Medicade and Medicare

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How Medicare and Medicaid Work

Medicare is a federal health insurance program for the aged (people 65 and older), people of any age with permanent kidney failure, and certain disabled people. So, if you're one of 38 million Americans who qualify as either aged or disabled, you can get Medicare insurance.

Enrollment can be either automatic or optionaldepending on the coverage in question. So, make sure that you ftled the right paperwork to get the full package of Medicare coverage.

The basic medical care needed when you are older and covered by Medicare includes, but is not limited to:

• necessary day-to-day outpatient medical care
• occasional hospitalization for care of chronic or acute ailments or accidents
• possibly skilled nursing care in a nursing home

Medicare is designed to provide some benefits for each of these major needs. The benefits aren't great-most private sector health insurance covers more-more completely. But Medicare does offer the functional level of health coverage that most older people in the United States use.

This is a rough outline of Medicare. The practical issues of how the program works can get complicated. Even if you've been in the system for a few years, you may be unclear about what it covers, what it excludes, how much of your medical expenses you will be responsible for, and whether you need additional health insurance.

We'll answer these questions-with as little drudgery as possible.

Limitations Under Medicare

Medicare will pay for some of your health care expenses. It by no means pays for them all. There are limits on covered services-and the program includes both deductibles and coinsurance provisions.

Your doctor often will charge YOll more for services than Medicare will pay. To fill in these gaps, insurance companies have developed special policies known as Medicare supplementp°!icies.

These policies are profitable. Insurance companies and retiree associations deluge the senior population with ads for Medicare supplement policies. Agents selling Medicare supplements don't always practice the professionalism and ethical conduct they should. Often, the combination of these factors results in poor decision-making with regard to supplemental coverage-buying too much coverage, or the wrong kind, or none at all.

In addition, more direct marketing abuses have occurred. One common scenario: An impresionable older person would end up buying six or seven supplemental policies-when one is all he or she needs. As a result, Medicare supplemental policies are heavily regulated by the government, and consumers have been assured by law of certain important legal rights.

Keep in mind that, even though.agents are by law required to exercise great care in recommending and se1lingMedicare supplement policies, they ar~ paid by commissions on the policies they sell. They may be motivated to sell you higher cost policies than yo~ may n

What's Covered Under Medicare?

The first step in determining whether you need a Medicare supplement policy is clearly understanding what types of health care costs are and are not covered by Medicare.

Medicare pays only for services d~termined to be medically necessary by federal health care eJ.l;perts. Even then the services are covered only to the extent that Medicare determines charges to be reasonable.

Medicare Part A

Medicare is made up of two parts:

• Part A is Hospital Insurance
• Part B is Medical EJ.I;pense Insurance

Medicare Part A covers costs associated with inpatient care in a hospital and skilled nursing facility care after a hospital stay. It also covers home health care and hospice care. It pays for the cost of whole blood or units of packed cells, after the first three pints during a covered stay in a hospital or skilled nursing facility. In addition, it pays 80 percent of durable medical equipment-such as wheelchairs and walkers-when approved.

Just about every working person will receive Medicare at age 65. Under Part A, any person eligible for Social Security will automatically be eligible for hospital insurance at no charge. You will be automatically enrolled if you're receiving benefits before you reach 65 from either the Railroad Retirement Board or Social Security Administration. Your Medicare card will be mailed to you approximately three months before your reach your 65th birthday and coverage begins on the first day of the month in which you turn 65.

Some Medicare reform efforts have suggested raising the Part A enrollment age to 67, or to some other age. But these reforms remain more speculative than practical.

However, if you're not receiving retirement benefits, Then you must apply directly to either the Social Security Administration or Railroad Retirement Board. Be sure to do so at least three months before you reach 65, to avoid any delays in coverage. You only have seven months to enroll, beginning three months prior to your 65th birthday. Otherwise, you'll have to wait until January 1 though March 31 just to enroll. In that case, your benefits don't kick in until July 1. So, be sure you know your dates.

You are also eligible for benefits if you are one of the following:

• a disabled person who has been receiving Social Security disability benefits for at least 24 months
• a person who is diagnosed as having permanent kidney failure which requires dialysis or a kidney transplant
• an individual born prior to 1909 who has no quarters of coverage under Social Security
• a retired railroad worker

Furthermore, if you don't qualify for Medicare hospital insurance (you don't have the required work credits, etc.), you can buy coverage for a monthly premium. In the mid-1990s, the monthly premium was around $ 200. If you, plan to take this route, you must also enroll in Part B Medicare, be a resident of the United States and either a citizen or a lawfully admitted alien.

Still Working?

