The New Improved Medicare

Chapter 4

Original Medicare Insurance Plan

The first person to enroll in Medicare was former President Harry S. Truman. Since then Medicare has been a stabilizing factor in the lives of those who have reached age 65, enabling them to have the standard of care we would all hope for. Since 2005 it has been projected that Medicare Part A (hospital insurance) trust fund will remain solvent until 2020. At that time, Medicare payroll tax revenues will be sufficient to fund only 79 percent of the Part A expected costs. Medicares administrative costs represent 1.8 percent of its total expenditures.

Medicare Part B (physician services) and the new Part D (prescription drugs) are both projected to remain adequately financed into the indefinite future because current law automatically sets financing each year to meet next years expected costs. However, this automatic provision will result in a rapidly growing amount of general revenue financing projected to rise from 0.9 percent of the Gross Domestic Product (GDP) today to 6.2 percent in 2078 as well as substantial increase over time in beneficiary premium charges.[1]

Traditionally Medicare has contained two parts: A and B. Part A is free to most people; Part B requires a monthly premium to purchase it and enrollment is voluntary. Traditionally, individuals who reached age 65 acquired both parts and purchased a private insurance policy, called a Medigap plan, to supplement the benefits provided by Medicare Parts A and B. Todays Medicare offers additional options.

The traditional Medicare that we were accustomed to is now called the Original Medicare Plan. This is a fee-for-service plan that covers many health care services and certain drugs. The Medicare beneficiary can go to any doctor or hospital they wish, as long as the provider accepts Medicare.

The Federal Government manages the Original Medicare Plan. The rules for how the Original Medicare Plan works includes:

A red, white, and blue Medicare card that is presented when services are requested by the beneficiary. The doctor, hospital or laboratory uses the information on this benefit card to bill Medicare and the patients supplemental insurance policy, if one exists.

The Original Medicare Plan will consist of Parts A and B of Medicare. If the beneficiary has both Parts A and B, he or she will receive all the benefits listed under these two sections of Medicare.

The participant can go to any doctor, hospital, or medical supplier that accepts Medicare and is accepting Medicare patients.

If the participant does not have a Medigap policy to pick up deductibles and copayments, he or she will pay these before Medicare begins paying.

After a medical service is received, the beneficiary will receive a monthly Medicare Summary Notice (MSN) in the mail. Private companies that have contracts to handle claims on behalf of Medicare send the statements. Therefore, beneficiaries may see an insurance company name at the top of the statements, but they represent Medicare payments for services they have received. The notices list the details of the services that were received, the cost of the services, the amounts that were paid by Medicare, and the amounts that are left owing (which the patient is responsible for).

If the beneficiary has Part B and receives some drugs (like certain cancer drugs) during their doctors visit, he or she may get two Medicare Summary Notices. This was new as of 2005. One notice will be for the visit itself. The second notice will have the name and address of the company the doctor ordered the drugs from. This second statement will let the patient know whether or not Medicare has approved the drug for payment. As always, the patient has the right to appeal any decision that he or she disagrees with.

Many feel that the Original Medicare Plan is more expensive than alternatives that are available. However, those who select it often do so for the ability to see any doctor they wish any time they feel it is necessary. These individuals do not like having their health care managed for them by another who may not have their best interest at heart. While statistics reveal that those in managed care organizations receive equitable care, many people still prefer to make these decisions themselves.

Those in the Original Medicare Plan will have specific costs, including:

The cost of a Medigap insurance policy if they choose to have one to supplement their Medicare benefits. Most people do purchase a private insurance policy when they select the Original Medicare Plan.

Depending upon the type of Medigap plan they buy, any costs over the amount approved by Medicare for Part B services.

Medical services or procedures that are not approved by Medicare. A Medigap policy will pay only if Medicare approves some portion of the service or procedure. If it is totally disallowed, then the policy will not pay anything. Medigap plans supplement Medicare. Therefore, if Medicare totally denies the claim, there is nothing to supplement. This is why these private insurance contracts are often called Medicare supplement plans.

The Original Medicare Plan often works best when assignment doctors are utilized. Assignment is the doctors agreement to accept the amount of the bill that is approved by Medicare as payment. Please note that it is the amount approved by Medicare not the amount paid that is accepted. The Original Medicare Plan will pay 80 percent of the amount approved leaving 20% that is the patients responsibility. According to Medicare figures, approximately two-thirds of all doctors accept assignment. The doctor or other medical provider will receive payment for the 80% of the approved amount directly from Medicare. In some cases, there is no choice on the part of the doctors and Part B providers because law mandates assignment. Such is the case for Medicare Part B-covered prescription drugs and biologicals from a pharmacy or supplier.

