INSURANCE 101: Medicare Part B

Supplementary Medical Insurance (SMI)

Medicare Part B is a voluntary part of Medicare, providing benefits that coordinate with and cover certain expenses not covered under Part A.  Under Part B, an enrollee is required to pay an additional monthly premium to maintain Part B coverage.  Most enrollees pay the standard Part B premium amount, though based on income tax returns, some enrollees may pay a slightly higher premium.

In addition, late enrollment into Medicare Part B requires an enrollee to pay a 10% increase for each full 12-month period beyond age 65.  This means that an individual who waits until age 67 to enroll into Medicare Part B will pay a 20% increase in monthly premium (each full 12-month period = 10% penalty increase) over the initial enrollment period standard premium amount.

The following benefits are included under Medicare Part B coverage:

• Physician Services
• Covers services of physicians, surgeons, and osteopaths wherever treatment is administered, whether it is in a hospital, clinic, SNF, at the patient’s home, or anywhere else in the U.S.
• Services covered include medical and surgical services, office or hospital visits, house calls, x-rays, diagnostic testing, and medical supplies provided by the physician
• Preventive care

Approved vs. Non-Approved Physicians
When a physician accepts the Medicare approved amount as full payment, they have agreed to accept ‘assignment’ of the Medicare-approved amount, and cannot separately bill the patient for anything above that amount.  Most physicians accept a Medicare assignment, but if the provider requires actual amounts for services rendered instead of the reasonable amount prescribed by Medicare, the patient is responsible for paying the balance.

Non-participating providers haven’t signed an agreement to accept assignment for all Medicare-covered services, but they can still choose to accept assignment for individual services.

Providers who ‘opt-out’ of the Medicare program may still accept Medicare patients; however, physicians who opt-out are not required to follow Medicare laws and can charge any amount deemed necessary for their services.

Home Health Care (If not covered by Part A)
If Medicare Part A is not elected, and Part B is purchased alone, home health care will be covered 100% under Part B.  The enrollee is only required to cover 20% of any durable medical equipment such as a wheelchair or hospital bed.

Normally home health care is covered under Part A, but as an example: If an individual turned 65 but was not eligible for Social Security, Part A would not be free and the individual could elect not to purchase Part A and instead purchase Part B alone.  In this example, home health care would be covered under Part B.

Hospice Care (If not covered by Part A)
If an enrollee’s attending physician isn’t employed by the hospice, the enrollee can pay his or her usual Part B deductible and coinsurance for his or her services. If not covered by Part A, Part B will cover the physician’s services while the enrollee is in a hospital.

Outpatient Medical Services and Supplies

• Part B covers any outpatient services from a Medicare-certified hospital to diagnose or treat an illness or injury
• Part B also provides extensive coverage for outpatient services and supplies such as services for outpatient clinics, emergency rooms, x-rays, blood transfusions (after the first 3 pints), outpatient therapy (physical, occupational, speech), mammograms, pap smears, colorectal screenings, diabetes monitoring and education, and flu shots

INSURANCE 101: Medicare Part A

Compulsory Hospitalization Insurance (HI)
Under the Social Security Act of 1965, Medicare was created as two separate government-funded health insurance plans coordinated through the Centers for Medicare and Medicaid Services (CMS) for individuals age 65 and older – Medicare Part A: Compulsory Hospitalization Insurance (HI) and Medicare Part B: Supplementary Medical Insurance (SMI).


Benefit Period
Unlike health insurance in which policy benefits and deductibles are based on the calendar year, Medicare Part A benefits are payable to enrollees on a ‘per benefit period’ basis.  This means that each benefit period provides new benefits and is subject to a benefit period deductible and daily copayments.

A benefit period begins when an enrollee enters a hospital and extends through the 60th day after the enrollee has been discharged from the hospital.  Readmission to a hospital within 60 days of a previous discharge is considered part of the original benefit period and is not subject to a new deductible.

If an enrollee re-enters the hospital after the 60th day of discharge, a new benefit period begins. The enrollee is responsible for paying a new deductible and is provided with an additional 90 days of hospitalization coverage.

Part A Benefits

Inpatient Hospital Care
Inpatient hospital care includes a semiprivate room for individuals in need of medically necessary care, as well as meals, regular nursing services, special care units, drugs administered at the hospital, tests, medical supplies, operating room, and other hospitalization services.

Inpatient hospital care is paid for under Part A as follows:

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• After the enrollee pays the Part A deductible, Medicare covers 100% of the first 60 days of hospitalization expenses
• Beginning on the 61st – 90th day, Medicare continues to cover hospitalization expenses; however, the enrollee is responsible for a daily co-payment
• Readmission to a hospital within 60 days of a previous discharge is considered part of the original benefit period (if after 60 days, a new benefit period begins)
• After the 90th day of hospitalization, the enrollee is responsible for all remaining daily medical expenses incurred within the benefit period unless he or she utilizes ‘lifetime reserve days’

Lifetime Reserve Days
In addition to each inpatient hospital care benefit period, an enrollee is entitled to 60 ‘lifetime reserve’ days which can only be applied to hospitalization stays beyond the initial 90 days and are not renewable upon their use.

In the event that hospitalization extends beyond the 90th day within a given benefit period, an enrollee can elect to utilize any or all of his or her lifetime reserve days up to the maximum 60 additional days.  Unlike the initial 90 days of renewable benefits, once a lifetime reserve day has been utilized, it is not renewed.

