A look back at Medicare 

Nov. 15 marks the beginning of the annual election period for Medicare Advantage and Medicare Part D. It’s the time of year when people with Medicare can sign up for or make changes to their medical or prescription drug benefits. ¦ What this means, of course, is that this is also the time of year when insurance agents get lots of questions from their Medicare-eligible clients - questions that may be difficult to answer for those of us who don’t normally sell senior products. What, exactly, is Medicare?Who’s eligible? What does it cover? What doesn’t it cover? And what other options are available? By understanding the basics of Medicare, we can talk intelligently to our clients and point them in the right direction when they need assistance.

What is Medicare?
Medicare is a government-run health insurance program for people over the age of 65, people on Social Security Disability, and people with End Stage Renal Disease (kidney failure requiring dialysis or transplant).

Who’s in charge?
Medicare is governed by the Centers for Medicare and Medicaid Services, or CMS. The mission of CMS is to “ensure effective, up-to-date health coverage and to promote quality care for beneficiaries.” CMS is charged with regulating Medicare Supplements, Medicare Advantage plans, and Medicare Part D prescription drug plans. More information is available at www.cms.gov.

What does it cover?
Medicare Part A, or hospital insurance, provides coverage for inpatient hospital and mental health services, skilled nursing facilities, home health care, and hospice.

Medicare Part B, or medical insurance, covers doctor charges both in and out of the hospital, and other outpatient services like labs and x-rays, outpatient surgery, outpatient rehabilitation, and durable medical equipment.

History of Medicare
Medicare was signed into law in 1965 by President Lyndon B. Johnson. President Harry Truman, who unsuccessfully campaigned for a national health insurance program during his term as president, was the first Medicare enrollee.

How do you qualify?
Many people use the terms “Medicare” and “Medicaid” interchangeably, but they are very different programs. Qualification for Medicaid is based on income and assets while Medicare is based on age or disability.

Medicaid is a federally-funded, state-administered medical welfare program. Medicare, on the other hand, is something we all pay for  during our working years and after we retire. While we’re employed, we pay for Medicare Part A through FICA deductions from our paychecks -1.45 percent of our gross income, matched by our employer. After we turn 65, we begin paying for Part B  usually through deductions from our Social Security checks. For 2009, that deduction begins at $96.40 per month and can be more than three times that amount depending on income.

Lots of holes
While many people look forward to age 65 because they finally qualify for Medicare coverage, some are surprised to learn about all of the things that Medicare doesn’t cover, like dental, vision, and hearing.

And Medicare has lots of holes. Under Part A, for instance, a beneficiary pays the first $1,068 Ð just for walking in the door. That covers the facility charges only for the first 60 days in the hospital Ð all of the doctor charges fall under Part B. And this is a benefit period deductible Ð if a beneficiary leaves the hospital for 60 days or more and is then re-admitted, that’s a new benefit period with a new deductible.

If a Medicare enrollee has an extended hospital stay Ð longer than 60 days  there’s a copayment of $267 per day for the next 30 days. After 90 days, she begins to access her lifetime reserve days. An individual has a total of 60 lifetime reserve days, and once they’re gone, they’re gone. During this time period, the copayment jumps to $534 per day, and after 150 days in the hospital there is no coverage at all.

Medicare Part A also provides coverage for inpatient rehabilitation Ð but only after a three-day hospital stay. This is for skilled (rehabilitative) care, not custodial care, which means that nursing homes are not covered by Medicare. In a Skilled Nursing Facility, Medicare will pay for the first 20 days and then the beneficiary pays a copayment of $133.50 for the next 80 days.

Medicare Part B, which covers doctor charges and other outpatient services, has a calendar-year deductible of $135. After that, the member pays 20 percent of eligible expenses with no out of pocket maximum - the coinsurance never stops.

The amount that providers are paid is based on the Medicare Fee Schedule, a pre-determined rate that varies by market. If a provider who accepts Medicare does not “accept assignment” Ð or accept the Medicare-allowed amount as her total payment Ð she can charge up to 15 percent more, which the patient would be required to pay.

Medicare Supplements
To help fill some of the gaps in Medicare, many people purchase a Medicare supplement, or Medigap plan. A Medicare supplement is a private insurance policy that pays secondary to Medicare, filling in some of the holes in Part A and Part B.