If you decide to continue to work after the age of 65, you will still be covered by Medicare. However, such coverage will-in most cases-be secondary to other insurance.

Example: If a fompanyhas atlt1ast 2()employees, employee~ over 65 must be offered the same health benefits as younger employ~es, Medicare" becpmes. a secondary payor/of benefits for the employees over 65. The company's health plan is primary.

Accordingly, anyhea1th c1,aiw pladebY5 an age 65 or older employee Will ftrstI>epaid by the grouP. health insurance. If any part of the'Claimdls not satisfied. by the company's plan, that portion of the claim'would then be submitted to :Medicare.

An important note: You may reject your employer's plan and elect Medicare as the primary payor, but your employer may not-in any way-encourage you to make Medicare your primary coverage.

Common tactics employers use to subtly encourage the decision: offering to pay for Part B coverage on your behalf and offering to purchase a Medicare supplement policy for you.

Medicare also becomes the secondary insurer in cases where medical care is to be provided under the provisions of a liability poliCJ', including an automobile policy.

If you or your spouse worked for at least 10 years in a Medicare covered job (meaning you were having deductions withheld from your paycheck for payroll withholding tax) and you are a citizen or permanent resident of the United States and eligible for Medicare, there is no charge for Part A (Hospital Insurance). Disabled individuals, kidney dialysis and certain transplant patients are not charged either.

If none of these fit your particular circumstances, you may purchase Medicare Part A if you are at least 65 years of age and meet other restrictions. The per-month cost in 1997 (based on 30 to 40 quarters of Medicare-qualifying employment) was $187. If you worked fewer than 30 quarters during your adult life, the monthly cost was $ 311.

There is, however, a fee for Part B (Medical Expenses). In 1997, the monthly premium was $43.80 and automatically deducted from Social Security payments. Enrollment is automatic-unless you state you don't want it-when you are eligible for premium-free PartA. If you don't qualify for premiumfree Part A, but are 65 or older, you can still buy Part B.

This kind of agreement is important, because hospital insurance can help pay for inpatient hospital care, inpatient care in a skilled nursing facility, home health care, and hospice care.

For this part of Medicare coverage, you will have to pay a deductible of $760 for each benefit period, beginning with the first day of admission to a hospital and continuing for 60 days. If you are released or hospitalized for more than 60 days, a new benefit period begins and a new deductible applies. That's the bad news. The good news is: There is no limit on the number of benefit periods you can have.

What Part A Does Not Cover

Hospital insurance under Medicare does not cover the following:

• private duty nursing
• charges for a private room, unless medically necessary
• conveniences, such as a telephone or television in y'our room
• the first three pints of blood received during a calendar year (unless replaced by a blood plan)

Medicare Part B

Medicare Part B is Medical Expense insurance covering costs associated with do'ctors' services, outpatient care, laboratory tests, x-rays, mammograms and pap smears, and medical supplies. You'll have to pay the first $100, which is the annual deductible, then Medicare will pay 80 percent of all approved charges for any eligible medical expense. The approved charge mayor may not be close to the actual fee charged by your provider, and you are responsible for the difference, as well as the additional 20 percent of the approved charge.

Here's what Part B covers:

• doctors services provided on an inpatient or outpatient basis, no matter where received in the United States, and including surgical services, diagnostic tests and x-rays, medical supplies furnished in a doctor's office, and services of the office nurse
• services of clinical
• psychologists, chiropractors, podiatrists and optometrists
• outpatient diagnostic services and medical lab fees, such as care in an emergency room or outpatient clinic of a hospital
• outpatient physical and speech therapy
• certified nurse-midwife services for pregnancies (of course, this benefit isn't used much by those over 65)
• dental work which is required due to accident or disease
• the use of outpatient medical equipment such as iron lungs, braces, colostomy bags, and prosthetic devices such as artificial heart valves
• ambulance service, if the patient's condition requires it
• outpatient psychiatric care (there is a 50 percent copayment instead of 20 percent)
• the cost of certain vaccines and antigens. (Only medicines which are administered at the hospital or at a doctor's office are covered by Medicare. Drugs which can be self-administered-taken at home-are not covered, even if prescribed by a doctor.)
• an unlimited number of home health care visits, if all required conditions are met 'and you do not have Medicare hospital (part A) coverage
• preventive health care expenses such as pap sme~rs and mammography (however, mammograms are covered only when performed in a Medicareapproved facility)
• one pair of eyeglasses following cataract surgery

Under Part B, there are a number of services that do not require a deductible or a co-payment, including:

• the cost of a second opinion required by Medicare for surgery
• home health services (except the 20 percent copayment applies to the use of certain medical equipment)
• pneumococcal vaccine (flu shots)
• outpatient clinical diagnostic lab tests conducted by Medicare-certified facilities or doctors who accept assignments

Medicare Supplements

Even with Part A and B coverage, the financial risks related to deductibles and co-payments can be financially overwhelming for a retiree living on a modest fixed income. This is particularly true should you develop a major chronic ailment and have to come up with tens of thousands of dollars out of your own pocket.

