The Medicare Program: A Brief Overview
David M. Franklin, MSA
President
Advanced Care Consulting Services
Medicare Background
As most of us know, Medicare is a federal program that pays for certain health related services. This is not a new concept – governmental participation in health care has existed since this country began in the late 1700s when the Merchant Hospital Service required that ship owners pay a few pennies each month towards the provision of health care for their employed seamen. People have been noticing deductions from their paychecks ever since. The seeds of what was to become Medicare were actually planted during the 1960 presidential campaign. Kennedy campaigned on this issue, indicating that a program to provide health care for poor, elderly individuals would be a priority of his administration. The newspapers needed a name for this program, and began to call it Medicare. Kennedy never saw the program – the legislation wasn’t passed until 1965 and the program was actually implemented in 1966. Initially beneficiaries had to be old and poor in order to qualify for benefits. Later it was expanded to include the blind and disabled, and eventually any American citizen that was at least 65 years old and not working was covered. Currently there are four major parts to the Medicare program.
Part A
Medicare Part A is automatic and free to anyone that qualifies, which again includes American citizens 65 years or older and not working. It is primarily intended to provide inpatient hospital benefits, and is often referred to as the “HI” benefit for “Hospital Insurance.” While coverage is free, there are significant out-of-pocket costs. The 2007 deductible for Part A coverage is $992 per “occurrence,” with a new occurrence commencing every 60 days. So, if a Medicare beneficiary were to be discharged from inpatient services; then re-admitted 59 days later, there would be no additional deductible applied. If the readmission were to occur 61 days later… that’s another $992 out-of-pocket for the beneficiary. There is also a $248 per day copayment for hospitalized days 61 to 90, and $496 per day copayment for days 91 to 150. Part A also covers home health care, skilled nursing care, physical, occupational, and speech therapy, and certain medical social work each with significant coverage criterion and limitations.
Part B
Medicare Part B is known as the Supplemental Medical Insurance (SMI) benefit. In 2007, the coverage costs $93.50 per month with a $131 one time only annual deductible and co-insurance of about 20%. Unlike Part A benefits, coverage is elective and beneficiaries must actively enroll in the program. Because comparable coverage would be more expensive on the open market, most (but not all) Medicare beneficiaries do choose to enroll in the Part B program. Part B benefits pay for certain outpatient services, including physician services, hospital outpatient care, and durable medical equipment.
Part C
“Part C” is an informal designation often used to describe the Medicare Advantage (MA) program, whereby the Medicare program contracts with private sector health plans to administer benefits to Medicare beneficiaries. Under this model, the Medicare program pays the plans, and the plans contract with the provider community in order to build delivery networks and provide health care services to Medicare beneficiaries. This has the effect of removing the Medicare program from the operational aspect of claims adjudication, and leaves the provider community dealing directly with the private sector health plans.
Part D
Part D brings a specific and comprehensive prescription drug benefit to the Medicare program for the first time since its inception, and was brought to us courtesy of the Medicare Modernization Act (MMA) which was signed into law on December 8 th 2003. While planning had been on-going for the last few years, and certain elements were implemented at various times, the main prescription drug benefit took effect 1/1/2006. The program is available to anyone with Medicare Parts A or B, but it is voluntary. Many beneficiaries that already had prescription drug coverage through another source chose not to enroll. One truly defining element of Part D is that it is very much a retail type, point of sale program. There is no consideration for equipment, supplies, pharmacy cognitive services, or other components that may be necessary to carry out a complex, pharmaceutically focused care plan. Like Part C, these benefits are administered by private sector health plans that were awarded contracts by the Medicare program. There are literally thousands of Part D plans, each with their own cost structures that vary significantly.
Boy vs. Dog
One of the most significant issues to arise from Part D involves the debate between what is covered under Part B versus Part D benefits. While historically the Medicare program lacked a comprehensive prescription drug benefit, it did pay for many medications under a hodgepodge of Part B benefits. Drugs administered in a physician office or hospital is probably the best example. Drugs administered via an infusion pump, certain immunosuppressive medications provided post organ transplant, and some oral anti-cancer drugs are other examples of drugs that may be covered under Part B benefits. Exactly where Part B and Part D intersect and depart is currently much debated, and while most constituencies appear to agree that we need to answer these questions there is currently no clear consensus on how to resolve such disputes.