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MEDICARE

Determining Eligibility for MEDICARE

Medicare is a federal health insurance program designed for people age 65 or older, certain disabled individuals under age 65, and people of any age who have permanent kidney failure. Medicare provides basic protection against the cost of health care, but it was not designed to cover all medical expenses. In addition, Medicare is available to all individuals regardless of their income or financial status, and consists of Part A hospital insurance and Part B medical insurance.

Medicare Part A is available to every eligible individual without charge. Individuals receiving Social Security (or Railroad Retirement) benefits are not required to apply for Part A coverage; they will be automatically enrolled when they become eligible. Individuals who have reached age 65 but are not eligible for Social Security benefits may obtain Part A coverage if they pay a monthly premium.

If an individual receives Social Security (or Railroad Retirement) benefits, they will also be automatically enrolled in Medicare Part B. All individuals enrolled in Part B of Medicare pay a monthly premium that is generally withheld from the individual’s Social Security benefits. Individuals automatically enrolled in Part B are, however, given adequate notification and a specified amount of time in which to decline coverage.

MEDICARE Coverage Under Part A Hospital Insurance

Medicare Part A covers four types of health care services:

• inpatient hospital care,
  
• extended care services in a skilled nursing facility,
  
• home health services, and
  
• hospice care.

Payments under Part A hospital insurance are based on "benefit periods." A benefit period begins on the first day the covered individual is furnished inpatient hospital services and ends 60 days after the individual is no longer an inpatient of a hospital or skilled nursing home. (The date of discharge is considered to be the first day of the 60-day period.)

Inpatient Hospital Care

During each benefit period, Medicare coverage applies up to a maximum of 90 days of inpatient care in a hospital that participates in Medicare. However, the Medicare beneficiary is allowed 60 "reserve days" that can be used at any time during the beneficiary’s lifetime. The Medicare beneficiary pays a deductible for every benefit period. In addition, if the beneficiary is in the hospital for more than 60 days during a benefit period, he is responsible for a copayment for each day beginning with the 61st day in the hospital and ending with the 90th day. The Medicare provider charges the beneficiary directly for deductibles and copayments.

Skilled Nursing Facility

Medicare Part A also applies to inpatient care in a skilled nursing facility following a hospital stay of at least three days. The individual’s condition must require daily skilled nursing or skilled rehabilitation services that can only be provided in a skilled nursing facility. Medicare applies to the cost of care in a skilled nursing facility for up to 100 days in each benefit period. Beginning with the 21st through the 100th day, the beneficiary makes a daily copayment.

Home Health Services

Medicare Part A covers home health care for the treatment of illness or injury as long as the services are furnished by a participating home health agency. By definition, a home health agency is a public or private agency that specializes in giving skilled nursing services and other therapeutic services in the home. Medicare pays the full cost of covered home health care costs for as long as the Medicare beneficiary needs intermittent skilled nursing care, physical therapy, or speech therapy. However, Medicare will pay only 80% of the approved cost for any durable medical equipment that a doctor prescribes for use in the home.

Hospice Care

A hospice is a public agency or private organization that is primarily engaged in providing pain relief, symptom management, and supportive services to terminally ill individuals. Hospice care includes both home and inpatient care. Under the Medicare hospice benefit, Medicare covers costs of daily care and permits a hospice to provide appropriate custodial care, including homemaker services and counseling. The Medicare beneficiary may choose either regular Medicare coverage or hospice coverage. There are no deductibles under the hospice benefit. If hospice care is chosen, special benefit periods apply.

MEDICARE Coverage Under Part B Medical Insurance

Part B medical insurance covers certain physician’s services (including surgery), clinical laboratory services, durable medical equipment, and certain other items and services not covered under Part A hospital insurance. Medicare beneficiaries may receive medical services under Part B if they are outpatients or inpatients. [Part A covers inpatient hospital services.] Part B also covers home health services if the Medicare recipient does not have Part A coverage.

Medical costs covered by Part B Medicare include the following:

1. Physician’s services (including assistants and nurses, in collaboration)
   
2. Surgical services (including anesthesia)
   
3. Diagnostic tests and procedures
   
4. Radiology and pathology services
   
5. X-rays
   
6. Drugs and biologicals that cannot be self-administered
   
7. Medical supplies
   
8. Home health services
   
9. Physical or occupational therapy and speech pathology services
   
10. Rental or purchase of durable medical equipment
    
11. Ambulance services.
    
12. Blood transfusions (not including costs of the first three pints)
    
13. Prosthetic devices (other than dental) and artificial limbs
    
14. Home dialysis supplies and equipment
    
15. Clinical psychologist’s services
    
16. Screening mammography and screening pap smear services
    
17. Preventive health care furnished by a federally qualified health clinic
    

Under Part B of Medicare, the beneficiary pays an annual deductible for covered services. Once the annual deductible is satisfied, Medicare pays 80% of the remaining Medicare-approved charges. This leaves the Medicare beneficiary responsible for 20% of the costs (coinsurance) after the deductible has been satisfied. (Medicare pays 50%, rather than 80%, of outpatient mental care).

