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Medicare, administered by the Center for Medicare and Medicaid Services (CMS), is primarily a health insurance program for the elderly. (Medicare funds are also used to support certain components of postgraduate medical training and programs that regulate and monitor quality of care.) The following groups are eligible for Medicare:
The type and range of services that Medicare covers change regularly with new statutory and regulatory amendments (current information is available at www.medicare.gov). Each state has a State Health Insurance Assistance Program, which patients can call for assistance in understanding and choosing Medicare plans, understanding bills, and dealing with payment denials or appeals.
Physicians should understand basic Medicare rules, supply documentation used to determine whether patients are eligible for benefits, and make referrals to legal and social services for counseling and support.
If a patient's claim is denied, a Medicare Summary Notice is issued to the patient to provide information about services or supplies that Medicare does not cover. The denial of coverage may be reversed by a challenge made within 120 days of the notice. The challenge must be supported by an appeal in a fair hearing administrative forum, in which the insurance company handling Medicare claims reviews the case. If unsatisfied with the outcome of that review, the patient has the right to a hearing before a judge.
The original Medicare Plan (sometimes referred to as the fee-for-service plan) has 2 parts:
The original Medicare Plan is available nationwide. A complete description of Part A and B services and other provisions (called Medicare & You 2010) is available at www.medicare.gov or by calling 800-633-4227.
In 2003, the Medicare Modernization Act was enacted to provide reimbursement for health care in models other than traditional fee-for-service and to provide reimbursement for prescription drugs. The results were
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Table 1
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| Funding Sources by Type of Care |
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Type of Care
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Services
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Possible Funding Source
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Hospital care
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Inpatient care, including mental health care
General nursing and other hospital services and supplies
Drugs used during hospitalization
A semiprivate room (a private room only if medically necessary)
Meals
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Medicare Part A
Medicare Part C (Medicare Advantage)
Medicaid
VA*
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Short-term care in a certified skilled nursing facility (nursing home)
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Skilled nursing care
Social services
Drugs used in the facility
Medical supplies and equipment used in the facility
Dietary counseling
Physical, occupational, and speech therapy (if needed) to meet the patient's health goals
Transportation by ambulance (when other transportation endangers health) to the nearest facility providing needed services unavailable at the skilled nursing facility
A semiprivate room
Meals
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Medicare Part A if patients need short-term care temporarily after a hospital stay
Medicare Part C if patients need short-term care temporarily after a hospital stay
Medicaid
VA*
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Outpatient care
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Physician's, nurse practitioner's, and physician assistant's fees
Emergency department visits
Transportation by ambulance (when other transportation endangers health)
Outpatient surgery (with no overnight stay in the hospital)
Rehabilitation (physical, occupational, and speech therapy)
Diagnostic tests (eg, x-rays, laboratory tests)
Outpatient mental health care
Outpatient dialysis
A second opinion if surgery is recommended and a third opinion if opinions differ
For patients with diabetes, diabetes supplies, self-management training, eye examinations, and nutritional counseling
Smoking cessation
Durable medical equipment (eg, wheelchairs, hospital beds, oxygen, walkers)
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Medicare Part B
Medicare Part C
Medicaid
VA*
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Home health care
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Personal care, including help with eating, bathing, going to the bathroom, and dressing
Part-time skilled nursing care
Physical, occupational, and speech therapy
Home health aide services
Social services
Medical supplies (eg, wound dressings), but not prescription drugs
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Medicare Part A if patients are homebound and need part-time skilled nursing care or rehabilitation on a daily basis
Medicare Part B
Medicare Part C
Medicaid
VA
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Preventive care
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Screening tests for prostate and colorectal cancer
Mammography
Papanicolaou (Pap) test
Bone density measurements
Glaucoma tests
Influenza, pneumococcal, and hepatitis B vaccination
Diabetes screening
Cholesterol screening
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Medicare Part B
Medicare Part C
Medicaid
VA*
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Extra benefits
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Prescription drugs
Eyeglasses
Hearing aids
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Medicare Part C
Medicare Part D (prescription drug plans)
Medicaid in some states
VA*
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Long-term care in an assisted living community
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Varies greatly from community to community
Meals
Help with daily activities
Some social and recreational activities
Some health care
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Medicaid in a few states (partial coverage)
VA* in some situations
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Long-term care in a skilled-nursing facility (nursing home)
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Varies from state to state
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Medicaid
VA*
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Hospice care
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Physical care and counseling
Room and meals only during inpatient respite care and short-term hospital stays
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Medicare Part A
Medicare Part C
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*For the Veterans Administration, rules of eligibility vary for different services and change frequently.