When a provider agrees to accept assignment, they are prohibited by law from collecting more than the Medicare deductible and coinsurance amounts from their Medicare patients, their insurance companies, or anyone else that might be considered a responsible party for the patient. If a Medicare beneficiary receives their Medicare Part B-covered prescription drugs or supplies from a supplier or pharmacy that is not enrolled in the Medicare program, the patient may have to file their own claims in order to receive payment from Medicare. When providers are enrolled in the Medicare program they will bill Medicare for their services so patients will not have to.

More and more medical providers are accepting the amount approved by Medicare as full payment (some may do so on a case-by-case basis while others do it for all Medicare recipients). Even providers that do not accept assignment (called non-participating physicians) are limited as to how much they can bill for the work they perform. There is a limiting physician charge in place that restricts how much may be charged for a medical Part B service. Physicians that do not accept assignment are limited to 115% of the amount approved by Medicare as the maximum amount they may charge. That means the provider may not charge more than an additional 15% above what Medicare allowed.

For example:

Dr. Brown provides a medical service for a Medicare beneficiary. Medicare approves the service for $100 even though Dr. Brown would normally receive $150 for it. Because it was approved for $100, the most that Dr. Brown may collect, even if he is not participating (taking assignment) is $115. The math looks like this:

$100 X 115% = $115

Even though Dr. Brown does not accept Medicare assignment he is still limited on the amount of money he may charge his patient beyond the amount approved and paid by Medicare. This means that Dr. Brown receives $35 less from his Medicare patient than he would from a non-Medicare patient for the same service, even though he has not agreed to accept Medicare assignment. As a result of the limiting charge many doctors also limit the number of Medicare patients that they will accept in their practice. This may be true whether they accept Medicare assignment or not. Few doctors could afford to only treat Medicare patients; most must have a mix in order to function well financially.

A doctor or supplier that does not accept assignment bills the patient for the amount above what Medicare has approved. This is called balance billing. The majority of those on the Original Medicare Plan also own a Medigap supplemental policy that will pay the remaining 20% of the amount Medicare approved, but it may not pay anything above the approved amount (depending upon the plan the beneficiary has selected).

While the number of doctors and other medical providers that accept assignment has been steadily increasing, there are some states or localities where it makes sense to purchase a Medigap plan that will pay more than just the amount Medicare has approved on Part B claims. Surprisingly, it is more likely to be the general practitioners and internists who do not accept Medicare assignment and balance bill their patients. Specialists are most likely to accept assignment on Medicare Part B claims. Among the specialists, anesthesiologists are least likely to accept assignment, so they are the most likely to balance bill their patients. Even though they are least likely among medical specialists to take assignment, the majority of them do accept it (with only 10.5 percent of them balance billing).

Medicare does publish directories that list doctors and other medical suppliers who routinely accept assignment. Of course, by the time one reaches age 65 it is likely that a patient-doctor relationship is already established. The patient is unlikely to change doctors based on whether or not they accept assignment.

Not all medical procedures are restricted by the limiting physician charge. Some medical suppliers may legally charge whatever amount they wish regardless of how Medicare will approve the expense. Durable medical equipment, such as oxygen tanks and wheelchairs, prosthetic devices, and ambulance services are not restricted to 115% of Medicares approved amount. Providers of these services may charge whatever fee they feel is necessary.

Selecting a Medigap Policy to Supplement

The Original Medicare Plan

In an effort to standardize Medigap policies and make the selection of one easier, Congress enacted legislation for ten standardized plans in 1992. These plans were labeled Plan A through Plan J. With the creation of Medicare Part D, plans H, I and J, containing prescription drug benefits, discontinued as of 2006 and Plans K & L were created.

The Medigap standardization of policies in 1992:

Limited policy models to 10 standardized forms.
Established new disclosure requirements.
Established new filing requirements.
Established regulatory oversight for Medicare SELECT policies, and
Clarified the existing prohibition on attained age for premium ratings.

Seldom does legislation totally accomplish everything intended (someone always figures out a loophole) but in this case it did a pretty good job. It allowed Medicare beneficiaries to base their buying decision more on price and service since each plan would be the same from company to company. Plan C will be the same, for example, no matter which insurance company is marketing it. Insurers marketing the standardized plans could provide higher benefits, but not lesser. Besides providing the same benefits, each of the standardized plans were required to lay out their brochures in the same manner so consumers could move from company to company and compare benefits accurately.