Certain costs are not subject to either the deductible or the coinsurance. Part B medical insurance pays 100% of the following medical costs:

• home health services (except durable medical equipment, for which it pays 80% of the fee schedule),
  
• pneumococcal vacine and its administration, and
  
• certain clinical diagnostic laboratory tests.
  

Medicare payments are based on approved charges, which are in turn based on a fee schedule developed by the Health Care Financing Administration. When physicians or medical suppliers agree to "assignment," they accept the Medicare-approved amount as payment in full and will receive the medical insurance payment directly from Medicare. The provider will charge the beneficiary for any portion of the deductible not already met, the 20% coinsurance, and any noncovered items or services.

If the medical care provider does not accept assignment, the provider bills the beneficiary directly. Medical care providers who do not accept assignment, however, cannot charge Medicare beneficiaries more than 15% over the approved amount. In effect, the Medicare rules place a ceiling on the amount a physician or health care provider can charge a Medicare patient for Medicare-covered charges if the provider does not accept assignment. In this case, Medicare will still only reimburse the beneficiary for 80% of the approved charge.

(Note: Current Medicare premium and deductible amounts as well as additional information concerning the Medicare program can be found at the Medicare website.

Using Health Maintenance Organizations (HMOs) for MEDICARE Coverage

Medicare generally uses a "fee-for-service system." In other words, the individual chooses a doctor or other medical provider and Medicare pays for the specific covered services rendered by the medical provider. However, a Medicare beneficiary eligible for Part A hospital insurance, Part B medical insurance, or both can elect to have covered health insurance services furnished through a managed care plan [i.e. a health maintenance organization (HMO) or competitive medical plan (CMP) that has a Medicare contract].

If a Medicare beneficiary enrolls in a managed care plan, the plan will provide all the medical services that are covered by Medicare. The managed care plan receives payment directly from Medicare for coverage at least equal to Medicare’s coverage. However, some managed care plans also provide services not covered by Medicare (such as prescription drugs), for which the managed care plan may assess an additional charge to the Medicare beneficiary, either through an additional premium or a charge for a specific medical service. Also, the managed care plan may assess lower deductibles or copayments than would be applicable under Medicare. Medicare beneficiaries who enroll in certain managed care plans agree to receive all covered services, except emergency and urgently needed services, from that organization (i.e. they are subject to that HMO plan’s rules).

Some of the advantages and disadvantages of managed care plans are illustrated below:

ADVANTAGES	DISADVANTAGES
1. The plan may cover goods or services not covered by Medicare, such as prescription drugs. A co-payment may apply.	1. Choice of medical care providers will normally be limited because the patient generally must use providers who contract with the managed care plan.
2. The plan may cover some or all of the Medicare deductibles and coinsurance.	2. Normally the patient does not have access to a specialist unless referred by the patient’s primary care physician.
3. The plan may be the equivalent of a medigap policy, but cost significantly less.	3. Under some managed care contracts, the plan pays the medical care provider a flat fee without reference to the actual services rendered; the medical care provider may, therefore, have a financial incentive to provide as little care as possible.
4. The plan may be geared toward preventative care and allow, for example, annual physical examinations at little or no cost.	4. Some managed care plans offer financial rewards when medical care providers do not refer patients to specialists.

 

Effect of Living Wills and other Advance Directives on MEDICARE Coverage

Medicare beneficiaries have the right to make medical treatment decisions to be carried out in the event they become mentally or physically unable to choose or communicate their wishes. Hospitals, skilled nursing facilities, hospices, home health agencies, and HMOs must give Medicare beneficiaries information about advance directives and explain their legal choices in making decisions about medical care.

An advance directive is, generally, a written document stating how individuals want medical decisions made if they lose the ability to make those decisions. An advance directive contains written instructions stating an individual’s health care choices, or names someone to make those choices in the event the individual loses the ability to make decisions himself. The two most common prepared advance directives are a "living will" and a "durable power of attorney." Laws governing these directives vary from state to state.

