I’m usually not in the Medicare Advantage side of the business, so I’m working with more generalized knowledge but several people have been asking for an overview of how Medicare works and why they do some of the things that they do.
The first and most important thing about Medicare from a policy point of view is that Medicare as an entity is absolutely massive. It is the biggest payer for healthcare in the world, so commercial and other public paying programs tend to frequently follow Medicare’s policy lead. The other thing that is important is that Medicare has significant political restrictions on how it can act. It is not a typical insurance company so some of the bad policy results are intentional political decisions.
There are four basic parts of Medicare. Medicare Part A is hospital insurance. This covers in-patient and facility costs. Medicare Part B is the doctor’s insurance, it covers professional services costs. Medicare Part C is Medicare Advantage which is Medicare replacement plans that is sold by non-governmental insurance carriers. Part C rolls Part A and B into a single plan. Medicare Part D is the presription drug benefit. Finally there are Medicare supplemental policies that are add-ons/gap fillers for Medicare A and B.
Today we’ll just look at what A and B cover and how those services are paid for from an individual perspective.
Medicare A and B cover most medically neccessary services at approved providers. There are limitations. The most notable limitation is that Medicare Part A will only pay 90 days of hospital care in a year with sixty lifetime reserve days. Other limitations include Medicare Part A won’t pay for the first three units of blood used and psych care is limited to a lifetime of 190 days.
There is a $1,260 hospital Medicare Part A deductible and large co-pays for long term hospitalization. There is no co-insurance.
Medicare Part B is the professional/doctor’s insurance. It covers doctors, outpatient services, labs, medical equipment and diagnosistic treatement. From a beneficiary perspective, there is a small deductible ($147 per year) and then a 20% co-insurance on all non-preventative care. There is no limit to the co-insurance amount. This is different than PPACA which limits out of pocket to $6,600 per person for an individual policy.
As you can see, there is a big gap here. Prescription drugs are not covered at all. Part D Medicare are how people get their drugs covered.
The split deductible of $147 Part B/$1,250 for Part A is a bit odd from a plan design point of view. Most people will max their Part B deductible while not many people will max out their Part A deductible. This is how a single payer system works in the United States and it is not the most straightforward process even for the simple(r) part of the system.
MazeDancer
So happy you will be covering this essential and vastly confusing topic. Thanks!
Bookmark Richard’s Medicare Series people, especially when he gets to the upcoming Parts F & D. Eventually, you or someone you know, will need clear advice, and that is very hard to find.
Nancy Brown Supler
Thank you for this. Also did you ever cover the PACE program? If you have and I missed it please let me know where to access it. If you haven’t, please do.
japa21
Merdicare is a confusing system. Should also be noted that Medicare A is for all people 65 or over. Medicare B can only be gotten by people who do not have employer given insurance. For example, I am 68. I have had Medicare A for 3 years. Because I am still working full time and have employer supplied insurance I am not eligible for Part B.
Fortunately, I have not had to use Part A (although there is another issue that comes up which I will get into a little later).
However, if I was hospitalized, my employer based insurance would be considered primary and Medicare secondary. If my employer paid insurance reimbursed at a lower rate than Medicare, Medicare would cover the difference up to their normal reimbursement (taking 5the deductible into account).
The one confusing part is that people sometimes view Part A as insurance for hospital care. However, it does not cover outpatient surgery or observation services. Fort example, I had OP surgery in January and was kept in the hospital overnight. However, since I was considered to be on observation stqatus, not admitted as an inpatient, it was all considered OP. Medicare Part B would have covered that much better than my regular insurance which has a rather large deductible, but Medicare part B was not available to me.
