11. HC Coverage In Retirement

Question 1

At implementation (1966) Medicare covered most people age 65+.

Now, other groups are eligible, too (list 5):

Answer 1

1. Persons entitled to SS or RR disability cash benefits for 24+ months
2. Persons with ESRD
3. Certain otherwise non covered, aged persons, who elect to pay a premium for Medicare
4. Persons w Lou Gehrig’s disease, who are allowed to waive the 24mo waiting period
5. Persons diagnosed w a medical cond’n caused by exposure to a public health hazard, per Public Law 96-510.

Question 2

Originally, Medicare was HI + SMI, A+B.

List the 4 categories of hc services covered under Part A:

Answer 2

1. Inpatient hospital
2. SNF (skilled nursing)
3. HHA (home health)
4. Hospice

Question 3

Summarize the inpatient hospital care benefit of Medicare Part A

Answer 3

Covers costs of:
- Semiprivate room
- Meals
- Regular nursing
- OR, recovery rooms
- ICU
- Inpatient Rx
- Labs, x-rays
- Psych hospitals
- Inpatient rehab
- Long-term hospitalization when medically necessary
- Other medically nec services/supplies provide by a hospital

An initial deductible payment is required of beneficiaries who are admitted to a hospital, plus copayments for all hospital days following day 60, within a Ben period.

Question 4

Summarize the SNF benefit in Medicare Part A

Answer 4

of SNF days provided under Medicare: limited to 100 days per Ben period. A copay applies for days 21-100.

Coverage for SNF is provided by Part A only if the care follows within (generally) 30d of a hospitalization that lasted 3+ days, and is certified as medically nec.

Covered services similar to inpatient hospital care, including rehab & appliances.

Part A doesn’t cover nursing facility care, if the patient does not require skilled nursing or skilled rehab.

Question 5

Explain the HHA care provided by Medicare Part A

Answer 5

HHA is covered by parts A & B. The Balanced Budget Act transferred from Part A -> B HH services furnished from 1/1/98+ that are in associated with a hospital or SNF stay.
- Part A continues to cover the first 100 visits following a 3+d hospital/SNF stay
- Part B covers any visits thereafter.

HH care under A & B has no copay, no deductible.

HHA care, including care provided by an aide, can be furnished part-time by an HHA in the residence of a homebound beneficiary, if intermittent/PT skilled-nursing and/or certain other therapy/rehab is needed.

Certain supplies/DME may also be provided @ 20% coinsurance. A treatment plan w periodic physician review req’d.

FULL TIME nursing care, food, blood, drugs - are NOT provided as HHA services.

Question 6

Describe the hospice care benefits provided by Medicare Part A

Answer 6

Coverage is provided for services to terminally ill persons w/ life expectancies of 6 months or less who elect to forgo their standard Medicare bens for tx of their illness, and to receive only hospice for it.

Such care includes: pain relief, supportive med/social svcs, PT, nursing, symptom mgmt. If a hospice patient reqs tx for a cond’n that isn’t related to the terminal illness, Medicare will pay for all covered services related to that condition.

For hospice, no deductible, but yes small copay for drugs and inpatient respite.

Question 7

What is the benefit period concept in Medicare Part A? How does it work?

Answer 7

Starts: when beneficiary first enters a hospital
Ends: When there’s been a break of 60+ consecutive days since inpatient hospital or SNF care provided.

No limit to # of benefit periods covered by Part A during a lifetime, but inpatient care limited to 90d per period, and copays apply for days 61-90.

If a Ben exhausts the 90d inpatient care in a period, they can use days from their non renewable “lifetime reserve” of up to 60 total additional inpatient days. Copays apply to those days.

Question 8

Describe Medicare Part B benefits

Answer 8

• All citizens & certain legal aliens age 65+, and all disabled persons entitled to coverage under part A, are eligible to enroll in part B on a voluntary basis by payment of monthly premium.
• Almost all persons entitled to A, choose to enroll in B.
• Examples of Part B benefits:
  —physicians & surgeons services, incl chiro, podiatry, dentist, optometrist
  —non-physician services by Medicare approved: RN anesthetists, clinical psychology, clinical social workers ex-hospital/SNF, PA, NP, CNS with physician collab
  —ER, outpatient clinic, ambulatory surgical, including same-day surg
  —HHS excluded by part A
  —labs, x-rays, other diagnostic radiology
  —certain prev.care/screenings
  —physical & occ therapy, speech path
  —outpatient rehab
  —radiation therapy, dialysis, transplants (!)
  —approved DME
  —non-self-admin drugs & biologics
  —certain diabetic svcs
  —ambulance when other transit is contraindicated

All services must be med nec (or prev.care)

Generally, are subject to deductible & coins; some have special payment rules like max approved amounts or higher coins.