There are 12 standardized Medicare Supplement plans, labeled A through L. But that’s changing in 2010. Two new plans (M and N) are being introduced and a few are being phased out. The plans are standardized, meaning that a Plan F from one company covers exactly the same items as a Plan F from another company. The general rule is the higher the letter, the more gaps the supplement will fill but the more expensive it is.

Not every supplement is offered in every area, and for those under the age of 65, it’s often difficult to purchase a supplement generally, Plan A is all that’s available.

Medicare supplements are guaranteed-issue for the first six months after someone becomes eligible for Medicare. That means that the insurance company cannot turn you down based on medical conditions. After the guaranteed-issue period, the carrier can ask medical questions and can decline coverage.

Many people like supplements because they offer peace of mind. A plan F, for instance, will cover the Medicare Part A hospital deductible, hospital copays, and skilled nursing facility copays, along with the Part B deductible, Part B coinsurance, and all Part B excess charges, leaving the member with virtually no out-of-pocket expenses.

Hard to live on a fixed income
Unfortunately, not everyone can afford a Medicare supplement. While they vary in price based on age, location, and plan selected, Medigap policies start off at around $150 per month at age 65 and go up from there.

This may seem like a pretty good deal for health insurance, but keep in mind that people with Medicare have already paid for Part A during their working years, are paying for Part B out of their Social Security checks, and are paying a separate premium for their Part D drug plan. With all of these costs, a supplement may not be in the budget, especially for the 40 percent of Medicare beneficiaries who, according to the CMS Office of Research and Development, have annual incomes below $15,000 per year. (Another 22 percent make between $15,000 and $25,000 per year.)

Of course, because of the difficulty these individuals have paying their out-of-pocket expenses, they most need extra help. Fortunately, they do have options.

Medicare Advantage Plans
Because Medicare supplements are out of reach for millions of Americans, the government created a program called Medicare Advantage to allow Medicare enrollees to receive their benefits through a private company.

Beneficiaries have had the option of receiving their Medicare benefits through private health plans, mainly health maintenance organizations, since the 1970s. But these private plan options were expanded by the Balanced Budget Act of 1997 through the new “Medicare + Choice” program, which was later renamed “Medicare Advantage.” A Medicare Advantage Plan is basically a private health insurance policy paid for by the government. When a Medicare beneficiary signs up for an Advantage Plan, she no longer uses her Medicare card Ð instead, she uses the I.D. card provided by the insurance company.

Advantage plans are much less expensive than Medicare supplements. That’s because, for every Medicare Advantage member, the government pays a monthly premium to the insurance company that’s based on the average amount Medicare spends per person in that member’s county.

So how much does the government pay? The formula has changed over time. Back in the late ’90s, the payment to insurance companies was somewhere around 95 percent of the average Medicare expenditure, but these reimbursement rates were later modified. As the payments were reduced, insurance companies began to pull out of less profitable markets, leaving millions of seniors without coverage and scrambling to return to a Medicare supplement.

Advantage plans have made a comeback in recent years as funding has increased and new options have been created. Right now, the average reimbursement to a Medicare Advantage Plan is 114 percent of what Medicare spends per beneficiary, leading to charges from President Obama and others that insurance companies are being over-paid, and several of the health reform bills threaten to once again slash funding to these programs.

Regular plans from regular companies
Medicare Advantage plans are regular insurance policies and are offered by many of the same carriers that provide group and individual health insurance to millions of Americans. And they look a lot like the coverage most of us are used to. The primary difference is that the government pays the bulk of the premium.

Advantage plans fall into one of three categories: Health Maintenance Organizations, Preferred Provider Organizations, and Private Fee for Service plans.

HMO plans offer the most comprehensive coverage of any Medicare Advantage plan, but they also have the most restrictions.And under the Medicare Advantage program, PPOs tend to have a slightly higher premium than HMOs.

A PFFS is not a network-based product. Instead, the member can visit any provider who accepts Medicare  as long as the provider agrees to see him. When an individual’s providers do agree to treat the patient and bill the insurance company  a process that’s known as “deeming”  PFFS plans can provide an affordable option for people who in the past did not have access to the Medicare Advantage system.