Medicare is not going to pick up the tab for all of your healthcare needs. The government estimates that Medicare really only pays about half of the costs needed to cover the elderly and there are large gaps in coverage. For instance, Medicare doesn't cover the cost of hearing aids or eye glasses, items virtually essential to seniors today.

As a consequence, insurance companies stepped in to fill those gaps in coverage. Approximately 89 percent of all Medicare recipients supplement their coverage with what are commonly referred to as Medicare Supplement policies or "Medigap" insurance.

To clarify benefits and standardize the types of policies . offered, Congress passed a law effective August 1, 1992; directing all insurance companies to standardize the policies they offer as Medicare Supplements. As a result, 10 standard plans were developed by the National Association of Insurance Commissioners (NAIC) and are the only plans that may be sold as Medicare Supplement policies.

The best part is that you can't be turned down, for any reason, as long as you're 65 and apply within six months after you first enroll in Medicare Part B. The policies are guaranteed renewable, meaning you have the right to renew the policy with no change in terms, as long as you pay the premium. The only catch is your insurance company can-and often doesincrease your premium when claims costs exceed premium revenue.

Medicare Supplement policies have letter designations, corresponding to the level of benefits provided, beginning with the basic plan labeled "l„..' and progressively increasing in benefits to the most comprehensive plan labeled ':T."

Each state must allow companies. to sell Plan. A and all Medigap compap.ies must. make Plan A.availableif they sell the more extensive and expensive'pla11$. Ho)v"eve:r, companies are not required to Jnake a1110plan~ available. 'Phey can sell just a few-as long as Plan A is one qf them,

The policies are designed specifically to work with Medicare, to provide supplemental accident and sickness insurance for hospital, medical or surgical expenses. Most, if not all, pick up Medicare's co-insurance charge to you-and may even pay your deductible.

Many charges not covered by Medicare, such as prescription drugs for outpatients, are included in some of the plans. (However, coverage for prescription drug costs may be subject to an annual limit.) The more comprehensive plans also cover the co-payment required for hospital and skilled nursing facility stays. They also cover the 20 percent of approved charges you would ordinarily pay under Part B of Medicare.

What's Included?

You can think of buying Medicare supplement coverage like buying a car. The core benefits represent the basic sticker price of the vehicle. You can add optional benefits to the core package in much the same way that you can add options to the car. The optional benefits included depend on the needs and wants of the individual.

In addition, the 20 and 50 percent co-insurance payment under Medicare Part B is covered after you pay the required $100 deductible. The first three pints of blood or packed red blood cells are covered as well under both Part A and B.

plan B includes the Basic Benefits and adds on coverage for the Medicare Part A deductible of $760 per benefit period. Therefore, if you had Plan B, you would have met your deductible and all co-insurance payments.

Plan C includes everything in Plan A and B and adds the co-insurance amount of $95 a day for skilled nursing care you would be required to pay under Medicare Part A for days 21100. It pays the $100 deductible under Medicare Part B and 80 percent of emergency care while in a foreign country after a $250 deductible. If you travel out of the country, you may want to consider this!

Plan D includes everything preceding it except the Medicare Part B deductible and adds on coverage for custbdial care (dressing, laundry, shopping, etc.). Medicare Part A Home Health Care coverage does not pay for custodial care and many seniors need assistance with daily life functions, especially after recovering from a serious illness or injury. This pays up to $1600 a year for short-term assistance.

Plan E does not cover the Medicare Part B deductible or At-Home Recovery services but does include Preventive Care. The benefit amount is $120 per' year for routine physical exams, screening procedures such as blood pressure and cholesterol as well as patient education.

Plan F does not include Preventive Care or At-Home recovery but does add on Excess Charges for Medicare Part B expenses. What this means is if you go to a doctor that does not accept Medicare assignments (meaning they will not honor the Medicare approved charges), you would be obligated to pay the entire bill. This benefit pays the amount you'll be billed for at either 100 percent or 80 percent. If 80 percent, you would be obligated to pay the remaining 20 percent.

Plan G excludes the Medicare Part B deductible and Preventive Care and pays the Excess Charges at a level of 80 percent, rather than 100 percent as in Plan F.