Question 9

What’s the purpose of Medicare Part C?

Answer 9

Aka Medicare Advantage, it expands bens’ options for participation in private-sector hc plans.

A+B constitute the original FFS Medicare. Although this is still available, most folks using A+B could choose C instead.

They’re offered by private cos/orgs, and are req’d to provide services AT LEAST as good as A+B (minus hospice). They may (/must, in some cases) provide EXTRA bens (e.g., vision, hearing) OR reduce cost-sharing/premiums.

Question 10

Describe the 4 types of Medicare Advantage (C) plans:

Answer 10

1. LCCP: Local coordinated care plans. Includes HMOs, provider-sponsored orgs, local PPOs, other certified coordinated care plans/entities that meet legal standards. Has a network of participating providers you must use (or pay $$$ to go OON).
2. Regional PPO in one of 26 defined regions. Like a local PPO, has a network that you must use (or pay $$$ to go OON). Are req’d to provide Ben financial protections - limited OOP cost-sharing, and has provisions designed to encourage regional PPO to participate in Medicare
3. PFFS: private fee-for-service. Not required to have networks historically, but since 2011 that’s only true for regions with <2 network-based LCCPs. Members may go to any Medicare provider willing to take the plan.
4. Special needs plans: restricted to bens who are dually eligible for Medicare & Medicaid, live in LTC institutions, or have certain severe, disabling conditions

Question 11

Describe Medicare Part D

Answer 11

Provides subsidized access to Rx drug insurance. Voluntary. Premium. For individuals entitled to part A, or enrolled in part B.

There are premium and cost-share subsidies for low income enrollees.

Bens can choose a standalone PDP or an integrated Advantage+D plan.

Covers most FDA-approved Rx and biologics. Plans can have formularies, subject to statutory rules.

Can be standard, or an alt design that meets AVs. For an additional premium, plans can offer supplemental coverage exceeding basic coverage’s value.

Question 12

Is SMI synonymous with Part B?

Answer 12

No.

SMI consists of Parts B & D. Part D activities are handled within the SMI trust fund, but in an account separate from Part B. The purpose of the 2 sep accounts within the SMI trust fund is to ensure that funds from one part are not used to finance the other.

Question 13

List some (5) of the hc services NOT covered by Medicare

Answer 13

-Long-term nursing
-Custodial care
-Dentures and dental care
-Eyeglasses
-Hearing aids

They could be part of a private health plan under Advantage, though.

Question 14

How is Medicare Part A financed by payroll taxes?

Answer 14

The financial ops of A are handled through the HI trust fund. It’s financed primarily thru mandatory payroll tax.

Almost all EEs & self-emp workers in the US pay taxes to support the cost: 1.45% of earnings, to be paid by each EE + matching amount paid by ER for each EE, and 2.90% for self-emp. Paid on all covered wages & self-emp income without limit.

Additional A payroll tax of 0.9% collected on earned income >$200k (singly)/ >$250k (jointly - not indexed!).

Part A tax rate specified by SS Act and cannot be changed w/o legislation.

Question 15

Part A is generally provided automatically ,and free of premiums, to those age 65+ and SS/RR Ben eligible, whether they enroll in the cash benefit or not.

How else is part A financed, in addition to payroll tax? (5)

Answer 15

1. A portion of the income tax levied on SS bens paid to high-income bens
2. Premiums from persons not otherwise eligible who enroll voluntarily
3. Reimb from general fund of US Treasury
4. Interest earnings on invested assets
5. Other, small, misc income

Question 16

How does the SMI trust fund fundamentally differ from the HI trust fund, wrt the nature of its financing?

Answer 16

SMI = parts B & D. Each has its own separate account within the SMI trust fund. It’s similar in that both parts are primarily financed by contribs from the general fund of the US treasury, and to a small degree, Ben premiums.

B: Contribs from Treasury are largest source of income bc Ben prems are set at a level covering 25% of the avg expenditures for aged bens. Provisions can alter the prem rate for some enrollees.

D: Contribs from Treasury are largest source of income bc Ben premiums represent 25.5% of cost of standard coverage. Provisions can modify. D also receives pmts from the states. With the availability of rx drug coverage & low-income subsidies under D, Medicaid is no longer the primary payer for rx drugs for Medicaid bens who also have Medicare, and states are req’d t defray a portion of D expenditures for those folks.

