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Basics of Medicare - Everything You Need To Know
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The Centers for Medicare and Medicaid Services (CMS) is the federal agency that oversees the federal health insurance program. Since they run the Medicare program, everything goes through CMS when someone is looking to choose their benefits.
Someone cannot have Original Medicare Part A and B and a Medicare Advantage Part C plan; they must choose one or the other.
Created in 1965, Medicare is a federal entitlement program providing national health insurance coverage for those who were 65 and over regardless of their income and medical history.
In 1945, President Harry Truman first sent a message to Congress, which called for a national health insurance fund that all Americans would have access to that would be paid for through a payroll tax.
Many saw his plan as universal health care that looked a lot like the beginning of socialism. Although Truman fought hard to get something passed, he was unsuccessful and later acknowledged that it was one of the biggest regrets of his presidency.
In early 1960, President John F. Kennedy made the same attempt after learning that over half of all Americans over the age of 65 had no health insurance coverage at all. With the average life expectancy around 69 years old during that time, the idea of providing universal health care overseen by the federal government for those 65 and over became much more popular.
On July 30, 1965, President Lyndon Johnson signed Medicare into law, providing hospital and medical coverage to those 65 and older. He issued the first Medicare card to none other than Truman. As a tribute to Truman, Medicare was signed into law at the Truman Library.
In the first year alone, nearly 20 million Americans took advantage of the new plan.
When Medicare first began, only two parts existed — Part A for hospital services that was free and carried a small annual deductible, and Part B for medical services that charged a small monthly premium. The first Medicare customers paid a $40 annual deductible for Part A (hospital) and a $3 per month premium for Part B (medical).
As of 2022, those costs are now:
- $1,556 for the Part A deductible
- $170.10 per month or higher, depending on your income, for Part B.
Medicare was only supposed to cover those 65 and older, but in 1972 President Richard Nixon expanded it to include certain people under that age who had long-term disabilities or ESRD.
In the 1980s, additions to what Medicare covers expanded to include home health and hospice services. In 1980, Medicare Supplement insurance, known as Medigap, which we will go over later, was born via the Omnibus Reconciliation Act under federal oversight.
In the 1990s, new legislation required Medicare to cover premiums for those with incomes between 100-120 percent of the national poverty level.
In 1997, Part C of Medicare was signed into law originally under the name “Medicare + Choice.” In 2003, the name was later changed to what we now call Medicare Advantage. It was created as an alternative to Original Medicare to give more choices for someone under a private health insurer.
Up until the new millennium, about 25 percent of Medicare beneficiaries had no sort of coverage for their prescription drugs. In 2003, President George W. Bush changed that when he signed the Medicare Prescription Drug Improvement and Modernization Act, enabling people to add an optional drug plan to their policies. These are offered by private insurance companies, which came to be known as Part D of Medicare.
Over 60 million Americans and almost 18 percent of the total population are covered by the many benefits available as a Medicare beneficiary.
As of 2020, there are approximately 10,000 people a day who are turning 65 — known as the baby-boomer generation. This generation includes those who were born between 1946-1964.
In 2011, the first of this generation started to turn 65 and age into Medicare, which will continue until 2030. By 2030, it is estimated that there will be over 80 million beneficiaries in the Medicare population.
Part A covers inpatient hospitalization. Think of this as the room and board when someone is admitted to the hospital.
- Inpatient hospitalization.
- Skilled nursing facility.
- Home health care.
- Hospice care.
- Some blood transfusion costs.
Part A has a deductible, which for 2022 is $1,556. This $1,556 is not an annual deductible but rather a benefit period deductible.
This is one of the only insurances that uses a benefit period deductible and not an annual deductible.
⦁ If someone is admitted to the hospital, this deductible is good for 60 days starting from the day they were admitted.
Although unlikely, if someone were chronically ill and was admitted and discharged every 60 days, they could be responsible for this deductible up to six times during the calendar year.
The word “admitted” is the key word under Part A, which will trigger the deductible for a hospital stay.
Someone who finds themselves being rushed to the hospital may only be held under “observation,” which would be considered an emergency stay. This would fall under the outpatient medical services of Part B.