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VA = Department of Veterans Affairs.
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Each part covers specific health care services (see Table 1: Funding Health Care for the Elderly: Funding Sources by Type of Care ). Medicare does not cover intermediate or long-term nursing care (except for the Part A services noted below), nor does it cover routine eye, foot, or dental examinations.
Part A
More than 95% of people ≥ 65 are enrolled in Part A. Part A is supported by a payroll tax collected from people who are working; it represents prepaid hospital insurance for Medicare-qualified retirees. Generally, only people who receive monthly Social Security payments are eligible, and most of those who are eligible do not pay premiums. However, people may be required to pay premiums if they or their spouses have worked < 40 quarters at a job that is considered Medicare eligible (ie, if they or their employer paid the payroll tax required by the Federal Insurance Contributions Act [FICA]). Premiums in 2010 were $254/mo for people with 7.5 to 10 yr of eligible employment and $461/mo for those with < 7.5 yr of eligible employment. People whose income and assets are below certain thresholds are eligible for financial assistance from the Medicare Savings Programs (see Funding Health Care for the Elderly: Medicare Savings Programs).
Part A covers the following under the circumstances outlined below:
Care in a hospital or a skilled nursing facility is paid for based on benefit periods. A benefit period begins when a person is admitted to a facility and ends when the person has been out of the facility for 60 consecutive days. If a person is readmitted after the 60 days, a new benefit period begins, and another deductible must be paid. If a person is readmitted in < 60 days, an additional deductible is not paid, but the hospital or facility may not receive full payment for the 2nd admission. There is no limit to the number of benefit periods.
Medicare Prospective Payment Systems determine what Medicare will pay for each aspect of care it covers (eg, for hospital inpatient care, skilled nursing facility care, or home health care).
Inpatient hospital care
Under Part A, the beneficiary pays only a deductible for the first 60 full coverage days of the benefit period; the deductible is established annually ($1100 in 2010). If the hospital stay exceeds 60 days, the beneficiary pays a daily co-payment equal to one fourth of the deductible (in 2010, $275 per day for days 61 to 90). If the hospital stay exceeds 90 days, the beneficiary pays a daily co-payment equal to half of the deductible (in 2010, $550 per day for days 91 to 150). Days 91 to 150 during a hospital stay are designated as reserve days. Part A benefits include 60 lifetime reserve days for use after a 90-day benefit period has exhausted. The 60 days are not renewable and can be used only once during a beneficiary's lifetime. Payment is automatically made for such additional days of hospital care after the 90 days of benefits have been exhausted unless the beneficiary chooses not to have such payment made (thus saving the reserve days for a later time). Beyond 150 days, the beneficiary is responsible for all charges.
Part A covers virtually all medically necessary hospital services, except it provides only limited coverage for inpatient mental health care services. Part A pays for a semiprivate room or, if medically necessary, a private room, but not for amenities. Other covered services include discharge planning and medical social services, such as identification of eligibility for public programs and referrals to community agencies.
The prospective payment system determines payment for inpatient hospital care based on the diagnosis-related group (DRG). The DRG is determined by the beneficiary's principal diagnosis with some adjustment for age, severity, sex, comorbidities, and complications. Hospitals are reimbursed a set amount for a given DRG regardless of their actual expenses in providing care. Thus, a hospital's financial profit or loss depends partly on length of stay and costs of diagnosis and therapy for each patient. Under the prospective payment system, the financial pressure for early discharge and limited intervention may conflict with medical judgment. When a patient cannot be discharged home safely or to a nursing home because no bed is available, Medicare typically pays a relatively low per diem cost for an alternative level of care.