As a result of OBRA 1990 (the Omnibus Budget Reconciliation Act), from 1992 on it was illegal for any insurer to sell any Medigap policy that did not conform to one of the ten standardized Medigap plans. Three states did not adopt the ten standardized plans because they already had similar laws on their books. These states were Massachusetts, Minnesota, and Wisconsin.

OBRA 1990 established regulatory oversight of Medicare SELECT policies. Fifteen states were selected to participate in a three-year study called Medicare SELECT. This is a type of Medigap insurance policy offering lower premiums, which usually require the enrollee to use specific hospitals and, in some cases, specific doctors in order to get full benefits from their policy. In an emergency, the enrollee may use any doctor or hospital.

Even though SELECT policies originated from a three-year study in the early 1990s they still exist today.

OBRA 1990 required the ten standardized policies to do the following:

Cover either all or none of the Medicare Part A inpatient deductible amounts. Some previous policies partially covered the deductible.
Cover Part A Medicare eligible expenses for hospitalization to the extent not covered by Medicare, from the 61^st day through the 90^th day of hospitalization.
Cover Part A Medicare eligible expenses for hospitalization during use of Medicares lifetime hospital inpatient reserve days. This would be from the 91^st day of hospitalization through the 150 day.
If the Medicare beneficiary should exhaust all hospital benefits through 150 days, the Medigap policy would cover hospitalization at 90 percent of all Medicare Part A eligible expenses not paid by Medicare. There was a lifetime maximum benefit of an additional 365 days.
Provide coverage for the reasonable cost of the first three pints of blood under Part A of Medicare. If the beneficiary does not take blood, he or she would be covered for the equivalent quantities of packed red blood cells, as defined under federal regulation.
Provide coverage for the coinsurance amount of Medicare eligible expenses under Part B (medical expenses), regardless of whether or not hospital confinement occurred. This coinsurance amount is subject to the calendar year Part B deductible. The insurer is not required to cover the Part B yearly deductible.
Provide coverage under Medicare Part B for the reasonable cost of the first three pints of blood (or equivalent quantities of packed red blood cells) unless replaced in accordance with federal regulations or already paid for under Part A of Medicare. Either Part A or Part B applies to the blood deductible, but not both Parts A and B (it must be one or the other).

Each of the ten standardized plans created contained basic benefits that were the same in all plans. Basic benefits included:

Part A hospital coinsurance plus coverage for 365 additional days after Medicare benefits end. The insurer must pay the coinsurance amounts from the 61^st day through the 90^th day, the Lifetime reserve days (the 91st through the 150th day of hospitalization), and 365 additional days at 100 percent. The Part A first day deductible is not included in the basic benefit requirements.
Under Part B after the calendar year deductible has been met, the insurer must pay the patients share of Medicares approved charges, which is 20%. Medicare pays 80% of the approved amount.
Under either Part A or Part B, the insurer must cover the first three pints of blood or equivalent quantities of packed red blood cells.

The standardized Plan A contains only the basic benefits listed above. As such, it provides very little coverage. If any of the ten standardized plans were offered, the insurer was required to also offer Plan A. Insurance companies were not required, however, to offer all ten plans. As long as they offered Plan A, they could offer only those plans they chose to. Each plan provides progressively more benefits with Plan J having the most benefits.

Plan A: Only the basic benefits of hospitalization, Part B copayment (20%) and the first three pints of blood.

Plan B: Basic benefits plus the Part A hospital deductible.

Plan C: Basic benefits plus the Part A hospital deductible, skilled nursing home coinsurance, the Part B deductible, and foreign travel emergency care.

Plan D: Basic benefits plus the Part A hospital deductible, skilled nursing home coinsurance, foreign travel emergency care, and at home recovery.

Plan E: Basic benefits plus the Part A hospital deductible, skilled nursing home coinsurance, foreign travel emergency care, and preventive care.

Plan F: Basic benefits plus the Part A hospital deductible, skilled nursing home coinsurance, the Part B deductible, Part B excess* benefits, and foreign travel emergency care. *Excess Part B benefits are the amount of Part B services that exceeds Medicares approved amount.

Plan G: Basic benefits plus the Part A hospital deductible, skilled nursing home coinsurance, Part B excess benefits, foreign travel emergency care, and at home recovery.