Plan H includes coverage for prescription medications at 50 percent with an annual limit of $1,250 per year, after a $250 deductible is met. This is called the Basic Benefit. An Extended Benefit is available only in Plan J that increases the annual amount to $3,000.

Plan I excludes Medicare Part B deductible and Preventive Care but includes Prescription Drugs at the basic ,level of $1,250 annually.

Plan J is the most comprehensive and inCludes coverage for all benefits previously listed at the maximum levels. It is also the most costly, however.

While the benefits will be the same, no matter what company issues the policy, prices will vary from state to state and company to company. That's because not all states have the same medical costs and insurance companies have different claims experience.

During the 1980s and 1990s, Medigap prices increased steadily. This forced many people-and comparu,es-to opt for a managed care approach to cover seniors' health care issues.

Since Plan C is Plan C, no matter which company is offering it, when you shop around for coverage, you'll be looking at price, service and reliability. It's also vital to fmd an insurance company you feel comfortable with-and one that is reputable and in good shape financially. Your state insurance department can alert you to any problem companies.

There are serious penalties for agents who duplicate or "pile on" supplemental coverage, including the loss of their license to sell insurance, jail terms for up to two years, and fines of up to $10,000.

Preexisting Conditions

Many older people are tieing treated for some medical problems. These conditions may be significant (high blood pressure, heart conditions, etc.) or minor (such as allergies or mild hearing loss). In any event, for insurance purposes these problems are deImed as preexisting conditions.

Most Medicare supplements have a six month waiting period for. coverage of preexisting conditions. Some companies have no preexisting condition exclusion, some impose a 90-day or three month exclusion, but none can be greater than six months.

Choosing a Doctor

About half of the doctors in the country will accept the amounts paid by Medicare as payment in full. This is referred to as accepting the Medicare assignment. As an example, if a pathologist or radiologist who performs services on an inpatient basis will accept a Medicare assignment, Medicare will pay 100 percent of reasonable charges. Medicare will also pay the cost of a Medicare-required second opinion for surgery with no 20 percent co-payment. Medicare will also pay for services of-other specialists on the same 80 percent of reasonable charges basis.

Doctors who do not accept Medicare assignments are prohibited bylaw from charging more than 140 percent of the Medicare prevailing charge for office and hospital visits. For other services the limit is 125 percent.

In the past, some doctors have tried to circumvent these limiting charges by requiring patients to contract to pay full charges. The Health Care Financing Administration has cautioned that these contracts are not valid.

Doctors, suppliers and other providers must submit claims for covered Part B services directly to Medicare, regardless of whether they are a participating or a nonparticipating provider. Some doctors ask patients to waive the right to have doctors submit Medicare claims, and obligate the patient to pay privately for Medicare-covered services. These waivers are also invalid, according to the HCFA, and could subject physicians to civil penalties.

If your doctor has not accepted your Medicare assignment, he will send the bill for Part A services directly to you. In turn, you fill out a Medicare claim form and attach any itemized bills from your doctor -including date of treatment, place of treatment, description of treatment, doctor's name and charge for service. The documents are then sent to the Medicare adminstrator in your area. Upon receiving the claim, the administrator will send an Explanation of Medicare Benefits, showing which services are covered and the amounts approved for each service.

Appealing Your Claim

If your Medicare claims are denied, you are probably going to want to appeal your claim. Within six months of receiving the Explanation of Medicare Benefits notice, you must ftle a written request for review: The administrator will check for miscalculations or other clerical errors. If the administrator declines to make a change, an appeal can be made to the Social Security office (but only if the amount disputed is $100 or more).

You must appear in person to attend a hearing and present evidence, such as a doctor's letter, to support your point. A written notice of the decision will be sent to you after the hearing.

Medicare HMOs

Due to the increasing costs of Medicare Supplement policies, many seniors are switching to managed care plans. In 1998, the federal government estimated that some 70,000 Medicare recipients a month were switching to some form of managed care. At that point, of the 38 million seniors and disabled eligible for Medicare, almost 6 million were enrolled in a Medicare HMO.

The federal government funds most of the revenue for each participating HMO, which makes the cost to you about the same as the premium you would normally pay for Medicare Part B, depending upon the HMO. (However, that may be changing soon, with rising costs and increased claims, companies are beginning to charge premiums in addition to the government's funding.)

Items such as eyeglasses and prescription drugs are covered under most HMOs. As long as you have Medicare Part B, continue to make the payments and live in a service plan's you are eligible for enrollment without health screening

You can find the names of HMO plans in your area by calling your state's insurance office. Remember, however, the same criticisms previously discussed in terms of HMOs still apply.