Inpatient care in a skilled nursing facility
Coverage of skilled nursing care and skilled rehabilitation services is complex and can change every year. These services are covered only if initiated immediately or shortly after discharge from a hospital. The period of coverage is usually < 1 mo (specific duration of coverage depends on documented improvement in the patient's condition or level of function). In 2010, the first 20 days were covered completely; the next 80 days were covered but required a co-payment of $137.50/day. Benefits are limited to 100 days per benefit period.
Medicare's prospective payment system assigns patients in skilled nursing facilities to a resource utilization group system (RUGS III) based on 7 categories:
These categories reflect the types and amounts of resources a patient's care is expected to cost. They are subdivided based primarily on the patient's functional dependence. This system is updated annually. The goal is to increase efficiency and avoid excessive payment for patients who require little care. Prospective per diem rates cover routine, ancillary, and capital costs of care for a patient in a skilled nursing facility.
RUGS III uses data from the Minimum Data Set (MDS), the mandated uniform assessment instrument for patients in skilled nursing facilities. The MDS requires ongoing review of patients, making it possible to link patient outcomes with RUGS categories.
Home health care
Generally, part A covers certain medical services provided in the home (eg, part-time or intermittent skilled nursing care; home health aide services incidental to skilled care; physical, speech, and occupational therapy) if they are part of a physician-approved care plan for a homebound patient. However, amount and duration of coverage is limited. The recent implementation of a prospective payment system now limits the amount of coverage. Medical supplies are covered when billed by a home health agency.
Hospice services
Medical and support services for a terminal illness are generally covered if a physician certifies that the patient is terminally ill (estimated life expectancy of 6 mo). However, the patient must choose to receive hospice care instead of standard Medicare benefits.
Custodial care
Assistance with activities of daily living (ADLs), such as eating, dressing, toileting, and bathing, is covered in the home only when skilled care (services of a professional nurse or therapist under a physician-authorized plan of home care) is also required. Such custodial care in a skilled nursing facility is covered when it is part of posthospital acute or rehabilitation care.
Part B
The federal government pays an average of about 75% of Part B costs, and beneficiaries pay 25%. Part B is optional; although Social Security beneficiaries are automatically enrolled in Part B at age 65, they may decline coverage (95% elect to keep Part B coverage). All beneficiaries pay a monthly premium, which varies by income—$110.50 in 2010 for new beneficiaries whose income in 2008 was < $85,000 ($170,000 if they were married and filing a joint return); premiums are higher for people with a higher income. Premiums are automatically deducted from monthly Social Security checks. People who decline coverage but later change their minds must pay a surcharge based on how long they delayed enrollment. Premiums generally increase by 10% for each year's delay in enrollment, except for people who delay because they are covered by group insurance through their, their spouse's, or a family member's employer; such people do not pay the surcharge if they enroll when employment or health care coverage ends (whichever comes first). Most states have Medicare Savings Programs (see Funding Health Care for the Elderly: Medicare Savings Programs) that pay Part B premiums for people who meet certain financial qualifications.
Participants may stop coverage at any time but must pay a surcharge on the premium if they reenroll.
Covered services
Part B covers a percentage of the following: cost of physician services; outpatient hospital care (eg, emergency department care, outpatient surgery, dialysis), with certain restrictions; outpatient physical, speech, and occupational therapy; diagnostic tests, including portable x-ray services in the home; prosthetics and orthotics; and durable medical equipment for home use. If surgery is recommended, Part B covers part of the cost of an optional 2nd opinion and, if these opinions differ, a 3rd opinion.
Part B also covers medically necessary ambulance services, certain services and supplies not covered by Part A (eg, colostomy bags, prostheses), spinal manipulation by a licensed chiropractor for subluxation shown on x-ray, drugs and dental services if deemed necessary for medical treatment, optometry services related to lenses for cataracts, smoking cessation counseling, and the services of physician assistants, nurse practitioners, clinical psychologists, and clinical social workers. Outpatient mental health care, with certain limitations, is covered.
Drugs and biologicals that cannot be administered by the patient (eg, drugs given IV), some oral anticancer drugs, and certain drugs for hospice patients are covered by Part B. However, unless the patient is enrolled in a managed care program, Part B generally does not cover outpatient drugs.
