Overview of the Medicare Program
In 1965 Congress established the Medicare and Medicaid programs as Title XVIII and XIX of the Social Security Act. Medicare was established to respond to the health care needs of the elderly, and through later legislation, the needs of the severely disabled and patients with chronic end-stage renal disease. Medicaid was established to help meet the health care needs of those on public assistance. In 1977 the Health Care Financing Administration (HCFA) was established to administer the Medicare and Medicaid programs.
Together Medicare and Medicaid finance more than one third of the nation's total health care bill and account for nearly three fourths of all public spending on health care. Since their enactment, both programs have been subject to numerous administrative changes.
When first enacted in 1966, Medicare covered only persons age 65 years and older. In 1973 other groups became eligible for Medicare benefits, including persons receiving social security or railroad retirement disability benefits for at least 24 months, persons with end-stage renal disease requiring dialysis or transplantation, and certain individuals who otherwise would not qualify but elected to purchase Medicare insurance.
Medicare consists of two parts: hospital insurance known as "Part A" and supplementary Medical Insurance known as "Part B." A third Medicare program, established in 1977, is the Medicare+Choice program, sometimes known as "Part C." In order to qualify for Part C, a beneficiary must already be enrolled in Part A or Parts A and B.
Medicare benefits are distributed in strictly defined benefit periods. Understanding the quirks of Medicare depends mainly on understanding a benefit period. A benefit period starts when the beneficiary first enters a hospital and ends when there has been a break of at least 60 consecutive days since inpatient or skilled nursing care was provided. There is no limit to the number of benefit periods covered by Part A during a beneficiary's lifetime. However, coverage for hospitalization is normally limited to 90 days during a benefit period, and a co-payment (money paid directly to the hospital by the beneficiary) is required for hospital days 61 - 90. If a beneficiary is hospitalized for more than 90 days, three choices are available. The beneficiary can either 1) pay out of pocket the entire cost of the hospitalization beyond 90 days, 2) make use of private "medigap" insurance, or 3) elect to use days of Medicare coverage from a nonrenewable "lifetime reserve" of up to 60 total days of additional inpatient hospital care.
Eligibility Part A
Medicare Part A is automatically provided to persons 65 years and older who are also entitled to social security or railroad retirement disability benefits. Similarly, all individuals who receive such benefits based on a disability for at least 24 months are also entitled to Medicare benefits.
Coverage Part A
- Benefits: cost of a semi-private room, meals, regular nursing services, operating room and recovery, intensive care, inpatient prescription drugs, laboratory tests, x-rays, psychiatric hospitalization, inpatient rehabilitation, long-term care hospitalization.
- Eligibility: Must be certified as medically necessary.
- Limitations: Coverage stops after 90 days, unless "life reserve" days are used.
- Deductible: Required at the beginning of each new benefit period.
- Co-payment:Days 61-90.
- Not covered:Physician fees.
Skilled Nursing Facility (SNF)
- Benefits: Similar to inpatient hospital, but also includes rehabilitation services and appliances. Applies only to skilled nursing or rehabilitation services.
- Eligibility:Coverage provided only if SNF use follows within 30 days of a hospitalization of 3 or more days, and is certified as medically necessary.
- Limitations: Limited to 100 days per benefit period.
- Co-payment:Days 21-100.
- Not covered: Physician fees and unskilled nursing home placement.
Home Health Agency (HHA)
- Benefits: Home health care including a part-time home health aid, certain medical supplies and durable medical equipment.
- Eligibility: Homebound beneficiary whose care is certified as medically necessary. A physician plan and periodic physician review of the plan must be provided.
- Co-insurance:Beneficiary must pay 20% of the cost of durable medical equipment.
- Benefits: Pain relief, supportive medical and social services, physical therapy, nursing services and symptom management for a terminal illness. Inpatient respite care is provided.
- Eligibility: Terminally ill with a life expectancy of 6 months or less. Beneficiary must be willing to forgo the standard Medicare benefits to receive hospice care.
- Limitations: Hospitalization unless beneficiary requires treatment for a condition that is not related to the terminal illness. Physician fees.