What’s the advantage?
So what’s so special about Advantage plans? Several things. To begin with, they offer better coverage than Original Medicare, the name of the program administered by the government. By law, they must cover everything that Medicare does, but most plans offer better protection  annual rather than benefit-period deductibles, copays instead of coinsurance, and calendar-year maximums versus unlimited exposure. Plus, many Advantage plans pay for services that Original Medicare doesn’t, like dental, vision, hearing, and prescription drugs.

And while many supplements provide more comprehensive protection than an Advantage plan 100 percent coverage at the doctor or hospital, for instance - an Advantage plan is considerably less expensive than a supplement and much easier to qualify for. That’s because a supplement is guaranteed-issue only for the first six months that someone is on Medicare, but an Advantage plan only has one medical question.

Qualifying for an Advantage plan
To qualify for an Advantage plan, a Medicare beneficiary must have both Parts A and B and must continue to pay for Part B while on the plan. She must live in the plan service area (usually determined on a county-by-county basis), and she cannot have End-Stage Renal Disease. That’s the only medical question, and as long as an individual meets these criteria, she is eligible for an Advantage plan.

A need for prescription coverage
Original Medicare does not provide coverage for prescription drugs, so for years people with Medicaret-he highest utilizers of prescription medication Ð have had to pay for all of their drugs out of pocket with no copayments and no insurance discounts.

Considering that the average Medicare beneficiary, according to the Kaiser Family Foundation, takes more than $2,300 per year in prescription drugs, and, as already noted, more than 40 percent have annual incomes below $15,000, many people find themselves choosing between medicine and food. Not an easy decision for someone with one or more chronic conditions.

Medicare Modernization Act of 2003
To provide some greatly-needed and long-overdue assistance with the cost of prescription drugs, President George W. Bush signed the Medicare Prescription Drug, Improvement, and Modernization Act Ð usually shortened to Medicare Modernization Act on Dec. 8, 2003.

In addition to creating, for the first time ever, a prescription drug program for Medicare beneficiaries, the MMA also increased funding to Medicare Advantage Plans and created Health Savings Accounts.

Medicare Part D
Since Jan. 1, 2006, the 45 million people covered by Medicare have had access to the Medicare Part D Prescription Drug Program. To date, nearly 27 million people have enrolled in Part D, and, depending on who you ask, the program is either an overwhelming success or a catastrophic failure.

Perhaps the most surprising fact about Medicare Part D is that it’s not available through the government  it’s only offered by private insurance companies (along with some employers and unions). The plan can be purchased as part of a Medicare Advantage Plan or as a stand-alone Prescription Drug Plan, and because of the competitive nature of the product, beneficiaries have a lot of choices.

While choice is normally a good thing, many beneficiaries are overwhelmed by the number of options available. Many carriers offer three different plans  a low, medium and high option  with different premiums, formularies, copays, and more. There are a lot of variables.

Part of the reason there are so many moving parts is because of the way the government designed the program. It all begins with a base plan  the standard Part D plan  that’s used to determine the minimum benefits that must be offered. In 2010, the standard Part D plan looks like this:

Again, this is the standard plan design, but most carriers improve on the standard plan. This is good for the consumer, but it also creates a lot of confusion.

Again, lots of variables. To make shopping for drug plans easier, Medicare provides a great search engine at www.Medicare.gov.

Qualifying for Medicare Part D
To qualify for Medicare Part D, a beneficiary must have either Part A or Part B and live in the plan service area. There are no medical questions, and at least one Part D plan is offered in every county in the U.S. Ð many more in most areas. For instance, the Kaiser Family Foundation reports that the number of PDPs per region in 2010 will range from a low of 39 in Alaska and Hawaii to a high of 53 in the Pennsylvania/West Virginia region.”

Mixed reviews
In January, 2008, U.S. Health and Human Services Secretary Mike Leavitt declared Medicare Part B a “resounding success.” He explained that “enrollment continues to rise, customer satisfaction remains very high, and costs for beneficiaries and taxpayers are considerably lower than original projections” Ð a claim that was reiterated in an August, 2008 press release by CMS.

