Here’s the short version: Medicare covers medical expenses. Social security provides monthly income.
I wish that is all we need to know. No government program is that simple. I previously wrote about Social Security, so we will focus on Medicare. I boned up on this subject by reading my large print edition of Personal Finance After 50, as depressing as that may sound.
Medicare Benefits Primer
Medicare is a federal health insurance program in the United States. It is run by CMS (Centers for Medicare & Medicaid Services. Now if you are wondering why it isn’t CMMS, all I can tell you is that it is a government agency and not everything makes sense. Generally, it is for citizens age 65 and older. It also can be obtained at a younger age for those who have had Social Security disability for at least two years.
Here is a key to the alphabet soup of this confusing federal program.
Medicare Part A
I remember asking my father if he had Medicare. He said he had only “the free one.” I didn’t understand at the time, but now I know he was referring to Part A. Part A is also called hospital insurance. My mnemonic tip: “The A stands for Acute care coverage.” It covers things like home health care, hospice care, skilled nursing facilities, short-term inpatient care, but not outpatient care or doctors’ bills, medicines, etc.
Part A comes at no additional cost for most working Americans. The deductible is over $1,000 which can be a surprise to Medicare recipients who are hospitalized. It covers 100% of hospital stay for the first 60 days. If your hospital stay is beyond 60 days Medicare no longer pays 100%. You have to pay a coinsurance which is about $300 per day but increases each year.
Once you’re at 90 days, you are at the end of the line for Medicare coverage. There is something called a 60-day reserve which can be used once in a lifetime. All of the Medicare coverage stops at 150 days in the hospital.
If you have been out of the hospital for two months and then return to the hospital, this would be considered a new benefit period.
For a skilled nursing facility, the first 20 days are covered. Between day 21 and day 100, a coinsurance must be paid (about $150 per day). After you’ve stayed for 100 days in a skilled nursing facility you have exhausted your Medicare benefit.
Home health care and hospice care are covered under the Medicare program, but be sure to review the regulations in your specific case.
Medicare Part B
Part B is the insurance portion that covers doctors’ bills, outpatient care, durable medical equipment, and some preventive care.
Part B requires a monthly premium and is not free. This comes as a surprise to many elderly. The current charge is about $105 per month, however, it depends on your income.
If you have only the “free Medicare” you will have only part A. If you are admitted to the hospital, the doctors’ bills will not be covered. Part B will cover preventive treatment such as yearly physical’s, flu shot, mammograms, diabetic screening. This was supported by the Affordable Care Act.
It does not cover long-term care, dentures, home prescription medications, hearing aids, foot care, etc. that may be needed.
You will have to enroll in Social Security, but the Medicare benefit automatically kicks in at age 65. If you’re not sure that you are being automatically enrolled, it is best to start applying for Medicare approximately three months before your 65th birthday.
Medicare Advantage Plans (Medicare Part C)
Part C is the Medicare Advantage program. This will allow you to deal with a single insurer to help pay your bills. This can be administered through an HMO, PPO or, a private fee-for-service plan, special needs plan, HMO point of service plan, or Medical Savings Account. Be sure to read the details before signing up or using a Medicare Advantage plan.
Medicare Part D
Part D is a drug plan. My mnemonic here: “The D stands for Drugs.” It’s a medication payment plan administered by private insurance companies. They’re also limits as to what will be covered. When you reach your limit, you will be in the coverage gap, sometimes called the “donut hole”. Once a higher expense level is reached, catastrophic coverage kicks in – which is why this is referred to as a “donut hole.”
Be careful about retiring prior to age 65 without health insurance coverage. COBRA is an expensive option and it can be continued for only 18 months.
The affordable care act (ACA) opened a health insurance marketplace option, but the future of the program is susceptible to the changing political winds.
Medicare Supplement Plans
Medigap insurance is a private health insurance that fills in the gaps that are not covered by Medicare A and B. It will help you with deductibles, copayments, and coinsurance that is not covered by Medicare A&B. Sometimes the Medigap coverage is listed as part F, part G, part K, part L, part M, or part N.
What Does Medicare Not Cover?
Somethings will not be covered by Medigap such as long-term care, vision care, dental care, hearing aids, eyeglasses, private nursing etc. There’s also a premium charged for Medigap policies.
Items or services deemed “medically unnecessary” are not covered.
100% of costs. Expect 80% coverage at best. Medicare A insurance will be free to you but that doesn’t mean all of the health care you receive will be free. You will have to pay deductibles and coinsurance for each hospital stay.
National Medicare Coverage
Most of Medicare follows a national system. National policies apply across the board to all Medicare recipients. These are reported as NCDs (National Coverage Determinations). What is covered and considered medically necessary will likely receive more scrutiny in the future.
Local Medicare Coverage
Many are surprised to hear that not all Medicare policies and decisions are nationwide. The plans are implemented by region and there are differences. Know which region you are in. These policies are reported as LCDs (Local Coverage Determinations).
Do You Know Your LCDs?
Many doctors don’t know what LCD even stands for. Medicare has LCDs, but so do the private insurance companies. Do you perform services that are all 100% medically necessary? All doctors I know answer yes emphatically and without hesitation. But do payers see it that way? Absolutely not! How do you know that you are performing only “necessary services” if you don’t know your LCD policies? The answer is you don’t.
Medicare Payment System
Medicare pays enrolled providers and health entities directly. Know that your providers will receive payment faster and with fewer hassles than many other insurers. Although the amount and timeline are predictable, the payments are also lower than most other payers. In our practice, only Medicaid pays lower.
As most providers know, Medicare pays through the RBRVS system. The Resource-based Relative Value System was created in the 1990s. It was part of an effort to create a more rational and equitable payment system. You can be the judge of how much the program has succeeded. The RVU (Relative Value Unit) payment system arose out of that. Each physician service provided has an associated CPT (Current Procedural Terminology) code. That code provides the basis for payment.
Like all federal programs, it is complicated. I will try to explain how it works in practice at the risk of oversimplifying it. Basically, the RVU value is multiplied by a “Conversion Factor (CF).” That converts the “work” into “dollars.” Currently, that factor is running about $35. So, an office visit with a wRVU (work RVU) of 1.0 would result in a $35 credit to the physician.
So, what do you have to do to enroll? Well, you will be enrolled in Medicare Part A automatically when you turn age 65 – assuming you are collecting Social Security. Otherwise, you will need to enroll in Medicare about three months prior to your 65th birthday. Likewise, if you receive Social Security and turn 65 you will be automatically enrolled in Medicare B. If you don’t want it, you will have to decline it.
Future of Medicare
Medicare and Medicaid have promised trillions of dollars of unfunded future benefits. This is a much more serious threat to our future economy than Social Security. The federal government plans to keep its legal obligations. However, many of our political leaders in Washington see the handwriting on the wall. Initial efforts have been around prosecuting fraud, reviewing medical necessity, and third-party auditors recovering funds (e.g. RAC Audits).
ACOs (Accountable Care Organizations) in the MSSP (Medicare Shared Savings Program) seem to have been an effective program. They have reportedly saved Medicare $2.7B in its first couple of years.
This Medicare Benefits primer should serve you well. But there is always more to know and policies change over time. For more information on future changes and your current Medicare benefits go directly to the source: Medicare.
We can expect more aggressive scrutiny, auditing, stringent medical necessity criteria, and managed care involvement to bend the elderly healthcare cost curve downward.
Does this help? Do you plan to enroll in Medicare Benefits plans A, B, C, and D someday?