Once you enroll in a Medicare HMO, you can switch back to Medicare anytime. However, you may not switch back to a Medicare Supplement policy you previously had without the company's permission. And, you can be sure it will review your health record if you do and possibly turn you down. That's why some seniors hang on to their Medicare Supplement policy while enrolled in an HMQ This assures continuous coverage under the supplement if they change their minds and go back to traditional Medicare service.

The other managed care option you have is through a program called Medicare Select. Basically, this is another form of Medicare supplement insurance sponsored by the federal government, that mayor may not be continued. In 1998, Medicare Select came up for review and-by the end of 1998the Medicare system still was having trouble replacing it as a Medicare option.

If you buy a Medicare Select policy, you are buying one of the standard Medicare Supplement policies. You can purchase a policy through an insurance company or HMO-but be sure to inquire which policy you are buying. When you enroll in a Medicare Select policy (should such policies continue to be available), you choose a physician or medical provider - from a list provided by the insurance company of preferred providers." To receive full benefits you must go to the doctor or medical provider selected.

If you choose to go elsewhere, Medicare Select policies are not required to pay any benefits for non-emergency services. So, it pays to go to your doctor of choice. And, if you decide you don't like the policy, you can always return to an individual Medicare policy. You will, however, have to reapply for a Medicare Supplement-just as with HMOs.

The Last Resort: Medicaid

If insurance companies consider you uninsurable because of your age or a pre-existing condition-you probably can obtain coverage for a state-sponsored health insurance program.

State-sponsored programs should be used as a last resort, because they typically offer only limited benefits, are expensive and usually include a waiting period before your coverage kicks in. But at least they're there if you need them. You can find. out about these plans DY calling your state insurance department.

Medicaid provides medical assistance to low-income families and individuals of all ages. The program works well for seniors who have run through most of their assets. In fact, The Health Care Finance Administration reports that about half of all Medicaid spending goes to people who had financial resources when they entered a nursing home, but reached the poverty level while they were there. A third of the $55-billion-a-year budget for Medicaid goes to those over 65, primarily to support them in nursing homes.

What Services Are Covered Under Medicaid?

Medicaid offers a minimum set of services including hospital, physician, and nursing home services. Additionally, state agencies have the option of covering an additional 31 services including prescription drugs, hospice care and personal care services.

Medicaid is the largest insurer of long-term care (hTC) in the United States covering the bulk of what people would consider the middle class. It covers 68 percent of nursing home residents and over 50 percent off nursing home costs.

In 1995, Medicaid expenditures for health care amounted to $152 billion. States paid $66 billion (43 percent) and the Feds paid $86 billion (57 percent). Using up a lifetime of assets is a frightening scenario for an older person on his or her own. But what if your spouse is still living at home and you must move into a nursing home? Will you have to sell the house to cover your nursing home costs? Where will your spouse live?

At one time, Medicaid ,rules did require you to liquidate virtually all of your assets--inc1uding cash, investments (such as stocks and bonds), bank accounts; real estate and even some. forms of cash-value life insurance.",...to qualify for coverage. Fortunately, the federal government modified the requirements in 1993 to allow surviving spouses, and disabled children to retain more of the family's assets.

Now; if you are married and you enter a nursing home while your spouse remains in your house, the at-home spouse is permitted to keep the following:

• one home
• one car
• the greater of one-half of the couple's assets or $75,740
• up to $1,919 in monthly income

These amounts are indexed annually for inflation and are significantly lower for unmarried seniors. However, once neither spouse is living in or likely to return to the home and the house is sold, Medicaid may demand reimbursement for expenses associated with prior nursing home services.

An entire "Medicaid Planning" specialty has emerged in the estate planning field to help people avoid running through their life savings before qualifying for Medicaid. Some people are even tempted to give away assets so that they can qualify for Medicaid and still pass something along to their heirs. However, the government frowns on this: Federal provisions enacted in 1996 set criminal penalties for transferring assets for the sale purpose of qualifying for

Medicaid. The penalties include fines of up to $25,000 and imprisonment for up to five years.

Summary

Medicare and Medicaid aren't the only government programs that provide subsidized health insurance to Americans. The federal government offers smaller programs directed at focused groups, and state. governments usually offer their own versions of subsidized health care for poor people. But Medicare and Medicaid are the main programs in the government system. Understanding their mechanics should help you navigate similar terrain. And "navigating" is the right word. Whatever government agency runs them, these programs are full of intricate details that can make claims tough to file.

This chapter has considered the basic mechanics of the main government health insurance programs. It should give you a functional understanding of how to move through them effectively.

Counseling services may be available in your state to provide advice confirming the purchase of Medicare supplement insurance and concerning Medicaid.