When lifetime reserve days are exhausted, there is no out-of-pocket maximum for hospitalizations beyond 90 days.

Mental Health Inpatient Hospitalization Limitations
Part A covers mental health care services received in a hospital when an enrollee is required to be admitted as an inpatient. An enrollee can receive these services either in a general hospital or a psychiatric hospital that only cares for people with mental health conditions.

If an enrollee is a patient in a psychiatric hospital (instead of a general hospital), Part A only pays for up to 90 days of inpatient psychiatric hospital services during the enrollee’s lifetime.

All enrollees with Part A are covered for mental health inpatient hospitalization care and are responsible for paying a mental health deductible for each benefit period, as well as a per day coinsurance amount from day 1 to day 91.  Beyond the 91st day, lifetime reserve days continue to provide coverage up to the maximum 60 additional days.  After the additional lifetime reserve days have been exhausted, the enrollee is responsible for all costs of continued care.

Part A will also cover 20% of the Medicare-approved amount for mental health services received from doctors and other providers while hospitalized as an inpatient.

Part A Does Not Cover:

• Private duty nursing
• A phone or television in the hospital room
• Personal items such as toothpaste, socks, or razors
• A private room, unless deemed medically necessary

There is no limit to the number of benefit periods an enrollee can receive when mental health care is provided in a general hospital.

In addition to Inpatient Hospital Care, Part A provides the following care:

• Skilled Nursing Facility Care (SNF)
• Home Health Services
• Hospice Care
• Respite Care

Skilled Nursing Facility Care (SNF)
Following a hospital stay of at least 3 days, Part A provides skilled nursing care in a skilled nursing facility to enrollees for up to 100 days per benefit period.  Medicare covers 100% of the costs for the first 20 days, and shares the cost with the enrollee through a daily co-payment for days 21 – 100.

Skilled nursing care must be administered by a Medicare-approved skilled nursing facility staffed with licensed nursing personnel.

Home Health Services
Part A also provides coverage for intermittent home health services that are administered through public and private agencies at the enrollee’s home.  Medicare provides up to 20 days of home health care per benefit period.

Home health care services include intermittent skilled nursing care, physical therapy, speech-language pathology services, continued occupational services, home health aides, medical social services, medical supplies, and 80% coverage of any durable equipment, such as a wheelchair or at-home hospital bed.

To qualify for home health services, an enrollee must be under the care of a doctor who certifies the enrollee as ‘homebound,’ and services must be provided ‘intermittently,’ or on a part-time basis.

Part A does not cover 24-hour-a-day care at the enrollee’s home, nor does Part A deliver meals or provide homemaker services or personal care.

Hospice Care
Part A provides services to terminally ill enrollees, as well as their families, when certified as terminally ill by the enrollee’s physician.

In addition to being certified as terminally ill, the enrollee must accept to receive ‘palliative’ care, meaning care to comfort, but not to cure one’s illness, and must sign a statement choosing hospice care.  Part A covers 100% of all costs, with the exception of a small prescription drug co-payment.

Among the many services included such as doctor and nursing care, medical equipment, supplies, pain relief and symptom control drugs, Part A also provides short term relief, called ‘respite care’ for the caregiver of an at-home hospice enrollee.

Respite Care
Often referred to as ‘Caregiver’ care, Medicare Part A provides up to 5 consecutive days of hospice care for an at-home enrollee in order to provide ‘time off’ for the caregiver.

INSURANCE 101: Medicare

Enacted as part of the Social Security Act of 1965, Medicare was created to provide healthcare coverage for U.S. citizens and permanent residents age 65 and older, as well as individuals who meet disability qualifications for Medicare coverage, or have permanent kidney failure. Considered to be a nationalized health insurance program, Medicare currently covers more than 53 million elderly and disabled Americans.

Administration of Medicare
Medicare is a federal program that is funded primarily through employer and employee payroll taxes.  It is administered by the Centers for Medicare and Medicaid Services (CMS) and is provided to Medicare ‘enrollees’ through over 1.5 million healthcare providers contracted by the federal government to provide healthcare services and supplies.  Medicare eligibility and premium processing is conducted through the Social Security Administration, though it has no authority over Medicare laws or the administration of the program.

In order to effectively process annual Medicare claims, the federal government contracts through several types of non-governmental claims processing companies including:  ‘Fiscal Intermediaries (FI)’, ‘Carriers,’ and other types of Medicare Administrative Contractors, called ‘Part A MACs’ or ‘Part B MACs.’

Medicare costs associated with inpatient hospital care, long term care centers, hospice care centers and other skilled nursing facilities are processed through FIs and Part A MACs. (Part A Insurance)

Medicare costs associated with physician services, outpatient hospital care, various types of outpatient therapy, diagnostic testing, and other services provided by qualified practitioners are processed through Carriers, and Part B MACs.  (Part B Insurance)

Claims Process
Every 3 months, Medicare provides enrollees with a Medical Summary Notice (MSN), also known as an Explanation of Medicare Benefits (EOMB) that shows the enrollee’s medical care services and supplies that were billed to Medicare during the previous 3-month period, as well as the amount paid by Medicare, and any excess cost still owed by the enrollee.

Though it is not a bill, the MSN provides a Medicare enrollee with a specific explanation of the costs incurred from his or her healthcare in order to effectively coordinate private Medigap insurance or Medicare Advantage coverage for the remaining costs that exceed Medicare’s limits.