Medicare as of 2022, has a rule that you must be admitted to a hospital for three days to be eligible to receive coverage for a skilled nursing facility stay under Part A.
“Observation” status is typically given to someone in the hospital whose condition does not require the need for care longer than 48 hours.
As of now, skilled nursing facility coverage with Medicare can only fall under Part A. Skilled nursing facility care is considered an extension of a hospital stay if someone had a serious condition that required rehabilitation before going home.
If someone finds themselves not admitted to the hospital and under observation only, the charges will fall under what we are going to look at next, which is Part B of Medicare.
Part B covers outpatient medical services. Part B covers almost everything medically necessary outside of the hospital such as:
- Doctor visits, which include both primary care and specialists.
- Preventative care.
- Outpatient surgeries.
- Durable medical equipment.
- Expensive treatments like chemotherapy.
- Ambulance services.
As of 2022, the Part B deductible is $233. This deductible is a calendar year deductible (January 1 - December 31) versus a benefit period deductible (60 days) like Part A.
Once this deductible has been satisfied, the good news is the individual has met Medicare’s Part B deductible for that entire calendar year. However, the individual is still responsible for a 20 percent coinsurance, which can be a big problem for someone with just Medicare Part A and B.
After the Part B deductible has been met, Medicare will only pay 80 percent of all medical expenses and the individual will be responsible for the other 20 percent that calendar year.
Unfortunately, Medicare Part B does not have a maximum out-of-pocket cap like most private insurance plans. The other 20 percent would be the individual’s responsibility for that entire calendar year.
Part C is often referred to as a Medicare Advantage plan.
These plans can be another way that someone can get their Medicare Part A and B coverage. Medicare Advantage plans are offered by private insurance companies that are approved by Medicare. Most of them will also include prescription drug coverage.
This option has become quite popular because it allows someone to get some additional benefits not offered by Original Medicare such as prescription, dental, vision, hearing, etc.
The plans come with another big benefit because they are required to have a limit on out-of-pocket costs each year for health care services.
These types of privatized plans are sometimes referred to as “all-in-one” plans because most will include prescription drug coverage, which is not provided under Medicare Part A and B.
Someone must have both Part A and B and continue to pay their Medicare Part B premium in order to enroll in a Medicare Advantage plan.
Most individuals think that the Medicare Advantage plan is their supplement to Medicare, but this is not the case.
When someone enrolls in a Medicare Advantage plan, they are no longer enrolled under Original Medicare Part A and B but will always be Medicare eligible.
The individual will always be in Medicare’s system and have the right to take back their federal governments benefits.
The Medicare Advantage plan is similar to group or individual health insurance.
The individual will need to use the health insurance card that is sent to them by the Medicare Advantage plan to get their services covered since that will be their health insurance.
The individual will want to keep their red, white, and blue Medicare card somewhere safe if they decide to switch back to Original Medicare at some point in the future.
Original Medicare has no provider networks so an individual can go to any doctor or hospital that they want to that accepts Medicare. With a Medicare Advantage plan, the individual may need to use the health care providers in that plan’s network or service area so it’s important to refer to their card.
Original Medicare Part A and B is offered by the federal government, and a Medicare Advantage Part C plan is offered by a private insurance company.
Part D covers prescription drug coverage.
These plans are provided by private insurance companies that are approved by Medicare to help with the cost of prescription drugs.
Medicare never got involved in the prescription drug market but does oversee how the private insurance companies administer the prescription coverage.
The individual will only have two options to choose from for their prescription drug coverage when they are eligible for Medicare. They can choose either a:
- ⦁ Prescription drug plan (PDP), which is referred to as a stand-alone PDP. The PDP plan will not automatically be included with Original Medicare A and B as their insurance.
- A Medication Advantage prescription drug (MAPD) plan is through Medicare Advantage, which includes prescription drug coverage that meets the requirements of Part D.
If someone is not taking any prescription medication, they will still need to enroll in a standalone PDP or MAPD. There will be a penalty if someone does not have credible prescription coverage and does not enroll into a prescription plan when they are first eligible for Medicare.