For the last fifty years, one undeniable healthcare success story has been Medicare. This federal health insurance program, established in 1965, provides healthcare coverage and security for men and women age 65 and older. This coverage includes hospital and medical care, preventive and other health services and prescription drugs.
But Medicare actually serves a much wider audience, including some people under age 65 with disabilities. And, since 1972, this program has provided essential coverage to patients with end-stage renal disease (ESRD). To qualify for Medicare, an individual must meet one of three categories: age, disability or ESRD. By far, age — being 65 or older — is the leading eligibility factor. As of 2010, Medicare covered more than 47 million Americans. In 2010, the number of Medicare customers broke down as follows:
- Age – In 2010, 39.6 million people age 65 and older were eligible for Medicare. Under the federal guidelines, someone 65 or older qualifies if they or their spouses have paid Social Security taxes for at least 40 calendar quarters (10 years). These individuals may also be eligible if they qualify for benefits under the U.S. Railroad Retirement (RRB) social insurance program.
- Disability — 9 million people under age 65 with disabilities were Medicare-eligible in 2010. To qualify, these individuals must have received Social Security Disability Insurance (SSDI) cash benefits for at least 24 months. The Social Security Administration (SSA) evaluates applicants’ medical conditions and strict disability definitions must be met.
- ESRD – In 2010, 101,000 people under age 65 with end-stage renal disease qualified for Medicare. This is permanent kidney requiring regular dialysis or a kidney transplant. These individuals or their spouses must have paid Social Security taxes for at least 40 quarters.
The Medicare program is comprised of four parts. We’ve provided an overview of each part, including expected 2015 costs.
- Part A — this refers to Hospital Insurance. Parts A and B together make up the government health plan known as “Original Medicare.”
- Part B — supplementary medical insurance
- Part C — the Medicare Advantage program, in which enrollees receive benefits through private plans
- Part D — the voluntary outpatient prescription drug benefit initiative. Established in 2006, Part D is delivered by private plans (either through Medicare Advantage or an independent prescription plan)
The Money Behind Medicare
In 2010, Medicare spent nearly $523 billion on benefits and administration, including:
- 33 percent — Medicare expenses for inpatient or outpatient hospital service payments
- 12 percent — physician services
- 22 percent — payments to private Medicare
- 9 percent — post-acute care (home health and skilled nursing facility care)
- 12 percent – Medicare Part D expenses
- 11 percent – other benefits; 1 percent — administrative expenses
Research shows that Medicare per capita spending should grow much more slowly over the next decade than it has in the past. According to the Congressional Budget Office, Medicare per capita spending growth will slow to an average of 1 percent more than inflation between 2012 and 2022. However, total Medicare spending will be around 3.9 percent of gross domestic product, due to increased enrollment as the baby boomers age.
For 2010, 50 percent of all Medicare beneficiaries’ annual income was below $22,000 (below 200 percent of the federal poverty level). These lower income levels are often associated with poor health:
- About one in three had a mental or cognitive (related to knowledge) issue
- More than 25 percent reported being in fair or poor health
- About one in six was under the age of 65 and disabled
- 15 percent required assistance for two or more activities associated with daily living
The good news is that the Affordable Care Act (ACA) has helped Medicare. These benefits include providing enrollees with annual wellness visits and eliminating deductibles and coinsurance for certain preventive services. The ACA also closed the “donut hole,” the temporary coverage gap common in most Medicare Prescription Drug Plans. In addition, the ACA should slow Medicare spending growth between 2010 and 2019. These benefits will extend the solvency of the Medicare Trust Fund, as well.
Original Medicare – Parts A and B
Original Medicare, also known as “Traditional Medicare,” is a “fee-for-service” plan offered directly from the federal government. This plan provides the freedom to see any nationwide Medicare provider, whenever and wherever you are. Parts A and B are the two main components; for Medicare drug coverage (Part D), you may have to enroll in a stand-alone Medicare private drug plan (PDP). The Original Medicare process includes:
1.) You go directly to the doctor or hospital when you think you need care. Permission, whether from Medicare or your primary care doctor, isn’t needed.
2.) You pay your share, including the deductible (the amount due for health plan or prescription costs before insurance pays), coinsurance (what you pay after the deductible, usually a percentage) or copayment (like coinsurance, usually a set amount). There are limits on the amounts that doctors and hospitals can charge you.