Plan H: Basic benefits plus the Part A hospital deductible, skilled nursing home coinsurance, foreign travel emergency care, and basic drugs ($1,250 limit).

Plan I: Basic benefits plus the Part A hospital deductible, skilled nursing home coinsurance, Part B excess, foreign travel emergency care, at home recovery, and basic drugs ($1,250 limit).

Plan J: Basic benefits plus the Part A hospital deductible, skilled nursing home coinsurance, Part B deductible, Part B excess benefits, foreign travel emergency care, at home recovery, extended drugs ($3,000 limit) and preventative care.

Plan J was the only plan of the ten that provided all benefits and the highest prescription drug coverage. All three plans that offered prescription drug coverage (Plans H, I, and J) had a $250 deductible before the insurer would pay any portion of the prescriptions. This was a per year deductible. After the first $250, the policy paid 50 percent of drug costs. Plans H and I ended when $1,250 had been paid by the policy, while Plan J paid up to $3,000 in benefits.

Part A Medicare Covered Benefits:

Medicare Part A Pays:	Beneficiarys Responsibility if no insurance is in place:
Hospitalization: Semiprivate room, meals, general nursing and other hospital services and supplies. Medicare does not cover private duty nursing, television or telephone charges, or a private room unless considered medically necessary. Inpatient mental health care coverage in a psychiatric facility is limited to 190 days during ones lifetime.	Beneficiary pays per benefit period: The current deductible amount for hospitalization of 1-60 days. The current daily deductible amount for 61 90 days of hospitalization. The current daily deductible amount for 91 150 days of hospitalization. All costs for each day beyond 150 days of hospitalization.
Skilled Nursing Facility (SNF) Care: When specific conditions are met, skilled care (neither intermediate nor custodial care is covered by Medicare) in a semiprivate room, meals, skilled nursing and rehabilitative services, and other services and supplies after a 3 day hospital confinement.	Beneficiary pays per benefit period: Nothing for the first 20 days of skilled care Medicare covers all costs for the first 20 days. Up to the current amount per day for 21-100 days of skilled care. All costs beyond the 100^th day in the benefit period.
Home Health Care: When specific conditions are met, part-time skilled nursing care, physical therapy, occupational therapy, speech-language therapy, home health aide services, durable medical equipment such as a wheelchair or hospital bed, oxygen, and supplies or other services.	The Beneficiary Pays: Nothing for home health care services that have been approved. 20% of approved amounts for durable medical equipment. Consumers should call their local Medicare office for exact benefit details.
Hospice Care: When specific conditions have been met, medical and supportive services from a Medicare-approved hospice, drugs for symptom control and pain relief, short-term respite care, care in a hospice facility, hospital, or nursing home when medically necessary, and other services not otherwise covered by Medicare. Home care is also covered.	The Beneficiary Pays: A copayment based on the current copayment standard for outpatient prescription drugs and a current percentage of the Medicare payment amount for inpatient respite care*. The amount the consumer pays for respite care can change each year.
Blood: Given at a hospital or skilled nursing facility during a covered stay.	The beneficiary Pays: The first 3 pints of blood if it is not replaced.

* Respite care is short-term care given to a hospice patient by another caregiver so that the usual caregiver may rest or have time away for personal reasons.

If a Medicare beneficiary has a Medicare supplemental insurance policy some or all of the costs listed in the graph may be covered by their policy.

Creditable Coverage for Part B

Normally a person is eligible for Part B coverage under Medicare at age 65. Some individuals may be eligible earlier due to a disability that qualifies them. As a person becomes eligible for Medicare they will have the option to purchase Part B, covering doctors and other medical costs not covered by Part A of Medicare. If a person does not purchase Part B when first eligible, a penalty can occur that will last as long as the individuals Part B benefits continue. However, the penalty may not be applied under specific circumstances: when they have creditable coverage elsewhere.

In order for coverage to be considered creditable, it must be at least as good as that provided by Medicare. Such coverage may exist due to:

A group health plan, such as that supplied by an employer.

A health insurance policy that provides benefits equal to Medicare.

Medicare benefits already provided due to a disability (obviously a person who is already on Medicare Parts A and B cannot be penalized for not signing up a second time at age 65).

Individuals already on Medicaid.

A medical program of the Indian Health Service, or a tribal organization.

A state health benefits risk pool.

TRICARE (the health care program for military dependents and retirees).

The Federal Employees Health Benefit Plan.

A public health plan.

A health plan under the Peace Corps Act.