Some medical claims are ‘adjusted’ by the various intermediary claims processors, if necessary, requiring the enrollee to pay extra, or to refund excess payment back to the enrollee, if Medicare services were under or overcharged.  If an enrollee is unhappy with any part of his or her MSN, he or she has the right to appeal any claims or adjusted claims made by the Medicare claims processor.

Appeals Process
A guaranteed right of every Medicare enrollee is the right to a fair process to appeal decisions about an his or her health care coverage or payments. Regardless of the specific Medicare plan in which he or she is enrolled, every enrollee has the right to appeal the following:

An application denial for a Medicare program

• A service or item that the enrollee received is not covered by the plan and the enrollee believes it should be
• A service or item is denied and the enrollee thinks it should be paid
• The amount that Medicare paid for a service or item
• If Medicare or the enrollee’s plan provider stops providing or paying for all or part of a health care service, supply, item or prescription drug the the enrollee believes he or she still needs

5 Levels of Appeals:
When filing an appeal, an enrollee can self-file or appoint a representative to help with the appeals process.  A representative can be a family member, friend, attorney, doctor or anyone else chosen by the enrollee.  Once chosen, an appeal against a medicare decision or enrollee expense is accomplished through 5 levels of appeals

Level 1: Redetermination by the company that handles claims for Medicare
Level 2: Reconsideration by a Qualified Independent Contractor (QIC)
Level 3: Hearing before an Administrative Law Judge (ALJ)
Level 4: Review by the Medicare Appeals Council (Appeals Council)
Level 5: Judicial review by a federal district court


If an enrollee disagrees with the decision made at any level of the process, he or she can proceed to the next appeal level.  At each level, the enrollee is provided instructions in the decision letter on how to move to the next level of appeal.  Appeal requests must be in writing and filed within 60, 120 or 180 days, depending on the current level of appeal.

Overview of Medicare Parts A, B, C & D
The Medicare program is comprised of various ‘parts,’ including its core benefits in Part A, Compulsory Hospital Insurance (HI) and Part B: Supplementary Medical Insurance (SMI), as well as prescription drug coverage in Part D.

Medicare coverage is subject to deductibles, copayments and limitations in coverage, requiring enrollees to cover a portion of their medical expenses, in addition to paying a Part B premium (and possibly Part A, if not qualified to receive free Part A coverage).

As an alternative to Parts A and B, individuals can choose to elect coverage through Part C, also known as Medicare Advantage.  Provided through Medicare-approved private insurers in the form of HMOs or PPOs, Medicare Advantage includes coverage for Parts A and B, as well as covering an enrollee’s deductible, coinsurance and excess costs above Medicare’s coverage limits.  Medicare Advantage also includes optional coverage for prescription drugs.  Part C is separate from Parts A and B and is designed to replace Parts A and B; therefore, when an individual enrolls into Part C, he or she ‘disenrolls’ from Medicare Part A and B.

As an alternative to Part C, an enrollee may instead purchase a Medicare ‘supplement insurance’ plan that works in conjunction with Medicare Part A and B coverage.  Private Medicare supplement insurance, called ‘Medigap’ insurance is an alternative to Part C that also covers an enrollee’s deductible, coinsurance and excess costs above Medicare’s coverage limits.  The term ‘Medigap’ is defined as private insurance that helps fill in the ‘gaps’ that Medicare insurance leaves for an enrollee to cover.

Medigap policies are also purchased through private insurers, though the Centers for Medicare and Medicaid Services (CMS) and the NAIC have ‘standardized’ these policies to ensure that each insurance company provides the same coverage and benefit structure.  Essentially, the only difference between Medigap insurers is their customer service and premium rates.

Both Medicare Advantage plans and Medigap policies are sold by private insurance companies providing similar types of coverage to Parts A and B, and cannot be purchased together.  A Medicare enrollee may only ‘disenroll’ from Parts A and B and enroll into Part C, or elect to purchase a private Medigap policy to work in conjunction with Part A and B, but he or she cannot receive coverage from both at the same time (though each can be replaced by the other in the future).

Prescription Drug coverage through Medicare Part D can be purchased through either Medicare Advantage or Medigap supplement policies.

The following overview briefly lists each part of Medicare and the expenses it covers:

Medicare Part A – Compulsory Hospital Insurance (HI)

• Inpatient hospital care
• Skilled nursing facility care (SNF)
• Home health care
• Hospice Care

Medicare Part B – Supplementary Medical Insurance (SMI)

• Physician services
• Home health care and Hospice Care (if not covered by Part A)
• Outpatient medical services and supplies

Medicare Part C – Medicare Advantage

• Replaces and covers expenses found in Part A and B
• Medicare private fee-for-service plans (PFFS)
• Medicare managed care plans (HMOs and PPOs)
• Medicare specialty plans

Medicare Part D – Prescription Drug Insurance

• Prescription drug coverage

Medigap – Private Medicare Supplement Insurance

• Private supplemental Medicare insurance that is designed to fill in the ‘gaps,’ or cover the expenses that are not covered under Medicare Part A and B
• Standardized by the CMS, Medigap policies are purchased from private insurers as an alternative to Part C (Medicare Advantage)

The ‘Original Medicare’ Plan
Comprised of Medicare Part A and B, the ‘Original Medicare’, enacted in 1965, provides inpatient hospitalization coverage (Part A) as well as outpatient care, medical supplies and physician services (Part B).  Medicare Part A is automatically offered free of charge on the first day of the month in which an individual turns age 65 and is eligible for Social Security, unless the enrollee waits until a later date.  Individuals who have not earned the necessary 40 credits through Social Security may still purchase Medicare Part A.