3.) Medicare pays its share of the approved amount.
Medicare Part A – Hospital Insurance
Medicare Part A, which refers to Hospital Insurance, includes such services as: inpatient hospital services, nursing facility services, home and hospice health care, inpatient psychiatric care (up to 190 days during a beneficiary’s lifetime) and blood work (after the beneficiary pays for the first three pints per year). Part A also covers: semi-private rooms, meals, general nursing, drugs (related to inpatient treatment) and other services and supplies.
This coverage applies to a wide range of facilities, including long-term care hospitals (LTCHs). LTCH patients stay for more than 25 days. They can be transferred from intensive or critical care units and may have more than one serious condition. These patients may improve with time and care and return home. Among LTCH services are: comprehensive rehabilitation, pain management, respiratory therapy and head trauma treatment.
Part A also covers acute care hospitals (ACHs), critical access hospitals (CAHs), inpatient rehabilitation facilities, inpatient care as part of a qualifying clinical research study and those for mental health care. And, Part A covers services (lab tests, surgeries, doctor visits) and supplies (wheelchairs, walkers). As for what’s NOT covered, this includes private duty nursing and rooms (unless medically necessary); personal care items (razors, slippers); and televisions, phones and other devices (if there’s a separate charge).
The Part A plan covers skilled nursing care provided in a skilled nursing facility (SNF); enrollees qualify for up to 100 days per benefit period, following at least a three-day inpatient hospital stay. This coverage, which is provided under certain conditions for a limited time, may include semi-private rooms, meals and physical and occupational therapy. “Swing-bed” services are covered, enabling specific hospitals (including CAHs) to provide either acute hospital-level or SNF-level care. These hospitals must have entered into an agreement with the Department of Health and Human Services (HHS) and typical SNF coverage and cost-sharing rules apply.
Medicare Part B –Medical Insurance
Medicare Part B is the option if you’re looking for medical insurance. It covers a wide range of services, broken down into two types: medically necessary and preventive.
Medically necessary services — Medicare defines “medically necessary” as “health-care services or supplies needed to prevent, diagnose, or treat an illness, injury, condition, disease, or its symptoms and that meet accepted standards of medicine.” Basically, if you have a condition resulting in debilitating symptoms or side effects, and it’s considered medically necessary to treat them, you’re covered under the Part B plan. These covered services and supplies must also meet accepted standards of medical practice.
What services and supplies are not considered medically necessary under Part B? These include hospital services exceeding Medicare-approved stay lengths. Physical therapy treatments going over Medicare’s usage limit are also not covered. Treatments that can be provided in lower-cost settings, rather than hospitals, aren’t covered. And certain prescribed drugs (those for cosmetic purposes, weight loss or gain, fertility, sexual or erectile dysfunction treatment) aren’t covered.
Preventive services – These are health care services and supplies meant to either prevent illness or detect illness at an early stage, when treatment is most likely to work. Beneficiaries are eligible for yearly wellness visits, as well as a one-time “Welcome to Medicare” preventive visit.
With Part B, you pay nothing for most preventive services if you visit a health care provider who accepts assignment. Under this agreement, your doctor, provider or supplier is paid directly by Medicare. They accept the Medicare-approved payment amount for the service. And, they won’t bill you for anything other than the Medicare deductible and coinsurance. Preventive services and supplies include:
- Alcohol misuse screenings, counseling
- Ambulance services
- Blood work — beneficiary pays for the first three pints per year
- Bone mass, measurements (bone density)
- Cardiovascular disease screenings, behavioral therapy
- Cancer screenings (cervical, colorectal, prostate, vaginal)
- Clinical research trials
- Clinical laboratory (blood tests, some screenings) and diagnostic tests (x-rays, magnetic resonance imaging, computerized tomography scans)
- Depression screenings
- Diabetes screenings, self-management training
- Glaucoma tests
- Hepatitis C screenings
- HIV screenings
- Home health care – coverage can’t be preceded by hospital stay; visits can’t exceed Part A’s 100-day limit
- Mammograms (screening)
- Mental health (inpatient, outpatient, partial hospitalization)
- Nutrition therapy services
- Obesity screenings, counseling
- Occupational, physical and speech therapy (outpatient)
- Prescription drugs (limited, outpatient)
- Second opinions (before surgery)
- Sexually transmitted infections screening, counseling
- Shots – including flu, hepatitis B and pneumococcal (pneumonia)
- Tobacco use cessation counseling
Part B also covers durable medical equipment (DME), which is that meant for home use, long lasting, prescribed by doctors and considered medically necessary. DME includes: beds (hospital) and other support services; blood sugar (glucose) monitors, test strips; canes, crutches, walkers and wheelchairs (manual, powered); infusion pumps and supplies; nebulizers (devices to administer inhaled medications); oxygen equipment and accessories; and sleep apnea and continuous positive airway pressure (CPAP) devices and accessories.