Part B covers several preventive services, including bone mass measurement, serum cholesterol screening, abdominal aortic aneurysm screening, diabetes services (screening, supplies, self-care training, and eye and foot examinations), colorectal cancer screening, prostate cancer screening and prostate-specific antigen tests, an initial physical examination (the “Welcome to Medicare” examination), glaucoma screening, vaccinations (influenza, pneumococcal, hepatitis B), mammograms, and Papanicolaou (Pap) tests. Part B does not cover routine eye, foot, or dental examinations.
Physician reimbursement
Under Part B, physicians may elect to be paid directly by Medicare (assignment), receiving 80% of the allowable charge directly from the program, once the deductible has been met. If physicians accept assignment, their patients are responsible for paying only the deductible. Physicians who do not accept assignment of Medicare payments (or do so selectively) may bill patients up to 115% of the allowable charge; the patient receives reimbursement (80% of the allowable charge) from Medicare. Physicians are subject to fines if their charges exceed the maximum allowable Medicare fees. Physicians who do not accept assignment from Medicare must give patients a written estimate for elective surgery if it is > $500. Otherwise, patients can later claim a refund from physicians for any amount paid over the allowable charge.
Medicare payments to physicians have been criticized as inadequate for the time involved in giving physical and mental status examinations and obtaining the patient history from family members. A Medicare fee schedule based on a resource-based relative value scale for physician services became effective in January 1992 in an attempt to correct this problem. The effects of the fee schedule on patient care and on medical practice remain to be determined, but few physicians are satisfied. The paperwork and time involved in documentation have increased.
Part C (Medicare Advantage Plans)
This program (formerly called Medicare + Choice) offers several alternatives to the traditional fee-for-service programs. The alternatives are provided by private insurance companies; Medicare pays these companies a fixed amount for each beneficiary. Several different types of plans are available; they include managed care, preferred provider organizations, private fee-for-service, medical savings accounts, and special needs plans.
Medicare Advantage plans must cover at least the same level and types of benefits covered by Medicare A and B. However, Medicare Advantage plans may include additional benefits (eg, coverage for dentures, prescription drugs, or routine eyeglasses), although participants may pay an additional monthly premium for the additional benefits. Plans differ on whether participants are free to choose any physician and hospital they want, whether they can keep coverage from an employer or union, and what costs are paid out-of-pocket, including how much (if at all) they charge for a premium, whether they pay any of the Part B premium, and how much their deductible and co-payments are. Medicare Advantage plans are available in many but not all areas of the country.
Part D
Medicare Part D helps cover costs of prescription drugs. It is optional. Plans are provided by insurance or other private companies working with Medicare. There are over 1600 plans available nationwide. Premiums generally increase by an additional 1% for each month that people delay enrolling after they first become eligible for Medicare.
Covered drugs
Plans vary in the drugs they cover (formulary) as well as in pharmacies that can be used. However, formularies must include ≥ 2 effective drugs in the categories and classes of drugs most commonly prescribed for people who use Medicare. Formularies must also cover all available drugs for the following 6 classes: anticonvulsants, antidepressants, antiretroviral drugs, antineoplastics, antipsychotics, and immunosuppressants. Formularies may change over time (often annually). Formularies must also have an appeals process by which nonformulary drugs can be approved if necessary.
Benefits and costs
Costs are expected to increase annually until at least 2013. Costs in 2010 are as follows for the basic benefits (see Fig. 1: Funding Health Care for the Elderly: Medicare Part D drug costs in 2010. ):
Many companies also offer enhanced plans that provide more coverage (eg, lower deductibles or co-payments), although these plans have higher monthly premiums.
People with low income and minimal assets (eg, those who have full Medicaid coverage, who belong to a Medicare Savings Program, or who get Supplemental Security Income) may be eligible for financial assistance with premiums, deductibles, and co-payments. In addition to providing insurance assistance, many states have state pharmacy assistance programs that help pay for prescription drugs, based on some combination of the person's need, age, and medical disorders; information about these programs is available from the State Health Insurance Assistance Program.
Last full review/revision September 2009 by Amal Trivedi, MD, MPH
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