Medicare Part B is voluntary and regardless of Social Security eligibility, everyone pays a Part B monthly premium in order to retain Part B coverage.  If eligible for Social Security, monthly premiums are usually deducted from an enrollee’s social security check. Part B is automatically offered upon enrollment into Part A, though it is not required and can be purchased at a later date.

Eligibility for Medicare Part A and B
Though all U.S. citizens and legal residents qualify for Medicare at the age of 65, there are some stipulations in its costs, as well as the ability to receive Medicare benefits earlier than age 65.

Premium-free Part A
Due to the fact that Medicare is funded by payroll taxes, an individual qualifies for Premium-free Part A coverage once he or she has worked at least 10 years in ‘Medicare-covered employment.’  This simply means that at least 10 years of wages have been taxed for Medicare (10 years x 4 ‘quarters of coverage’ or credits per year = 40 credits).

In addition to the general enrollment requirements, individuals may also qualify for free Medicare Part A coverage under the following circumstances:

• Individuals age 65 or older who have qualified for Social Security (40 credits) or the Railroad Retirement Board (RRB) benefits (regardless of whether or not benefits have begun)
• Individuals, regardless of age, who have received Social Security disability benefits for at least 24 months before Medicare benefits begin
• Individuals, regardless of age, who have been diagnosed with permanent kidney failure, known as ‘End-Stage Renal Disease (ESRD)’

Premium (Paid) Part A
Individuals who do not meet the 40 credit Social Security requirement for premium-free Part A coverage can still purchase Part A when they turn age 65; however, Part A is not automatically offered to them.

To purchase Premium Part A coverage, an individual must apply for Part A through the Social Security Administration during a valid enrollment period, such as the ‘initial’ enrollment period, ‘general’ enrollment period or ‘special’ enrollment’ period.  He or she must also enroll in or already have Part B coverage.

Premium Part A Costs
$0/month (40 credits – Fully Insured)
$224/month (30-39 credits)
$411/month (under 30 credits)


In order to keep Part A, the individual must continue to pay all monthly premiums and stay enrolled in Part B.  Premium Part A coverage begins ‘prospectively,’ meaning it is based on the enrollment period in which the individual chooses to apply for Part A coverage.

In regards to the PPACA individual mandate, individuals who qualify for Medicare Part A are not required to participate in the Marketplace, nor will any tax penalty be imposed for non-participation.

Part B
Eligibility for Part B depends on whether an individual is eligible for premium-free Part A or whether he or she has to pay a premium for Part A coverage.

Individuals who are eligible for premium-free Part A are also eligible to enroll in Part B coverage once they are entitled to Part A.

Individuals who must pay a premium for Part A must also meet the following requirements to enroll in Part B:

• Be age 65 or older;
• Be a U.S. resident; AND
• Be either a U.S. citizen, OR
• Be an alien who has been lawfully admitted for permanent residence and has been residing in the United States for 5 continuous years prior to the month of filing an application for Medicare.

Part B Premium
Unlike Part A, regardless of the number of credits earned through Social Security, Part B requires paying a monthly premium, referred to as the Standard Monthly Premium.

High income individuals are assessed higher monthly premiums.  Determined by one’s modified adjusted gross income (MAGI), married, filing jointly couples pay a higher Part B premium if their MAGI is greater than $170,000.  Individuals filing taxes using a different status with a MAGI greater than $85,000 must also pay a higher Part B premium.

Part B Deductible & Coinsurance
In addition to the standard monthly premium, Part B includes an annual deductible, after which Part B pays 80% of covered services with no annual out-of-pocket maximum for Part B claims.

As with Part A, enrollment into Part B can only occur during the initial, general or special enrollment periods.  Enrollment into Part B can also be delayed until a later date; however, a late enrollment penalty will be applied to the monthly Part B premium for as long as the individual has Part B.

Initial Enrollment Period (IEP)
The Initial Enrollment Period (IEP) is the first opportunity for a qualified individual to enroll in Medicare Parts A and B.  Three months before an individual reaches age 65, he or she enters into this ‘initial’ period, and as long as the individual is eligible for Social Security benefits or Railroad Retirement benefits, he or she may sign up for Medicare Parts A and B.

More specifically, this initial enrollment period provides an eligible individual with a 7 month window in which to enroll into Medicare, beginning 3 months before turning age 65, and lasting up to the 7th month limit, which includes the 3 months after turning age 65 (in addition to the individual’s actual birth month).

During the initial enrollment period, an enrollee’s coverage begins 1 month after enrollment when an individual signs up the month he or she turns age 65, 2 months for enrollees who sign up 1 month after turning age 65, and 3 months for enrollees who sign up between 2-3 months after turning age 65.

Part B is considered voluntary because it requires paying a monthly premium.  An individual can choose to enroll only into Part A and can decline to receive Part B initially.

Any individual who meets the age qualification can sign up for Medicare coverage during their IEP; however, an individual can also defer Medicare coverage all together until a later date if he or she chooses not to sign up during their initial 7 month enrollment period.  This usually occurs as a result of being covered under an employer’s group health plan.

