What’s the Deal with Medicare

Today, 50 years after it was signed into law, what we call “Medicare” may be the most misunderstood program the government has. Since the annual “Open Enrollment” for the Medicare Advantage (MA) market just began, I thought this was a great time to review a few things about Medicare.

In the interest of protecting the health of senior citizens once their working years wound down, Congress created the Medicare Program in the mid-1960s with three specific goals:

1. Create a trust fund that would endure throughout the ages for seniors’ healthcare.
2. Use this trust fund to cover hospital costs, and then later, physician and outpatient costs, as well as prescription drug costs for seniors.
3. Encourage equal treatment of all seniors, regardless of race, when they sought healthcare.

If you have worked since 1965, you and your employer have been contributing at least 1.5% of every paycheck into the Medicare Fund. If you contribute for at least 40 quarters of work during your lifetime, you are eligible for free Medicare Part A. Part A helps pays for things like hospital stays, skilled nursing, hospice and home health services. It does not, however, provide unlimited medical costs with no contributions from you. The current deductible, for example, is almost $1,300/year. Long hospital stays can generate very large member bills as well. If you are in the hospital for

1. 0 through 60 days in a calendar year: $0/day extra coinsurance
2. Day 61 through 90: $322/day extra coinsurance
3. Day 91 and beyond: You must pay $644/day and use up your “lifetime reserve days,” of which you get 60.
4. Run out of ‘lifetime reserve days’? You pay 100% of all hospital costs

Easy to see that even with Medicare, a person could end up owing a ton of money if he got really sick. What do most seniors do about these gaps in coverage? Stay tuned, there are a few more gaps to check out here.

Medicare Advantage (MA) plans provide comprehensive, wrap-around coverage that reduces what you might have to pay out-of-pocket for treatments that fall in the holes in Medicare Part A and B.

Medicare Part B covers medical services considered necessary to treat a disease or illness. This typically includes coverage for things like lab tests, surgeries and doctor visits. It also covers certain preventive services. Although Medicare Part B is pretty good insurance, it still has a premium ($121.80/month for most seniors this year), deductible ($166 this year) and requires 20% coinsurance WITH NO LIMIT beyond the deductible. Imagine you are having a serious illness, one that requires expensive outpatient treatments like dialysis or chemotherapy. Imagine being on the hook for 20% of that cost with no max out of pocket annually. That’s what you get with STANDARD Medicare Part B.

Happily, there are private solutions to these public problems.

Medicare Advantage (MA) plans provide comprehensive, wrap-around coverage that reduces what you might have to pay out of pocket for treatments that fall in the holes in Medicare Part A and B. Many Medicare Advantage plans don’t have a monthly premium. In exchange, the member typically agrees to use a plan’s specific network of doctors and hospitals when they seek treatment.

By law, MA plans are required to have max out-of-pocket limits to protect seniors financially. Some MA plans even include prescription drug coverage (Part D), making it a true turnkey solution for a person turning 65. Carriers are even profit-limited by the federal government when they sell MA plans and their financials and performance tightly monitored. This is to ensure that “private Medicare” gives all the same protections (actually more in most cases) as standard government-issue Medicare.

And these MA programs have become VERY popular. By the end of this current Open Enrollment period, more than 18 million seniors will be enrolled in MA plans.

Medicare is an excellent basic federal health insurance program, now celebrating its 50th year of existence, and we should not take it for granted.

Another option for seniors is to stay on traditional Medicare Part A/B but buy a supplemental insurance policy to fill in all the gaps separately. This Medi-Gap coverage has been around for many years and is also quite popular. Imagine a policy that just covers all the expenses we listed above — the 20% coinsurance on Part B, the $322/day or $644/day a member pays for longer hospitals stays — Medi-gap plans would reduce those costs to $0. Because Medi-Gap insurance companies don’t take over for Medicare, but merely plug the holes, the plans require premium payments that increase with age. Over 20% of all Medicare members (around 10 million people) have a private Medi-gap coverage plan.

Lower-income seniors can be eligible to receive assistance with both premiums AND cost sharing through their state’s Medicaid programs. They are often called “dual eligibles” because they are members of both Medicare AND Medicaid at the same time. At any given time, another 20% of Medicare folks are “dual eligible” and being funded heavily for both premiums and any coinsurance or cost sharing through a state/federal partnership.

Add it up and standard, government-issue Medicare folks are few and far between. Roughly 52 million people are in Medicare today; 37 million of those either have a private Medicare plan or are dual eligibles, leaving only 15 million out there on “regular” Medicare.

The good news is, the current Medicare marketplace is both flexible and comprehensive for seniors, whether they prefer a straight, government solution, or a private one, choices abound. Medicare is an excellent basic federal health insurance program, now celebrating its 50th year of existence, and we should not take it for granted.