There is no guarantee that coverage will be credited. Whether or not the applicant can use creditable coverage depends upon whether he or she had any breaks in coverage. If there was any time that the person had no health coverage of any kind, and were without coverage during that period for more than 63 days, only creditable coverage occurring after that break will count. When creditable coverage is applicable, it shortens or even eliminates preexisting periods in policies.

Seeking Assignment Doctors and Providers

For those who select the Original Medicare Plan, it can be a great advantage to seek out assignment doctors and medical providers. Assignment is an agreement between individuals on Medicare, their doctors and other providers and Medicare. The Medicare beneficiary agrees to let their doctors and other providers request direct payment from Medicare for covered Part B services, items, and supplies. Their doctors and other medical providers agree to accept assignment from Medicare, which means that they agree to accept as payment the amount that Medicare has deemed as reasonable and allowable. They are not accepting the amount that Medicare pays, but rather the amount Medicare allows. This is an important point since Medicare does not pay the full amount they approve; Medicare pays 80% of the approved amount. The remaining 20% is the responsibility of either the patient or the patients insurance policy. In some states, doctors and medical providers are required by law to accept the amount approved by Medicare (assignment), but most states do not require this.

When a provider or doctor agrees to accept assignment, they may only collect Medicare deductibles and coinsurance amounts from their patients or their patients insurance company. Assignment medical providers may not request any more than the amount allowed by Medicare.

In some cases, health care providers and suppliers must accept assignment (the amount Medicare approved for the medical service or supply). For example, Medicare Part B-covered prescription drugs and biologicals from a pharmacy or supplier that is enrolled in the Medicare Program must accept assignment. The key words here are that is enrolled in the Medicare Program. If the pharmacy or supplier is not enrolled in the Medicare Program they are not required by law to accept the amount Medicare approves. Since the pharmacy or supplier does not participate in the Medicare program they may charge whatever they wish, if allowed by their state laws. In addition, the patient may have to file his or her own claim with Medicare to obtain reimbursement. In most cases, however, doctors and other providers must submit the claims to Medicare for their patients.

It is expected that more individuals will choose managed care plans than the Original Medicare Plan. However, those who are already in the traditional fee-for-service Original Plans may remain where they are because they are comfortable with the current services they receive. Back in 1985 only 4 percent of Medicare beneficiaries were in managed care plans, but by 1998 that number had risen to 16 percent. Within the next few years, it is expected that 59 percent of all Medicare beneficiaries will be enrolled in managed care plans.[2] These figures indicate that the Original Medicare Plan will receive less and less use by Medicare beneficiaries.

Policy Language

Every agent has heard it a million times: read your policy carefully before accepting it. Since everyone knows they are supposed to do this but very few actually do so, it is not surprising that so many people are not sure what they currently have in their Medigap policies, although they probably know the letter of their plan (A though L). Now that we have options that did not previously exist it is even more important to understand what is in place.

Medicare beneficiaries are going to have to make a few choices:

Keep their current Medigap policies with drug benefits removed (for Plans H, I and J) and the premium adjusted.
Enroll in a non-drug Medigap policy offered by the same insurer, choosing from Plans A, B, C, D, E, F, G, K, or L; or
Drop their Medigap policy and enroll in a Medicare Advantage Plan under the New Part C of Medicare.

For those who choose to change to a different Medigap plan, policyholders are guaranteed to qualify, regardless of their current health.

Many of our clients may not realize how important these decisions are. It is comfortable to stay with what we know, but with the offering of prescriptions through Medicare Part D, even those who wish to stay with their Original Medicare Plan need to make some choices.

The Original Medicare plan is available nationwide. For those who travel this must be a consideration. The most popular standardized plan has been Plan F, but with the limiting physician charge at 115 percent it may not be necessary to purchase this plan, downsizing instead to a plan that pays the 20 percent copayment for Part B charges. This would save the beneficiary premium dollars and the small amounts that they might have to pay from time to time are likely to be less than what they paid in premium for greater coverage. Of course, it is always an individual choice that must be made by the participant.

If lower premiums are a consideration, Medicare beneficiaries may want to consider Plans K and L. Plans K and L may not be right for everyone, but if the lowest monthly premiums are a priority they may work well for the participant. Not all insurers will have these two plans available.

Most of the benefits under Plans K and L are comparable to other plans, but because they offer lower premiums, some copayments are higher. That means the insured will pay a greater share of the costs.

Whatever plan is currently held, clients are sure to be asking their agents for advice. It is a wise agent who thinks before speaking.

End of Chapter Four