General Enrollment Period (GEP)
In addition to the initial enrollment period, individuals who choose not to enroll into Medicare initially may do so any year following their 65th birthday.  A General Enrollment Period (GEP) from January 1st through March 31st provides eligible individuals with the opportunity to enroll into Medicare Parts A and B with coverage beginning on July 1st.

Part A enrollees who then enroll in Part B at a later date, beyond the initial enrollment period, are considered to be enrolling ‘late’ into Part B.  As a result, a late enrollment penalty is added as a percentage increase in premium above the standard Medicare premium for the lifetime of the policy. It is simply added to the Part B premium, thus requiring late enrollees to pay a higher premium for Part B coverage compared to the Part B enrollees in the initial enrollment period (IEP).

Special Enrollment Period (SEP)
A currently employed individual who is still insured under a group health plan when he or she reaches age 65 can either enroll into Medicare while still covered by his or her group health plan, or defer Medicare enrollment until he or she retires.  Once employer group health coverage has ended, a retiree enters a Special Enrollment Period (SEP) in which he or she has 8 months to enroll into Parts A and B without being charged late Part A and Part B enrollment penalties.

Premium Part A Late Enrollment Penalty
If an individual did not enroll in premium Part A when first eligible, he or she may have to pay a higher monthly premium if they decide to enroll later.  The monthly premium for Part A may increase up to 10% and the individual will have to pay the higher premium for twice the number of years the individual could have had Part A, but did not sign up.

Example
An individual who does not qualify for automatic Part A enrollment upon turning age 65 decides to wait 3 years to enroll into premium Part A.  Based on the 10% increase in monthly premiums for twice the number of years the individual could have had Part A rule, he or she will need to pay a monthly penalty of 10% above the standard Part A premium for a total of 6 years (double the 3 years he or she waited to enroll)

Part B Late Enrollment Penalty
If an individual does not enroll into Part B when first eligible, he or she may have to pay a late enrollment penalty for as long as the individual is enrolled in Part B, unless he or she is eligible for enrollment under a special enrollment period.

Every full 12-month period after an individual enrolls into Medicare Part A without also enrolling into Part B will be penalized 10% above the standard Part B premium; therefore, 2 full 12-month periods equates to a 20% increase, 3 full 12-month periods equates to a 30% increase, and so on, until Part B is purchased.

Example
An individual’s initial enrollment period ended in June of 2010, but he or she did not enroll in Part B until the February 2014 open enrollment period (44 months after initial enrollment ended).  Based on the ‘full 12-month period’ rule, the late penalty would equate to a 30% increase in the Part B monthly premium (44 months divided by 12 months per year equals 3.66, which equates to 3 full 12-month periods).

Part A & B Deductibles and Copayments
Also known as the ‘original fee-for-service plan,’ Medicare Parts A and B require enrollees to cover a portion of their healthcare services.  Part A hospitalization insurance requires enrollees to pay a deductible for a hospital stay of 1-60 days and a daily copayment from days 61-90.  An additional and more expensive daily copayment is payable for any of the enrollee’s 60 lifetime reserve days.

Part B medical insurance requires enrollees to pay a separate annual Part B deductible as well as paying 20% coinsurance for all Medicare-approved Part B services.

In addition to the applicable deductibles and copayment amounts, each enrollee is responsible for paying for an initial amount of blood, if needed, before Medicare begins to cover its costs. Also known as the ‘blood deductible,’ combined between both Part A and B is the requirement of the enrollee to cover the cost of the first 3 pints of blood each calendar year, if needed, before Medicare begins to cover it costs.

Part A and B Exclusions
As defined by the Social Security Administration Sec. 1862, no payment may be made under part A or part B for any expenses incurred for items or services:

• which are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member,
• are not reasonable and necessary for the prevention of illness,
• in the case of hospice care, which are not reasonable and necessary for the easement or management of terminal illness,
• in the case of screening mammography, pap smears, pelvic exams, glaucoma, prostate cancer screening tests, which is performed more frequently than is covered under Medicare Parts A and B
• in the case of an initial preventive physical examination, which is performed more than 1 year after the date the individual’s first coverage period begins under part B
• in the case of cardiovascular screening tests, diabetes screening tests and ultrasound screening for abdominal aortic aneurysm which are performed more frequently that is covered under Medicare Parts A and B

In addition, Medicare generally excludes payment for medical expenses from procedures that are not provided within the United States (with certain exceptions), expenses incurred as a result war, or of an act of war, and expenses which constitute personal comfort items, except in the case of hospice care.

Medicare also excludes payment for eye exams required for prescription glasses, dental exams, hearing aids or exams, orthopedic shoes or other supportive devices for the feet, and cosmetic surgery, except in the case of injury.

Assignment
Due to the fact that Medicare determines the reasonable charge for services, when a physician accepts the Medicare approved amount as full payment, they have agreed to accept ‘assignment’ of the Medicare-approved amount, and cannot separately bill the patient for anything above that amount.  Most physicians accept a Medicare assignment, but if the provider requires actual amounts for services rendered instead of the reasonable amount prescribed by Medicare, the patient is responsible for paying the balance.

Group Insurance vs. Medicare
An employee has the right to retain his or her group insurance past age 65, and if the employee is offered extended health coverage as part of a retirement package, he or she can delay Medicare coverage until it is needed, or has the option to combine and coordinate Medicare with the current employer’s group policy.