I am looking forward to your discussion of Medicare Advantage and Medicare supplemental policies, which many people get confused about the differences.
bg
It is completely bewildering. My husband turns 65 next month & we are going crazy trying to figure out whether to keep him on the group health plan at my business or just go straight medicare. With Medicare, we either have to go w/ one of the HMO’s and spend our lives waiting for referrals, or buy Part A, Part B, Part D for meds and a medicare supplement. We figured out that we get charged for A&B regardless, but we get the donut hole with part D – our group plan has excellent prescription coverage. So we probably will stay w/ the group, but we are paying for the group AND parts A and B. We were looking forward to our costs going down at 65 but they are going up substantially.
Josie
I look forward to your explanations. Retired teachers in Texas must choose between TRS insurance combined with traditional Medicare and Medicare Advantage (administered by Aetna). I read all the information and still do not know which one is really a better deal. They are pushing the Medicare Advantage which, since I am such a cynic, makes me suspicious.
cintibud
Thanks Richard for this primer. I turn 60 next month and will need to bone up on this stuff. One (stupid) question I have is how much does one pay per month for the coverage, if any? I see above one poster talk about purchasing Part A, B, C, D as if they are all independent options and another poster saying he/she doesn’t have part B available. I have to admit I haven’t researched anything yet but will need to do so as I plan for retirement
nanute
Hi Richard, and thanks for the initial foray into the Medicare topic. If you haven’t before, can you please explain the penalties associated with not signing up for the various parts of Medicare, when one becomes eligible,and what the rationale is for these penalties?
Richard Mayhew
@nanute: @cintibud: @japa21: @Nancy Brown Supler:
Too many good questions — I’ll start writing as much as I can, but more importantly linking to as much as I can.
Honestly, AARP would probably be a good spot to start for general information. The big caveat is that they rent/license out their brand name for Medicare supplemental policies, so they will try to sell you hard for their attached policies. They might be good for you, they might, I don’t know; just be aware.
nanute
Thanks Richard. I’ve read many posts on the penalties and when they kick in. I’ve just never seen any links to the rationale for why the penalties exist.
Aurona
Thank you, Richard; I read you all the time and have been waiting for the Medicare “primer” I knew you would get to, at some point.
I’m 68 and have a supplement plan, Plan N for $58 a month (for all of you wondering about costs); Plan F is the Big Daddy and pays everything including excess charges on Part B and is right now about $192 with one major company, slightly lower with others. Plan N leaves me with costs to pay, but nothing I can’t handle if need to. I have separate dental ($35/mo), separate vision ($20/mo) and separate prescription drug coverage ($15). Interestingly, my insurance company said I can change to the full Plan F, effective the following month, if I know I need surgery or, as happened a couples of years ago, need a breast biopsy (there went about $5K). I’m also a mystery shopper for Medicare plans and have been doing that for the last three fall seasons. Richard knows of which he speaks; I wish I had his insight when I started looking for the right policy for me.
BobS
@MazeDancer: Good advice to bookmark this series (I created a Richard Mayhew bookmark soon after he started posting here and I realized the education he was providing). This is probably much too late, but thank you Mr. Mayhew.
SP
My parents are dealing with that in-between state- they are almost 71, my dad retired last year but is still doing consulting fee-based work, my mom is retiring next month. My grandmothers, in their mid 90s, are both in assisted living, who knows what’s involved in that insurance situation.
What is the logic behind the levels for co-pay and co-insurance (or is the answer none because, “Medicare has significant political restrictions on how it can act”)? Can someone on Medicare who expects very high bills use an exchange instead so they are limited to $6600 OOP?
Richard Mayhew
@SP: Really good question on the Exchange. I don’t think so just because I know that the pricing is limited to age 64, and a 91 year old is WAY WAY WAY more expensive than an age 64 year old individual but no one has ever done pricing on that.
LindaM
Thanks, Richard, for all of this Medicare information. It is confusing.
My husband is a SHIP counselor (State Health Insurance Program). Every state has such a program; just Google it and you can find contact information in your state. He really is a big help to those who are just beginning to try and figure out how to make a decision. It’s always good to be able to talk with someone who can point you in the right direction. I know he speaks with a lot of people over the phone, but some in-office visits occur, too. I hope this helps along with Richard’s discussion.