Medicare Parts A and B Eligibility
You should know that some people are automatically covered for Medicare Part A and Part B. If you’re automatically enrolled, you’ll receive a red, white and blue Medicare card in the mail. You should expect it either three months before your 65th birthday or your 25th month of disability. To automatically qualify, one of the following must apply to you:
- I’m already getting benefits from Social Security or the Railroad Retirement Board (RRB).
- I’m under 65 and have a disability. Coverage is automatic after 24 months of receiving disability benefits from Social Security or certain disability benefits from the RRB.
- I have ALS (Amyotrophic Lateral Sclerosis; also called Lou Gehrig’s disease).
- I live in Puerto Rico and get benefits from Social Security or the RRB. You’ll need to sign up for Part B. But as Part B is a voluntary program requiring the monthly premiums, you can refuse coverage.
You’ll need to sign up for Part A and Part B if any of these apply to you:
- You don’t receive Social Security or RRB benefits.
- You qualify for Medicare because you have end-stage renal disease (ESRD).
- You must already have Part A to apply for Part B. If you need to register, please complete an Application for Enrollment in Part B (CMS-40B).
Once you’re eligible for Part A, your coverage applies when ALL of four requirements are met. 1.) A doctor or health care provider gives an official order requiring two or more midnights of medically necessary inpatient hospital care to treat an illness or injury. 2.) The hospital formally admits you. 3.) The necessary care can only be provided in a hospital; the hospital must accept Medicare. 4.) The hospital’s Utilization Review Committee, which oversees the facility’s health care services, must approve your stay while you’re there.
Medicare Parts A and B 2015 Costs
Now, the important question is, how much will you have to pay for 2015 Medicare Parts A and B coverage? Basically, your monthly premium payment depends on your work history. For those who haven’t worked long enough and/or paid enough quarters of Medicare taxes, you’ll have to pay a monthly premium for Part A.
2015 Part A Monthly Prices
- Nothing if you or your spouse worked and paid Medicare taxes for 10 years or more in the U.S.
- $224 if you or your spouse worked and paid Medicare taxes between 7.5 and 10 years in the U.S.
- $407 if you or your spouse worked and paid Medicare taxes for fewer than 7.5 years in the U.S.
For Part A hospital inpatient deductibles, you pay:
- $1,260 — the deductible for each benefit period
- Days 1-60 — $0 coinsurance for each benefit period; $1,156 deductible for an inpatient hospital stay
- Days 61-90 — $315 coinsurance per day of each benefit period; daily coinsurance begins on Day 61
- Days 91 and beyond — $630 coinsurance per each “lifetime reserve day” after day 90 for each benefit period (up to 60 days over your lifetime)
- Beyond lifetime reserve days — all costs
- Skilled nursing facilities — if used for more than 20 days in a benefit period, there is a $144.50 daily payment for days 21–100
Typically, if you have Part A, you must also have Medicare Part B and pay monthly premiums for both. Everyone has to pay a monthly premium for Part B insurance, and costs increase every year. The copayment for a single outpatient hospital service can’t be more than the inpatient hospital deductible. But your total copayment for all outpatient services may be more than the inpatient hospital deductible.
For home health services, Parts A and B don’t allow cost sharing. But when it comes to Medicare Part A, not everyone pays the same, and some pay nothing at all! If you or your spouse paid Medicare taxes while working, you may not have to pay a monthly premium; this is known as “premium-free Part A.” You may also qualify for “premium-free Part A” if you meet any of the following:
- You already receive retirement benefits from Social Security or the RRB.