In the event that the qualified employee decides to retain his or her group health insurance and enroll into the Medicare program concurrently, healthcare expenses are first covered by the employer’s group policy, known as the Primary Payor.  Any remaining expenses not covered are then processed by Medicare, which is considered to be the Secondary Payor.  Any expenses above both these limits are then covered by the employee.

Under the Tax Equity and Fiscal Responsibility Act (TEFRA), employers with 20 or more employees must offer the same coverage to older employees as is provided to younger employees.  Depending on the employee and the extent of the group health coverage, an individual who qualifies for Medicare can still elect for group health insurance, in which case he or she can decline Medicare enrollment, or can enroll into Medicare and use it as secondary coverage to the group health insurance.  The other option is that the employee can decline group coverage, in which case, Medicare becomes the primary, and only healthcare coverage.

INSURANCE 101: Major Medical Insurance

Unlike the limited coverage provided by basic medical expense plans, Major Medical Insurance, commonly referred to as ‘major medical,’ covers a wider range of medical expenses with generally higher individual benefits and policy maximums.  Benefits can reach a specified amount per year, such as $100,000, or provide unlimited yearly amounts up to a certain lifetime maximum, such as $3 million, for example.

In comparison to ‘first-dollar’ coverage provided by basic medical expense insurance, major medical insurance includes two key features:  ‘deductibles’ and ‘coinsurance.’  Insurers require policyholders to absorb and pay these initial expenses before the insurer begins to pay benefits on a policy.  This greatly reduces the insurer’s costs and allows it to promote a smaller premium payment to maintain the policy.

A Deductible is the amount of medical expense that the policyholder must ‘absorb,’ or pay before benefits are covered by the insurance company.  In a major medical insurance policy, the deductible is covered 100% by the policyholder and is usually based on a calendar year medical expense basis.  Generally speaking, the higher a policy’s deductible, the lower the monthly premium, so insurers offer consumers a variety of choices in deductible amounts in order to remain within the consumer’s budget.

Some policies provide for ‘first-dollar,’ or up-front benefit payments before the deductible is required, while other policies require the deductible to be met before any benefits are payable by the insurer.

Three general types of deductibles exist in major medical insurance including ‘corridor,’ ‘integrated’ and ‘flat’ deductibles.

This amount is covered 100% by the policyholder and is usually based on a calendar year medical expense basis, meaning that each new calendar year (January 1st – December 31st) the policyholder is responsible for satisfying a new deductible if medical expenses occur within the year.

Deductible ‘Carry-Over’
A clause added to a major medical policy that provides for expenses incurred in the final 3 months of the calendar year (October – December) to be carried or ‘rolled over’ and applied toward the next year’s deductible.  Essentially, this clause eliminates the risk of paying multiple deductibles within a short period of time.

Supplementary Major Medical
When basic medical expense benefits are unable to provide complete coverage for a medical cost, supplementary major medical insurance can be used to absorb the additional costs.  An example of coverage under a supplementary major medical plan would be its ability to cover hospital room and board once a basic medical expense runs out.  So in the event that a basic medical expense plan provides 30 days of coverage for room and board, supplementary major medical would kick in on day 31.

Corridor Deductible
Used in a supplementary major medical policy, a corridor deductible works in conjunction with a basic medical expense policy by ‘bridging’ both policies together.

A policyholder’s initial medical expenses, prior to payment of the corridor deductible, are covered 100% by the insurance company on a ‘first-dollar’ basis through the policyholder’s basic medical expense policy.  After the basic policy’s benefits are exhausted, the policyholder then pays the full ‘corridor’ deductible amount for any expenses exceeding the coverage provided by the basic policy.

The policyholder is responsible for paying 100% of the policy’s stated corridor deductible amount.  Any remaining or additional medical expenses incurred by the policyholder beyond the corridor deductible for the remainder of the calendar year are shared through the policy’s stated coinsurance percentage between the insurer and policyholder.

In comparison to a flat deductible that requires payment of the flat deductible by the policyholder before any benefits are payable, a corridor deductible is only payable after basic benefits are first paid and exhausted by the insurance company.

Integrated Deductible
Although not as common as a corridor deductible, an integrated deductible is considered to be ‘integrated’ into a policyholder’s basic and major medical benefits and can be partially or completely satisfied by the basic plan’s first-dollar benefit amount.  This depends on both the integrated deductible amount and the amount of first-dollar coverage provided based on the type and duration of expense incurred by the policyholder under the basic plan.

Examples:
Ed is covered under a supplementary plan that contains a $500 integrated deductible during which time he incurs $600 in medical expenses, all of which is covered first-dollar under his basic policy. As a result, Ed has satisfied his integrated deductible required by his supplemental policy.

Ben is also covered under a supplementary plan containing the same $500 integrated deductible; however his basic plan only covered $300 of his medical expenses due to the type and duration of medical assistance provided.  As a result, Ben is responsible for paying $200 before his major medical benefits begin.

In short, if the basic plan’s benefits cover more than the integrated deductible amount, the policyholder has satisfied the deductible; if not, the policyholder pays the difference up to the deductible amount.

Comprehensive Major Medical
Comprehensive major medical is the most common type of coverage in the health insurance industry because it combines basic and major medical expense coverage to provide extensive health care under a single policy.  Services include, but are not limited to hospital expenses, physician expenses, surgical expenses, diagnostic X-rays, and other medical services and supplies, thus making coverage ‘comprehensive’ for the policyholder.