Thoughtful Today
I support:
Medicare Part E, Medicare for EVERYONE.
^ Currently supported by one Democratic Presidential candidate.
Yeah, the one that had ~70,000 supporters at his rallies over three days ;)
https://BernieSanders.com
Chris
@Thoughtful Today:
Give ’em hell, Bernie.
Ron Beasley
I had to get a medicare advantage plan because none of the doctors around here will accept original medicare.
JGabriel
Richard Mayhew:
Isn’t that in conflict with ACA rules that psych care is not to be treated any differently than other medical care?
Richard Mayhew
@Thoughtful Today: Okay, big questions for Medicare Part E
1) What are the deductibles?
2) What are the co-pays?
3) What are the co-insurance?
4) What are the OOP max?
5) Does #4 (and thus #1-3) vary depending on income? If so how?
6) How do we pay for it?
a) what portion individual responsibility?
b) what portion societal responsibility?
7) What things are covered?
a) Especially long term care
8) Conversion problems
a) How do we roll-up Medicaid/CHIP into Medicare-E?
b) How do we roll commercial group insurance into Medicare-E
b1) If we don’t, how do we avoid a massive cherry picking member dump of the sick and expensive out of the group insurance market into the public pool?
9) How does Medicare-Advantage come into play here? Does it?
10) Do we have regional pricing models or national pricing models?
11) How do we do risk adjustment? Do we need to do so?
Answer those questions and then you might have an actual policy plan skeleton, but I have another 50 questions that need to be considered (some can be handwaved away but explain why they are being handwaved)
Richard Mayhew
@JGabriel: PPACA is primarily a regulation of the individual and group insurance market. There are some changes to Medicare (mainly finance and delivery innovation reform) but not all of the changes apply to Medicare.
Ian
“Medicare Part A won’t pay for the first three units of blood used.”
Well, that’s good; it encourages the consumer to shop around for the blood they need.
Thoughtful Today
Richard:
I’ve personally seen Britain’s socialized medicine system in action, it was fast, effective, and compared to our Rube Goldberg profiteering system, far more efficient.
It was amazing, I was taking a walk with British friends in a London park, one of them started having respiration problems and called for an Ambulance.
A British Ambulance showed up in the middle of the park faster than any pizza delivery I’ve ever ordered.
Afterwards I expressed worry that it was going to cost a fortune and the Brit looked at me like I was from Mars and said (paraphrasing), ‘I already paid for that with my taxes.’
It’s not that complicated.
J R in WV
@Ron Beasley:
I thought doctors were required to accept Medicare patients?
Medicaid is different, many doctors don’t work with that program, but Medicare is [ I thought ] intended to be the primary health care plan for seniors.
Shakezula
@japa21: Right those are Part B services. Medicare is currently looking at the use of observation services because the pay is high and there’s evidence it is being overutilized. This doesn’t mean that it wants patients to be kicked out hospitals. It wants them to be admitted to inpatient if necessary, or discharged from outpatient if they don’t need inpatient services.
No. They can’t treat Medicare patients differently if they DO accept them (aside from any coverage limitations), but there are plenty of doctors who refuse Medicare and/or Medicaid patients. Our own dear rebRAND PAUL(TM) is a member of a physician org that does believes accepting any form of insurance restricts their freedumbs.
Personally if someone isn’t accepting these programs, I assume they’re a dick and stay away.
Richard Mayhew
@Thoughtful Today: I believe you (I’ve seen the same type of thing in Ontario) and I know that from a personal POV, a fairly straightforward, non-confusing, transparent system can and does exist.
My set of questions is that we already have a partial single-payer system that is not straightforward, not transparent and a bit confusing. That is the model that we could most easily use as a skeleton if there was Medicare-E.