- You’re eligible for Social Security or Railroad benefits, but haven’t filed yet.
- You or your spouse had Medicare-covered government employment.
- If you’re under 65 and received Social Security or RRB disability benefits for 24 months.
- If you’re under 65, have ESRD and meet certain requirements.
2015 Part B Monthly Prices
While most people pay Part B’s standard premium amount, you may have to pay more. As a guideline, the higher your income, the higher your monthly premiums. The monthly amount you pay depends on the services you receive. It also depends on whether you go to a doctor who accepts the Medicare-approved amount as payment in full. For Part B, most services require coinsurance of 20 percent of the Medicare-approved amount, as well.
Your monthly premium may be affected by your tax returns. If your modified adjusted gross income as reported on your IRS tax return from two years before is above a certain amount, you may have to pay an Income Related Monthly Adjustment Amount (IRMAA). This is an extra charge added to your premium.
You may also be liable for a late payment if you don’t sign up when first eligible. This late enrollment penalty, which lasts for as long as you have Medicare, can increase your monthly premium by 10 percent for each full 12-month period. You may avoid this late enrollment penalty if you meet certain conditions allowing you to sign up for Part B during a Special Enrollment Period. For 2015 (based on your 2013 income), you’ll pay:
File individual tax return File joint tax return File married & separate tax return You pay (in 2015)
$85,000 or less $170,000 or less $85,000 or less $104.90
Above $85,000 Above $170,000 Not applicable $146.90
up to $107,000 up to $214,000
Above $107,000 Above $214,000 Not applicable $209.80
Up to $160,000 up to $320,000
Above $160,000 Above $320,000 Above $85,000 and $272.70
up to $214,000 up to $428,000 up to $129,000
Above $214,000 Above $428,000 Above $129,000 $335.70
Additional Costs for Original Medicare
As out-of-pocket costs with Original Medicare can skyrocket, it may be a good idea to purchase supplemental insurance. These plans, which may be offered by employers, help with costs not covered by Medicare, such as deductibles. You may also consider a Medigap policy; sold by private insurance companies, these plans works specifically with Original Medicare.
Low-income enrollees may qualify for one of four Medicare Savings Programs (MSPs), which help pay out-of-pocket Medicare costs. These plans may pay Part A and B deductibles, coinsurance and copayment costs. You just need to have income from working – even if that income exceeds the limits listed. For the programs below, the first three (QMB, SLMB, QI) may provide additional help for prescription costs. Here are the MSPs, along with their 2015 prices, which may be higher in Alaska and Hawaii:
1.) Qualified Medicare Beneficiary (QMB) – this program pays Part A and B premiums, deductibles, coinsurance and copayments (the amount you owe after paying any deductibles; usually a set amount.)
- Individual monthly income limit — $1,001
- Married couple monthly income limit — $1,348
- Individual resource (assets owned) limit — $7,280
- Married couple resource limit — $10,930
2.) Specified Low-Income Medicare Beneficiary (SLMB) – this program only pays Part B premiums.
- Individual monthly income limit — $1,197
- Married couple monthly income limit — $1,613
- Individual resource limit — $7,280
- Married couple resource limit — $10,930
3.) Qualifying Individual (QI) – this program only pays Part B premiums. QI benefits must be applied for every year, and applications are granted on a first-come, first-served basis. Priority is given to people who received QI benefits the previous year. Those receiving Medicaid aren’t eligible for QI benefits. Medicaid, a joint federal and state program, helps with medical costs for those with limited income and resources; it also pays for benefits not covered by Medicare (nursing home care, personal care services).
- Individual monthly income limit — $1,345
- Married couple monthly income limit — $1,813
- Individual resource limit — $7,280
- Married couple resource limit — $10,930
4.) Qualified Disabled and Working Individuals (QDWI) – this program helps pay Part A premiums. You may qualify if any of these apply: you’re a working disabled person under 65; you lost your premium-free Part A when you went back to work; you aren’t getting medical assistance from your state; you meet the income and resource limits required by your state.
