Medicare

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 is a federal public health insurance program for the elderly and qualified disabled. It is a financing program not a health delivery system. It relies on private health providers to deliver health care to program beneficiaries. Private providers are paid by Medicare, either directly via Traditional Fee-for-Service Medicare (FFS Medicare) or through an intermediary system of private insurers: Medicare Advantage (MA) or stand-alone prescription drug plans (PDPs).

Brief overview and history
Medicare was established in 1965 under Title XVIII of the Social Security Act to provide health insurance for elderly Americans. Prior to Medicare, nearly half the elderly lacked health insurance. Today, health insurance for the elderly is nearly universal. Medicare was expanded in 1972 to provide health insurance to non-elderly disabled individuals. In total, Medicare provides coverage to 62.6 million Americans: 54.1 million aged 65 and older and another 8.5 million non-elderly with permanent disabilities [as of 2020]. Medicare spent 915.4 billion in FY 2020 out of total Federal spending of 6.6 trillion.

Medicare is organized into four parts: A, B, C, and D.

Part A is hospital insurance, funded by a 2.9% payroll tax (shared equally between employer and employee). Part B is outpatient coverage, funded by premiums and general revenue. Parts A and B are called Original Medicare.

Part C is the Medicare Advantage program, under which private insurers bundle Parts A, B, and in some cases D, and receive a fixed payment from Medicare to provide coverage for each enrollee.

Part D is the prescription drug benefit, funded by general revenue and beneficiary premiums.

Parts A and B can be obtained from FFS (Fee For Service) Medicare. Providers bill Medicare directly for services.

Part C, Medicare Advantage, and Part D, the prescription drug benefit, are only available through private insurers. Providers bill insurers. In turn, insurers received fixed, per enrollee payments from Medicare.

If you have a Health savings account (HSA), contributions must stop when you enroll in Medicare. Premium reimbursements are a qualified HSA distribution.

Medicare Advantage
Health maintenance organizations (HMOs) offered by private insurers have existed under Medicare since the 1970s. Medicare now contracts with a variety of types of private plans: preferred provider organizations (PPOs), provider-sponsored organizations (PSOs), private fee-for-service (PFFS) plans. Some plans operate on a regional (multi-state) basis (regional PPOs), while other plans operate locally, contracting with Medicare on a county-by-county basis.

The number of beneficiaries enrolled in MA plans has grown to 25 million in 2020. Between 2011 and 2020, private plan enrollment grew by 12.7 million or 103 percent, compared to growth in the overall Medicare population of 28 percent for the same period.

Subject to the approval of the insurance company marketing the MA plan, MA enrolled beneficiaries receive all the standard FFS Medicare benefits plus additional benefits only available through private plans (e.g., reduced Part B cost-sharing). MA plans may also provide a Part D drug benefit.

Enrollees in Original Medicare receive all Part A and Part B benefits without being subject to the approval of an insurance company.

As of 2020, 40% of beneficiaries are enrolled in such plans at a cost of $11,676 per enrollee.

Prescription drug plans
In addition to MA plans that offer Part D drug benefits, another private plan type under Medicare is the stand-alone prescription drug plan (PDP). PDPs operate in multi-state regions. Most operate nationally.

PDPs may offer a basic benefit that includes a donut hole or coverage gap (wherein a beneficiary pays 100% of drug costs between the initial coverage and the catastrophic coverage range). Other PDPs offer enhanced coverage which may include generic or brand coverage in the donut hole and/or a reduced deductible. In 2021, 48 million of the more than 62 million people covered by Medicare are enrolled in Part D plans.

There is a late enrollment penalty (a permanent addition to your Part D premium) if you don't have Medicare or other creditable drug coverage within 63 days from the initial enrollment.

Supplemental (Medigap) insurance
Either through an employer or the non-group market, some beneficiaries obtain additional coverage, known as Medigap. Medigap plans are standardized in most states (Massachusetts, WI, MN are exceptions) and cover cost sharing and other benefits not covered by Medicare.

MA plans typically have lower up-front premiums than Original Medicare plus Medigap plus Part D; but, depending on healthcare utilization, the cost of a MA plan can equal or exceed that of Original Medicare plus Medigap plus a stand-alone PDP. This is especially pertinent if the MA insurance company denies coverage for a healthcare service that an enrollee chooses to have, and the enrollee becomes responsible for the entire cost of the non-covered service.