What bones do we have to keep for path dependency purposes, what bones do we want to keep, and waht bones can we grind into powder and walk away from? There is a wide degree of flexibility in program design possible from a Medicare skeleton, and any set of choices is a series of trade-offs. A very simple straight forward no cost sharing design is possible, but it is a massive switch from current Medicare, and it is also a massive change from everyone else’s insurance, so there will be a lot of resistance and confusion possible. It also means more general revenue needs to be raised. It can be done fairly simply from a technocratic basis but the political/social side is a much bigger lift than keeping some type of deductible system in place as less general revenue will be needed.
What are the trade-offs for front end user simplicity? And are those trade-offs viable? In the UK they were, in Canada they were, but Wetsminster parliamentary democracies have very different set of veto points for entrenched and pissed off factions to wreak havoc on the general public.
Thoughtful Today
Skeletal “revenue” math:
16 million people paying corporations (ha!) only $1,000 a year for their insurance scheme at a 10% profit margin is … $1.6 billion per year leached out of the health care system.
Now take that skeletal formula:
–> Multiply the over 300 million people who largely paid far more than just $1,000 a year for insurance (last I read it was ~$4,000 for many individuals) and remember insurance corps get to skim 15% (on group plans) to 20% (on individual plans) for ‘overhead’ …
… and then subtract the less than 5% (some say 3%) it costs in overhead to run Medicare…
… and what remains is “revenue” that should be used to pay doctors, buy medicine, and invest in medical research and not enrich corporate leaches.
Thoughtful Today
To get an idea of what I’m talking about:
If only 200 million American pay as little as $2,000 a year to insurance companies that can only take a 10% profit:
200,000,000 x $2,000 x 10% = $40,000,000,000.00
What’s 40 billion in corporate profit buy you these days?
Possibly the Presidency.
…
Unless you’re https://BernieSanders.com
;)
Richard mayhew
@Thoughtful Today: if single payer is that easy, why did Vermont throw in the towel on their waiver application for single payer?
Details are important. You are handwaving right now
frances
It is my understanding that the cost to administer traditional Medicare are something like three percent while the Advantage plans, being private and for-profit, keep around 20 percent of all premiums for administration and profit.
They are popular because they frequently just have copays, so consumers know up front costs and because they cover dental and vision which are not covered under traditional medicare.
I also was under the impression that because of the extras Advantage plan premiums cost more than traditional medicare and the extra is paid by the government rather than the individual consumer.
Were they created by Republicans to hand over more tax dollars to for profit corporations?
stinger
Here’s another for whom an understanding of Medicare is growing increasingly urgent. Many thanks to Richard and the commenters in this thread!
Thoughtful Today
Richard, I don’t know you, have only read you a handful of times, but at this point I assume you’re selling me corporate insurance.
You’re telling me that what’s been done throughout Europe, Canada, and Japan isn’t possible here because … it’s hard.
It’s hard when you’ve got a President who relies on Corporate donations, yes.
Please consider voting for a President who condemns Corporate cash and doesn’t think small.
Medicare for Everyone / Single Payer is possible and Bernie Sanders knows it. It’s one of the reasons corporate Dems are so terrified of him and one of the reasons why he’s had over 100,000 show up at his rallies.
https://BernieSanders.com
TriassicSands
I cringe when I hear “Medicare for all.” There are just too many things wrong with Medicare for it to be a desirable model for universal coverage. Yes, Medicare is better than nothing — America the land of placebo health care — but it is really a mess in a lot of ways. It may be more efficient that private for-profit insurance, but it does many things that cost far more than necessary, often with worse results. Part D is a very bad joke. I think it was in “Nudge” that Sunstein wrote about Part D.
Richard mayhew
@Thoughtful Today: if it is easy, explain Vermont’s decision to not go the single payer route? There are a lot of tradeoffs made in Medicare as is, are those trade offs scalable.
For instance there is no out of pocket maximum for Medicare Part B’s 20% coinsurance. A cancer Dx can give a person a $50,000 bill in year 1. PPACA caps out of pocket in network expenses at 6500/ year. Do we keep the PPACA cap or go unlimited individual exposure? If we cap exposure, how much and how do we pay for it
Medicare e is a good slogan, a good end point vision but it is not a policy without a lot more thinking on the Bed.internet example.
Richard Mayhew
@Thoughtful Today: Furthermore, your following sentence makes no sense:
“You’re telling me that what’s been done throughout Europe, Canada, and Japan isn’t possible here because … it’s hard.”
Canada has single payer. The UK has single payer and mostly single provider. The Dutch use regulated insurers as quasi-public utiliies (multiple payers). The Germans use a multi-tiered, pooled public-private partnerships at the state/Landers model. The French use multiple national pooled payers. Japan uses a combination of employer sponsored coverage and government provided coverage with varying co-insurance levels depending on income.
There are numerous basic models of getting to universal or near universal coverage. Single payer is only one of those models. Regulated and mandated private insurance acting as near public utilities is another model that is quite successful elsewhere in the world and the US under-65 population is far closer to that model already with PPACA than it is to a single payer system.
What I am saying is that there are multiple ways to skin a cat, and Medicare-E is not an easy slam dunk. It is hard, and there is a massive amount of work that needs to be done on the policy trade-off side to move Medicare-E from a slogan to a plan.
Dennis Byron
This has some possibly misleading errors concerning Medicare Parts A and B. It is true that “the most notable limitation” is the per-incident and lifetime time limits on how long Part A will pay for acute care and skilled care hospital coverage. But it is also very important to note that the beneficiary must be admitted to the acute care hospital for Part A to get involved (otherwise the service is covered under Part B) and — more important — the beneficiary has to first be admitted to the acute care hospital for three days for any coverage – good or bad – in a skilled nursing facility. It is always important to note that the service in a skilled nursing facility has to be for something medically necessary; not typical ongoing nursing home custodial care. On the flip side, the limit is 90 days of coverage per incident for acute hospital care, not per year.
Left off the list of medical services covered by Part B are non-self-administered drugs, and acute care hospital observations. Not covered by Part B at all are dental and hearing services, vision care, standard annual physical exams, anything outside the U.S. (even in Niagara Falls, ON) with very rare exceptions, and one or two other items most people would think of as medical services.
The co-pays and deductibles mentioned here concerning Part A and Part B services are effectively meaningless. Over 95% of people on Parts A and B of Medicare – who are not also on Medicaid – have some kind of expensive (sometimes to a former employer, rather than the beneficiary) private supplemental insurance to handle all or some of these co-pays and deductibles or they have a public Part C Medicare health plan that has a separate co-pay structure similar to plans people will be familiar with from former employers. These Part C plans also include the annual out of pocket spend limit that the article says Medicare lacks; Part C plans do not lack such limits, just Parts A and B. Part C plans also sometimes cover some or all of the medical services that Part B does not cover at all. (Note that a person must have Part A and Part B first before he or she can sign up for public Part C or a private Medigap plan.)
United States Medicare is not at all a single payer system. A single payer system – as one might figure from the name – has only one payer. Medicare by design has two payers (you and the government, almost totally you if you were born after 1945). As noted above because of Medicare’s many limitations, almost all beneficiaries not also on Medicaid add a third, fourth or fifth payer.
Dennis Byron
@japa21: FYI, you are eligible for Part B if you are on Part A. It most likely does not make sense for you to have Part B if you have insurance from an employer for whom you currently work (this does not apply to retiree insurance or COBRA insurance). But that depends on the employer’s size. Hopefully you have checked with the employer’s HR department.
Dennis Byron
@bg: When you say “your business” do you mean a company you own or a company where you are employed? That makes a big difference in your analysis of best path forward
Dennis Byron
@cintibud: If you are just turning 60, you have five years (or 4 years and 9 months) to worry about it. The rules change almost every year so you best wait before boning up… but yes all four Parts and the private plans are typically separately priced. The average cost differs widely depending on where you live (but figure $200 per month for financial planning purposes plus out of pocket costs… per person)