Flat Deductible
Used in a comprehensive major medical plan, a flat deductible is a fixed annual amount that must be satisfied before an insurance company will begin to provide any benefits, except as prescribed in the policy regarding doctor’s visits or generic prescription coverage.  This amount varies based on the policy chosen, with common deductible amounts of $500, $1000, $2500, $5000, up to a less common $10,000 deductible.  The higher the deductible of a policy, the lower the monthly premium, so consumers are able to choose a deductible amount within their monthly budget.

In comparison to a corridor deductible that is only payable after basic benefits are first paid and exhausted by the insurance company, a flat deductible requires payment by the policyholder before any benefits are payable.

A Family Deductible is usually equal to three times the individual deductible amount in a health policy.

In a family of four, for example, if three members each satisfied the individual deductible in one year, no deductible would be applied to medical expenses incurred by the fourth member.

Deductibles are commonly considered All-Cause, meaning that all medical expenses fall under a single annual deductible.  A less often used Per-Cause deductible must be satisfied for each new medical occurrence in a given year.

Coinsurance
Also referred to as ‘percentage participation,’ Coinsurance is defined as a percentage of additional medical expenses that a policyholder must pay in addition to the deductible.  The insurer and the policyholder split medical costs, with the insurer covering 80% of the cost while the insured covers 20%, also known as 80/20 coinsurance.  Some policies have a 100/0, 90/10, or 70/30 split where the insurance company is always responsible for the higher percentage amount.

Coinsurance can become a costly expense in the event of multiple medical claims, or even as a result of one large claim.  For this reason, comprehensive major medical policies include a ‘stop-loss’ provision that places a limit on the amount of covered medical expenses that a policyholder can be responsible for paying within the calendar year.

Stop-Loss Provision
Stop-loss is defined as the policyholder’s annual financial limit upon satisfying the policy’s deductible and coinsurance dollar amounts.  Also referred to as the policyholder’s ‘out-of-pocket maximum,’ once he or she has satisfied the policy’s deductible and coinsurance amount, any remaining medical expenses are covered 100% by the insurer for the remainder of the current calendar year.

Formula:
Deductible + Coinsurance dollar amount = Policy Stop-Loss (Out-of-Pocket Maximum)

However, an insurer may require a separate prescription drug deductible and copay amounts.  If required, this expense is generally separate from the policy’s stop-loss limit, although an insurer may also include prescription drug costs within the policy’s stop-loss limit.  Therefore, the policyholder’s true financial limit for the calendar year is the sum of his or her premium payments, deductible and coinsurance amounts and any additional prescription drug deductible and copay amounts, if required by the insurer.

Insurance contracts can also vary in how the deductible and coinsurance stop-loss is written into the policy.  For instance, the stop-loss can be stated as a total dollar amount which includes the deductible and coinsurance, such as $2,000 in total annual expenses.  It can also be written as a deductible amount and an additional amount determined by the coinsurance percentage, such as a $500 deductible and an additional 20% of the next $10,000 in medical expenses.  The following two examples show how a health policy’s stop-loss can vary based on how it is written into the contract.

Examples
Policy A has a $2,000 stop-loss (out-of-pocket maximum) which includes a $500 deductible and 20% coinsurance.  Since the policy’s stop-loss occurs at $2,000 and the deductible is $500, the policyholder pays 20% of covered medical expenses after satisfying the $500 deductible until he or she has paid a total of $1,500 in coinsurance.  Even if the coinsurance were 30% or 40%, the policyholder cannot exceed $1,500 in coinsurance expense after satisfying the policy’s $500 deductible, thus limiting the policyholder to a $2,000 stop-loss.

Policy B has a $500 deductible and an additional 20% coinsurance of the next $10,000 in medical expenses.  After satisfying the $500 deductible, the policyholder pays an additional $2,000 in coinsurance (10,000 x .20), thus limiting the policyholder to a $2,500 stop-loss.  If instead the coinsurance percentage is 30%, the policyholder would be responsible for paying $3,000 in coinsurance (10,000 x .30), and in addition to the $500 deductible, the policy’s stop-loss would limit the policyholder to $3,500 in medical expenses for the calendar year.


Again, the policy’s stop-loss depends on how it is written into the contract.  A health policy’s premium amount is largely determined by the deductible and coinsurance percentage chosen by the policyholder.  A higher deductible and coinsurance percentage equates to a lower monthly premium, while a lower deductible and coinsurance percentage equates to a higher monthly premium.

Major Medical Insurance Plan Riders
Most comprehensive major medical insurance plans include available riders from which a policyholder can choose to provide additional coverage.

Prescription Drug Rider
This rider allows a policyholder to purchase prescriptions either under a small co-payment, usually $3-25 dollars depending on the type of medication, or by being reimbursed by the insurer upon submitting a claim for the medication.  Under reimbursement, a policyholder pays for the entire medication at the time of the visit and is later reimbursed by the insurer.

Dental Care Rider
When added to a major medical policy, this rider provides an indemnity payment or a discount for specific services received by any dentist in which the policyholder receives care.

Vision Care Rider
Another added rider, vision care covers part or all of the cost associated with an eye exam on an annual basis, and eyeglasses on a bi-annual basis.

Accidental Supplement (Indemnity) Rider
This type of rider is especially useful in a family plan with active children.  Most comprehensive major medical policies offer additional coverage using the ‘first-dollar’ approach for accidents that might occur.

As an example, a policy holder can choose to include a $2,500 accidental supplement rider.  If any type of accident were to occur to any of the insured members listed on the policy, an indemnity amount up to a maximum of $2,500 (per incident) is paid towards the expense before any deductible amount is paid.