- Individual monthly income limit — $1,962
- Married couple monthly income limit — $2,655
- Individual resource limit — $4,000
- Married couple resource limit — $6,000
Medicare Part C — Medicare Advantage
While all beneficiaries have access to Original Medicare, you may prefer a private health plan. A Medicare Advantage plan, also known as “Medicare Part C” or the “MA Plan,” is a private health plan that generally provides managed care options. Your enrollment may be automatic if your employer sponsors a Medicare Advantage plan when you become eligible for Medicare. These private plans, which contract with Medicare and pay a fixed amount to provide benefits, include:
- Health Maintenance Organizations (HMOs) – plans limiting coverage to doctors who work for or contract with the HMO. Out-of-network care is usually prohibited, except in emergencies.
- Preferred Provider Organizations (PPOs) – plans that contract with providers to create a participating network. In-network providers cost less, but out-of-network providers can be seen for an additional cost.
- Private Fee-For-Service (PFFS) – state-licensed plans providing all Medicare benefits. PFFS plans may offer full or partial provider networks (or none at all). Enrollees can see any provider eligible to receive Medicare payments who accepts the plan’s terms and conditions.
Medicare Advantage plans must offer the same benefits as Original Medicare (Parts A and B). In addition, these plans may offer additional coverage not provided by Original Medicare, like vision, hearing, dental and even health and wellness programs. And, most MA plans provide Medicare prescription drug coverage (Part D).
MA plans may have different rules, costs and restrictions. Every month, Medicare pays the MA plan a fixed amount for each beneficiary. But these plans may charge a premium, in addition to the monthly Part B premium. MA plans may reduce cost-sharing requirements compared to Original Medicare, as well. Some MA services may only be covered in certain settings or for certain conditions. These are considered medically necessary to treat a specific disease or condition.
Doctors or other health care providers may recommend services more often than what Medicare covers. Or, they may recommend services not covered by Medicare. Patients may be liable for some or all of the costs. Therefore, it’s important to ask your doctor any questions, so you’ll know what Medicare covers. When it comes to monthly premiums, deductibles, copayments and coinsurance prices, Part C varies by plan. You may want to research specific Part C plan costs on the Medicare website.
Medicare Part D – Prescription Drug Coverage
On January 1, 2006, Medicare began providing prescription drug coverage to all members. This is actual insurance for prescription drugs, with coverage provided by private companies. Enrolling in a Part D plan (PDP) provides you with access to more plans. And, you may be able to save on prescription drug costs and help to keep future costs from increasing.
You could receive prescription coverage through a Medicare Advantage (Part C) plan; these combination plans are known as “MA-PDs.” You must have Parts A and B to join a Medicare Advantage plan. But you can’t have a Medicare Advantage (MA) plan and then enroll in PDP. If you do, you’ll be disenrolled from your MA plan and returned to Original Medicare. Under Part D, you choose your preferred plan, whether an independent prescription plan (such as those offered by companies like Aetna or Cigna) or one offered through Medicare Advantage. Here’s how the process works:
1.) You select a plan by starting here. Medicare must approve the insurance company or private company offering the plan. You should know that each plan can vary in cost and drugs covered.
2.) Complete a paper enrollment form
3.) Call the plan
4.) Then, call 800-485-6202
5.) Once you’ve joined a Medicare drug plan, you’ll give your Medicare number and the date your Part A and/or Part B coverage began; this information is found on your Medicare card.
2015 Part D Monthly Prices
With Medicare Part D, the amount of your monthly premiums will vary. Such factors as the benefits of your selected plan and your resident state determine what you’ll pay. You should know that both Medicare Part D and Medicare Advantage plans change each year. So, you’ll need to review your Medicare plan options annually.
Like Part C, Part D plans are regulated by the Centers for Medicare and Medicaid Services (CMS). The CMS publishes basic Medicare Part D benefit parameters every year. Private providers use these to design their plans. While they have some flexibility, they must offer prescription drug coverage that at least meets the basic CMS standard benefit parameters or values. For 2015, the CMS’ Medicare Part D plan guidelines include:
- 2015 Standard Initial Deductible — The maximum initial deductible is $320 (up from $310 in 2014). If your Medicare Part D plan has an initial deductible, you’re responsible for 100 percent of your prescription drug costs while in the initial deductible phase.
- Initial Coverage Phase — The 2015 Initial Coverage Limit is $2,960 (up from $2,850 in 2014). You share the costs for your medications with your plan by paying coinsurance or copayments. The CMS standard or model coinsurance is 25 percent. This payment period starts when your initial deductible (if any) is met. It ends when the negotiated retail costs of your Medicare plan’s medications reach $2,960.