Using Medigap Insurance to Supplement Medicare

Medicare does not cover all of an individual’s health care costs; a serious illness can leave an individual with significant bills after Medicare pays its share. A Medicare supplement (or "medigap") policy can help to solve this problem. Medigap policies are standardized, and there are 10 types, each offering different benefits. These policies are sold by private insurance companies through insurance agents, by direct mail, or through organizations such as the American Association of Retired Persons.

Individuals in the following situations generally have no need for medigap insurance:

• Those receiving their Medicare-covered benefits through a managed care plan.
  
• Retired individuals with group health insurance coverage. (The group policy is normally the secondary payer in this case, paying benefits only for the portion of qualified expenses that Medicare does not cover.)
  
• Individuals covered by both Medicare and Medicaid. (Most Medicaid programs pay the Medicare deductibles, coinsurance, and monthly premium amounts for individuals eligible for both programs.)
  

COBRA

Retaining Health Care Coverage under COBRA

Employees who are covered by an employer-furnished health care plan and leave their jobs often find that they cannot obtain individual health insurance because of an existing medical condition or the high cost of reasonably comparative coverage. In response to this problem, the Comprehensive Omnibus Reconciliation Act of 1986 (COBRA) requires that employees and their dependents must be allowed to continue coverage under the employer’s group health insurance plan in the case of certain qualifying events. These qualifying events include:

1. termination or reduction in hours of employment,
   
2. death,
   
3. divorce or legal separation,
   
4. enrollment in Medicare, or
   
5. the end of a child’s dependency under a parent’s health plan.
   

Facts About COBRA Coverage:

• The employer is obligated to give the employee the opportunity to remain under the group health insurance policy, but is not required to pay the premiums. (COBRA applies only to employers with 20 or more employees.)

• Employees generally can continue the health insurance coverage for 18 months or until they become eligible for Medicare, whichever comes first.

• COBRA coverage can be extended for an additional 11 months if the ex-employee or dependent is disabled for Social Security purposes.

• The spouse and/or dependent children can extend coverage for an additional 18 months in certain situations (e.g. if the employee dies).

• The employee must elect to continue health insurance coverage within 60 days after terminating employment. The policy must include the same benefits as those provided to active full-time employees and dependents. The policy must also offer the employee the right to convert to a non-group policy within 180 days before the COBRA period expires, if active full-time employees also have the same right.

MEDICAL SAVINGS ACCOUNTS

Determining Eligibility

In 1996, the Health Reform Act introduced a savings vehicle called a medical savings account (MSA). Originally enacted as a four-year pilot program, Congress subsequently extended the project to December 31, 2002. Archer MSAs, as they are now called, offer tax benefits to qualifying individuals who combine high deductible insurance coverage with contributions to IRA-like accounts. An MSA is essentially a trust created or organized exclusively for the purpose of paying the qualified medical expenses of the account holder (or spouse and dependents).

Medical Savings Accounts are available to eligible individuals who are:

• self-employed individual and covered under a "high deductible plan," or
  
• an employee covered under a high-deductible plan of a "small employer."

* A high deductible plan is a health plan with an annual deductible of at least $1,500 and no more than $2,250 for individual coverage (or at least $3,000 but no more than $4,500 for family coverage). In addition, the maximum out-of-pocket expenses required for covered costs must be no more than $3,000 (or $5,500 for family coverage). [All figures are subject to increase.]

** A small employer is one who employed, on average, no more than 50 employees during either of the two preceding calendar years.

Making Contributions

• The maximum annual contribution that can be made to an MSA is 65% of the policy deductible (or 75% for a family plan).
• Within limits, contributions to an MSA are (1) deductible "above the line" if made by an eligible individual, or (2) excludable from income if made by the employer of an eligible individual.
• A self-employed individual’s deduction cannot exceed the earned income of the business that establishes the high deductible plan.
• Contributions for a year can be made until the due date (not including extensions) of the individual’s return for that year.

Taking Distributions

• Neither earnings nor amounts in an MSA nor distributions from the account that are used for "qualified medical expenses" are taxable. However, distributions that are not used for such expenses are taxable and subject to an additional 15% tax unless made after age 65, death, or disability. Qualified medical expenses include any unreimbursed costs that are eligible for the medical expenses itemized deduction.

Important note: This is a summary and, as such, it is not intended as a complete explanation of all applicable situations. Many exceptions, definitions, and special rules in the law have been paraphrased, simplified and/or omitted. Readers should not take specific action in reliance on this summary without consulting the statute and regulations or seeking advice from a qualified professional.