Maternity Rider
This type of rider helps manage the expenses associated with child birth.  It is typically limited to a percentage of the cost of birth, leaving the parents with some out-of-pocket expense.

Term-Life Rider
Some plans also offer a small term-life rider that is actually part of the health insurance policy, as opposed to a separate life insurance plan, thus it is a rider to the health plan, not an independent life policy.  As a term-life insurance rider on the policyholder, he or she names a designated beneficiary for the stated death benefit, should the policyholder die during the term of the life rider.

INSURANCE 101: Basic Medical Insurance

The purpose of medical expense insurance is to provide financial protection against costs associated with hospitalization, surgical procedures, physicians’ fees, as well as many other associated costs.  Considering that escalating medical expenses is one of the leading causes of bankruptcy, it is vital to be insured under some type of medical expense insurance.

Types of Medical Expense Insurance

• Basic Medical Insurance
• Major Medical Insurance

Basic Medical Insurance, also known as Basic Medical Expense plans provide limited benefits in the form of indemnity payments which are paid directly to the insured, and are provided as a limited benefit for services incurred by the insured.

The indemnity payment is limited to a specific amount of money that is provided by the insurer to an insured on a daily basis for a specific period of time to aid in offsetting costs incurred by the insured for his or her illness or injury.  Again, since this payment is limited to a specific amount, it is not designed to fully cover an insured’s medical expense.

It is also important to note here that the indemnity payments, once provided by the insurer, is the property of the insured, and as such, can be used to help pay for the incurred medical expenses, for which is provided, or for any other purpose in which he or she decides to use the money.  Again, the indemnity payments are considered the insured’s money.

Basic medical expense plans are also referred to as First-Dollar Coverage because they provide benefits up front to the insured without having to satisfy any plan deductible.

In comparison ‘major medical’ insurance provides comprehensive coverage and is less limited, covering most medical expenses completely after an insured meets certain plan stipulations such as the plan’s deductible.

Unfortunately, with the rising costs of health care, basic medical expense plans are less effective in covering healthcare costs since they are limited to the type and duration of services being covered as well as the amount associated with these services.  Basic medical expense plans, though limited, do provide some financial protection, and therefore, should be reviewed. Simply stated, basic medical expense plans provide limited coverage for basic hospital, surgical, and physicians’ fees.

Basic Medical Insurance Covers:

• Basic hospital expenses
• Basic physicians’ (non-surgical) expenses
• Basic surgical expenses
• Basic Hospital Benefits

Basic hospital benefits include coverage for an insured’s Room and Board, payable as either a fixed daily dollar amount or payable over a fixed period of time.

Additional charges covered by basic hospital benefits include the costs for medications, anesthesia, X-rays, as well as the costs involved with the use of an operating room.  Costs are covered up to a certain amount as specified in the insurance contract.

Though basic hospital expense insurance covers many expenses associated with a hospital, it does not include coverage for any surgeons or other physicians’ services performed while in the hospital, for that one needs the following ‘basic physicians’ benefits and basic surgical benefits

Basic Physicians’ (Non-Surgical) Benefits
Basic physicians’ benefits provide an insured with funds to help cover the costs rendered by non-surgical physicians while he or she is confined to a hospital, as well as physicians’ office visits outside of the hospital.  Physicians’ benefits are provided in the form of fixed indemnity payments made to the insured to help cover non-surgical expenses.  The amount of benefit for a physician’s visit is fixed, regardless of the actual expense incurred.

As an example, if the basic physician’s benefit contract provides an insured with a $100 indemnity payment per visit, but the actual expense of the visit is $120, then the insured is still responsible to pay the additional $20 for the physician’s visit.  On the other hand if the actual visit expense is $80, then the indemnity payment would also be $80, as not to exceed the actual cost, but still within the per visit limit established in the insurance contract.

Basic Surgical Benefits
Basic surgical benefits provide an insured with funds to help cover the costs associated with in-hospital surgeon’s services and services rendered by an anesthesiologist before surgery, though, the anesthesia drug, itself, is covered under the miscellaneous expenses just mentioned in a basic hospital expense plan.

Methods to Determine Surgical Expense Benefits

Schedule of Surgical Procedures
This is the primary method used to determine surgical expense benefits.  It determines the amount of benefit by assigning a specific value, or dollar amount, to each type of surgical expense provided; however, if the cost of surgery exceeds a specified amount, the insured would then be financially responsible for the remaining cost.

Usual, Customary, and Reasonable (UCR) Approach
This method follows the UCR approach explained earlier to cover the expense according to usual and customary costs based on other similar surgical procedures within a particular geographical area.  It also covers the expense of a surgery if it is deemed ‘reasonable’ when compared to other facilities performing the same surgery in the same geographical area.

Relative Value Scale
This approach is similar to the schedule of surgical procedures mentioned above, except instead of assigning a specific dollar amount for each procedure, a pre-arranged point system is established. Points are based on the severity of the procedure as well as the part of the body in which the surgery is performed.

Additional Basic Benefit Plans
In addition to basic hospital, surgical, and physician’s benefits, basic medical expense insurance provides a variety of additional plans covering specific medical needs and associated expenses.  These additional plans provide limited coverage for maternity, mental health, private nursing care expenses, hospice care, nursing home and home health care expenses, as well as limited outpatient care coverage.