- Deductible: None.
- Co-payment: None. Co-insurance: Beneficiary pays a small percentage of drugs and inpatient respite care.
Eligibility Part B
Benefits are available to all individuals 65 years and older, even if not eligible for Part A. Part B is also available to beneficiaries who are not yet 65 years old but are disabled and eligible for Part A. Part B is optional coverage and requires payment of a monthly premium.
Coverage Part B
- Benefits: Primarily covers physician services in both hospital and non-hospital settings. Part B also covers other non-physician services including laboratory tests, durable medical equipment, most supplies, diagnostic tests, ambulance services, flu vaccines, prescription drugs which cannot be self-administered, certain self-administered chemotherapy drugs, and blood. Expenditures for institutional services in hospital outpatient departments, ambulatory surgical centers, and Home Health Agency services are covered.
- Eligibility: To be covered, all services must be certified as medically necessary or must be a defined benefit preventative service.
- Limitations: None, however certain high-cost items are subject to special payment rules that limit coverage such as blood, physical or occupational therapy, psychiatric care.
- Deductible: One annual deductible.
- Co-payment: None.
- Co-Insurance: About 20% of the medically allowable charges.
- Not Covered: Most prescription drugs, most preventive care, eyeglasses, dental care, hearing aids.
Eligibility Part C
Medicare beneficiaries who have both Part A and B can choose to receive their benefits through a variety of risk-based plans known as Part C. Patients with end-stage renal disease cannot enroll in Part C unless they were enrolled before they acquired end-stage renal disease. The following is a list of primary Medicare+Choice Plans:
- Coordinated Care Plans: Includes Health Maintenance Organizations, Provider Sponsored Organizations, and Preferred Provider Organizations, and other certified public or private coordinated care plans.
- Fee for Service Plans: Certain private providers can be selected if the providers agree to accept the plan's payment terms and conditions. This plan does not place the provider at risk.
- Medical Savings Account (MSA) Plan:This plan includes a high deductible ($6,000 in 1999). The Plan pays a prescribed portion of the capitation amount into an insurance fund for the beneficiary. The difference between the capitated amount and the plan premium is deposited into a Medical Savings Account. Deposits for the entire year are made at the beginning of the year. After the beneficiary pays the deductible, the MSA pays the provider either the specified expenses defined by the MSA plan or the original Medicare fee-for-service amount, whichever is less. If extra money remains in the MSA Plan at the end of the year, it can be used to pay for future medical needs, including certain benefits not covered by traditional Medicare, or certain nonmedical expenditures. There are some restrictions as to who may elect an MSA plan.
Eligibility Part D
Prescription Drug Insurance
Begun in 2006, Medicare’s coverage of prescription drugs offered initial confusion that has somewhat been abated. Part D-covered drugs are defined as: drugs available only by prescription, used and sold in the United States, and used for a medically accepted indication; biological products; insulin; and vaccines. The definition also includes medical supplies associated with the injection of insulin (syringes, needles, alcohol swabs, and gauze). Certain drugs or classes of drugs, or their medical uses, are excluded by law from Part D coverage. These drugs or classes of drugs are listed at this web site. While these drugs or uses are excluded from basic Part D coverage, drug plans may choose to include them as part of supplemental benefits, not covered by Medicare. Medicare covers drugs under Parts A and B as well which has also created confusion. The Centers for Medicare and Medicaid Services has tried to clarify the differences in this document.
Managed Care Plans
Prepaid health care plans like Health Maintenance Organizations are options for Medicare beneficiaries. Under this plan, the beneficiary selects a specific HMO or other approved managed care plan within a service area for comprehensive health care services. The plan must be able to coordinate all the health care services for that person. Managed care plans receive a per-person payment from Medicare that is predetermined based on a formula that is established by law and the demographic characteristics of the Medicare beneficiaries enrolled in the plan.
In addition to providing the regular services covered under Medicare, the managed care plans offer additional services such as preventive care, prescription drugs, eyeglasses, dental care, and hearing aids. The main advantage for the beneficiary is extended coverage and a single, predictable fixed monthly premium with few out of pocket expenses.
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