Premiums
Medicare premiums are set every year. For Part B, the law says that an estimate of yearly cost per enrollee be first divided in half, then the premium is calculated as half that amount. For those enrollees getting Social Security benefits while not subject to a reduction in the government subsidy, if the new rate would reduce the net Social Security benefit received, the new rate for them is adjusted so that there is no reduction is Social Security benefits paid (the “hold-harmless” provision).

Those with higher incomes have their premium subsidies reduced (similar to the loss of ACA premium subsidies - the premium tax credit and the cost sharing subsidy - for higher income individuals). The amount of the  government subsidy reduction is called the Income-Related Monthly Adjustment Amount (IRMAA). Without the full subsidy, the premium is greater than it otherwise would have been.

The law uses the most recent tax return to determine the adjustment, e.g., the deadline for filing 2020 tax returns was October 15, 2021, and the new premiums for 2022 were announced in November, 2021. This is often referred to as a two-year look back when in fact it is only a one-month look back.

Once the Modified Adjusted Gross Income (MAGI) is determined, there is a table for single filers. The MAGI brackets are adjusted for inflation each year (rounded to the nearest $1,000). For joint filers, the bracket numbers are twice the bracket numbers for single filers (with the exception of the top bracket which is 1.5 times the top single bracket).

Part D enrollee premiums vary from plan to plan and are calculated by comparing each plan’s approved Part D bid to the national average monthly bid amount. A plan’s basic Part D premium is equal to the base beneficiary premium plus the difference between the plan’s bid and the national average monthly bid amount and may be reduced by MA rebates. Part D premiums are also subject to an income-related adjustment amount for those with higher incomes, while beneficiaries with low incomes and modest assets are eligible for assistance with Part D plan premiums and cost sharing, as previously mentioned above.

There have been several recent changes in the law that have impacted premiums by reducing income.


 * The Medicare and CHIP Reauthorization Act (MACRA) of 2015, repealed a 1990s formula that required an annual “doc fix” from Congress to avoid major cuts to doctor’s payments under Medicare Part B.  This moved the cost from outside Medicare to inside Medicare and resulted in a premium increase. (MACRA also resulted in the issuance of new Medicare cards that don’t include social security numbers,)
 * The Tax Cuts and Jobs Act of 2017 both lowered revenues from taxation of Social Security benefits and increased projected Medicare spending by repealing the ACA’s individual mandate penalty.
 * The Bipartisan Budget Act of 2018 increased projected Medicare spending by repealing the Independent Payment Advisory Board (IPAB), which was established by the ACA to keep Medicare spending in check.
 * The Further Consolidated Appropriations Act of 2020 included a repeal of the ACA’s “Cadillac Tax”, which, according to the Medicare Trustees, had the effect of reducing payroll tax revenue by increasing projected employer-sponsored health benefits costs and, as a result, reducing wages.

Maximum out-of-pocket costs
Editor's note - This needs work.

All Medicare Advantage plans must set a Maximum Out-Of-Pocket (MOOP) cost. These costs include all cost-sharing (deductibles, coinsurance, and copayments) for Parts A and B covered services received from in-network providers. Part D cost-sharing does not count towards the MOOP.

The Medicare Advantage plans are allowed to charge for co-pays up to $7,550 per year. The highest deductible supplemental plans that frequently purchased, high deductible Plan G and high deductible Plan F, are set at $2,490 this year. So in the event of needing medical care, there can be more financial risk with the Advantage plans and you are frequently limited to a local HMO network. Those in Original Medicare with their medigap plans can go anywhere in the US where Medicare is accepted. See:

Medicare application
If you are not yet receiving Social Security retirement or disability benefits, you will need to sign up for Medicare Part A (Hospital Insurance) and Medicare Part B (Medical Insurance, unless continuing employer coverage) at age 65 to avoid a permanent Part B premium late enrollment penalty later.

You can submit your Medicare application up to 3 months before the month of your 65th birthday. Applications may be online (recommended by the Social Security Administration), by phone (1-800-772-1213 or TTY 1-800-325-0778), or in-person at your local Social Security office. The following schedule is typical: