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.