- The 2015 Coverage Gap (or the Donut Hole) – Once you meet your Initial Coverage Limit ($2,960), and until your True Out-of-Pocket (TrOOP) costs (not including plan premiums) reaches $4,700, you pay 100 percent of the plan’s negotiated retail price for covered prescriptions. This amount is less a portion of the brand-name drug Donut Hole discount. Your prescription costs would be $6,680 when you exited the Donut Hole. TrOOP costs are expenses that affect your Medicare drug plan out-of-pocket expenses; in 2015, they’re as high as $4,700.
- Catastrophic Coverage — TrOOP costs determine when catastrophic coverage begins. Once TrOOP costs reach the $4,700 exit point (not including monthly Part D plan premiums), you have two options. You can pay only a maximum of 5 percent of the retail price for your covered drugs, or you pay a copayment of $2.65 for covered generics and $6.60 for covered brand-name drugs, whichever cost is greater.
Medicare Part D Late Enrollment Penalty
While Medicare Part D is a voluntary program, you still have to take action, or you may face a penalty. You may have become eligible for a Part D plan for the first time, and you decide not to enroll. If you don’t have creditable prescription drug coverage, or you decide not to request extra help, you may have to pay a late enrollment penalty. Creditable prescription drug coverage is prescription coverage, often employer-provided, that pays at least as much as Medicare’s standard prescription drug coverage. Here’s how Medicare calculates the late enrollment penalty:
- 1 percent of the “national base beneficiary premium” ($33.13 in 2015) is multiplied by the number of full, uncovered months you went without Part D or creditable coverage.
- This amount’s rounded to the nearest $.10 and added to your monthly Part D premium.
As this national base beneficiary premium may increase each year, your penalty amount may increase each year. Once you’ve joined a Medicare drug plan, you’ll be informed of the amount of your premium and whether you owe a penalty. If a penalty’s owed, you can expect to pay this amount as long as you have a Medicare drug plan.
If you disagree, you may qualify for a “reconsideration.” Your drug plan will send you a form and you’ll submit it to the address or fax number provided. It must be submitted within 60 days from the date on the letter stating that you had to pay a late enrollment penalty. You also need to send any proof that supports your case (i.e., a copy of your employer’s notice of creditable prescription drug coverage plan). Typically, a Medicare contractor will make a reconsideration decision within 90 days. You may request an extension, and the Medicare contractor may take an additional 14 days to resolve your case.
Should they decide that all or part of your late enrollment penalty is wrong, they’ll send you and your drug plan a letter explaining their decision. They’ll then remove or reduce your late enrollment penalty. And, you’ll receive a letter showing the correct premium amount and explain whether you’ll get a refund. But if the contractor decides that the late enrollment penalty is correct, they’ll send you a letter. You then have to pay the penalty. However, as this late enrollment penalty is part of your premium, you’re responsible for paying the penalty and premium, even if you’ve requested reconsideration. If you don’t pay, you could be disenrolled from your Medicare drug plan.
If you have financial issues and can’t pay the penalty, you can apply for and receive Extra Help. If you qualify, you don’t have to pay the late enrollment penalty. This extra help, which goes toward Medicare prescription drug costs, is available to those who meet certain income and resource limits.
- In 2015, drug costs for those who qualify are no more than $2.65 for each generic and $6.60 for each brand-name covered drug.
- In 2016, costs will be no more than $2.95 for each generic and $7.40 for each brand-name covered drug.
Some Medicare members pay only a portion of their Medicare drug plan premiums and deductibles based on their income level.
- In 2015, you may qualify if you have up to $17,655 in yearly income ($23,895 for a married couple).
- You may also qualify if you have up to $13,640 in resources ($27,250 for a married couple).
For those who don’t qualify for Extra Help, statewide programs may be available to help pay prescription drug costs. Your local Medicaid office or your State Health Insurance Assistance Program (SHIP) can provide more information. SHIPs offer local, personalized counseling and assistance to Medicare members and their families, for such issues as benefits, coverage, complaints and specific plans. Additionally, you’re allowed to reapply for Extra Help at any time should your income or resources change.