But not everyone is a fan. Many people are confused by all of the options, and the donut hole is a constant source of debate. Indeed, President Obama has vowed to close the coverage gap with the pending health reform legislation.

Low-Income subsidy and special needs plans
Medicare beneficiaries who have limited income and resources may qualify for extra help with prescription drug costs. Those who are eligible for this low-income subsidy will get help paying their monthly premium, annual deductible, and prescription copayments. Plus there will be no gap in coverage.

And Medicare beneficiaries with serious medical conditions, enrollees who live in a long term care facility, and anyone who is eligible for both Medicare and Medicaid can qualify for a Special Needs Plan (a type of MA-PD plan) with benefits tailored to meet their unique needs.

Enrollment periods and penalties
As if Medicare weren’t complicated enough, the government has established an open enrollment period  called the Annual Election Period  for Medicare Advantage and Medicare Part D. It begins Nov. 15 and ends Dec. 31 each year with a Jan. 1 effective date. An enrollee does have an opportunity to make a change to her plan selection, but once the annual election period is over she is locked into her decision for a full year. There are some other election periods as well, including the initial election period (when someone first becomes eligible for Medicare) and a special election period (when someone loses their group health coverage).

Medicare Advantage plans are completely optional, so there are no penalties for not enrolling. And most people qualify for Medicare Part A automatically when they turn 65, so there’s also no penalty for not enrolling in Part A either. But there are penalties for not taking Medicare Part B or Part D when first eligible.

If a Medicare beneficiary does not sign up for Part B and does not have other employer-sponsored health coverage, he can only enroll between Jan. 1 and March 31 for a July 1 effective date. And when he does he will pay a 10 percent penalty per year for every year he was eligible but not enrolled.

The rules for Part D are similar, but the enrollment period is Nov. 15 through Dec. 31, and the penalty for not enrolling when first eligible is 1 percent per month for every month the individual was eligible but not enrolled. Both of these penalties continue for the rest of the beneficiary’s lifetime.

Medicare marketing guidelines
There’s a huge list of do’s and don’ts that agents and carriers who sell Medicare Advantage and Medicare Part D plans must abide by. And the guidelines were made even more strict earlier this year with the passage of MIPPA, the Medicare Improvement for Patients and Providers Act.

Medicare for all
Each year on Capitol Hill, a number of bills that didn’t make it out of committee during the previous legislative session are re-filed and re-debated. House Resolution 676 is one such bill. HR 676, officially known as the U.S. National Health Care Act, is more commonly referred to as Medicare for All.

Authored by Representative John Conyers, D-Mich, this bill has been floating around for a number of years, and each year it gets a little bit stronger. In 2009, it has 87 co-sponsors in the House. While that’s not nearly enough support for the bill to pass, it does illustrate the mind-set of some of the people who are deciding how to reform this nation’s health care system.

Medicare for All, as the bill is written, would improve and expand the existing Medicare program, extending coverage to all Americans. There would be no premiums and no cost-sharing under the plan, and everything would be covered  including doctor and hospital visits, prescription drugs, dental, vision, hearing, mental health, and long term care. This proposal seems pretty ambitious given that the current Medicare program has very expensive premiums, considerable cost-sharing, and lots of holes.

Perhaps the most outrageous and disturbing part of the Medicare for All bill is that private insurance would be outlawed and those displaced by the move to government-run program would be the first to be re-trained and hired into the public system  in other words, we’d all become government employees.

The end of Medicare Advantage?
What the final health reform bill will look like is anybody’s guess, but President Obama and others have vowed to cut the reimbursement to Medicare Advantage plans back to the average amount Original Medicare spends per beneficiary and use the extra money to close the donut hole in Medicare Part D plans. The response from Medicare Advantage companies has not been positive  some claim that such a move would force a decrease in benefits or eliminate the plans altogether.

Meanwhile, millions of Medicare beneficiaries are understandably worried, with some who’ve been through these cuts before thinking “here we go again.” The next few months should prove very interesting.

Eric Johnson is a regional sales manager for First Horizon Msaver, an HSA administrator based in Overland Park, Kan. The first three years of Eric’s insurance career were spent selling Medicare Advantage products. He can be reached at 817.366.7536 or eric.johnson@agentallies.com.