SMI trust fund also gets income from interest earnings on invested assets, and a bit of misc income.

Ben premiums and general fund pmts for B & D are redetermined annually and separately.

Question 17

FFS bens are responsible for charges not covered by the Medicare program and various cost-sharing aspects of A+B. How are these paid? (3 ways

Answer 17

1. By the beneficiary
2. By a 3rd party, eg ER-sponsored retiree plan, private Medigap
3. Medicaid ,if eligible

Question 18

What are Medigap policies?

Answer 18

Private health insurance that pays, within limits, most of the hc service charges excluded by A+B. Must meet federally imposed standards. Offered by commercial insurers eg. BCBS.

Question 19

How is a ben’s FFS payment share determined for (a) hospital care under Medicare Part A and (b) SN care under Medicare Part A ?

Answer 19

A) First, one-time deductible at beginning of each Ben period. Covers the first 60d of inpatient care. If care continues past 60d, additional coinsurance required, thru day 90. Each Part A Ben has a “lifetime reserve” of 60d that can be used, only once, and coins applies.

B) Medicare fully covers the first 20d of SNF care in a Ben period. For days 21-100, copay req’d. After 100d, Medicare doesn’t pay for SNF.

Question 20

Are premiums req’d for Medicare Part A? Details

Answer 20

No.

Eligibility is earned thru work experience of Ben or their spouse.

Most aged people who are otherwise ineligible for premium-free part A can enroll voluntarily by paying a monthly premium, if they also enroll in Part B.

Question 21

What is the ben’s FFS payment share for Medicare Part B services?

Answer 21

• Annual deductible
• Monthly premiums
• Coinsurance for Part B services
• Deductible for blood
• Certain charges above Medicare-allowed charge, for claims not on assignment
• Payment for non-covered services

For services reimbursed under the outpt hospital prospective pmt system, coins varies by service, generally 20-50%.

No deductible/coins for certain services, like lab tests, HHA, and some prev.care.

Question 22

What is the ben’s FFS payment for Medicare Part D bens?

Answer 22

• Initial deductible
• then, Ben pays 25% of remaining cost up to coverage limit.

A coverage gap starts after an individual’s drug cost reaches the initial coverage limit, and stops when the Ben incurs a certain threshold of OOP costs.

For costs incurred after reaching the OOP threshold, catastrophic coverage is provided. This reqs the enrollee to pay the greater of 5% coins, or a small defined copay.

Many Part D plans offer alt coverage that differs from the above standard - and the majority of bens choose the alt., which are more likely to have low/no deductible, flat payments for covered drugs, and some partial coverage in “the gap.”

Question 23

Describe the pmts made to providers for:
1. Medicare Part A inpatient hospital services
2. Non physician Medicare Part B services
3. Physician services

Answer 23

1. Use a reimbursement mechanism called PPS, prospective pmt system. For acute inpatient hospital, each stay categorized into a diagnosis-related group (DRG), which has a predetermined amount associated that serves as basis. Then, adjustments apply to calculate the payment. Sometimes the pmt the hospital gets is < actual hospital cost of providing covered services, but sometimes it’s more. Hospital absorbs loss or takes profit. Certain adjustments exist for extraordinary stays/situations. Pmts for SNF, home health, inpatient rehab, LTC, inpatient psych, and hospice are made under separate PPS.
2. Same PPS as A. Outpatient hospital, a separate PPS. Clinical lab and ambulance are fee schedule - a comprehensive listing of max fees. DME - fee schedule, but also paid based on a competitive bidding process
3. The lesser of submitted charges OR fee schedule based on relative value scale. IRL, the fee schedule, which is supposed to update by a SGR (sustainable growth rate) system prescribed by law, but since that would’ve resulted in fee reductions for physicians, Congress has overridden this in past years.

If a Dr/supplier agrees to accept the Medicare rate in full (“takes assignment”), then pmts provided must be considered pmt in full and provider can’t request more, besides ded/coins, from the Ben/insurer.

If the provider doesn’t take assignment, beneficiary can be charged excess (which they can submit to Medigap ins if they have it). Limits now exist on the excess providers can charge.

Physicians are participating physicians if they agree before 1/1 to accept assignment for all Medicare services they furnish during the year. Since Bens in the original Medicare FFS may select their doctors, they can choose participating physicians.

Question 24

How were MACs (Medicare administrative contractors) developed? What do they do?

Answer 24

From the beginning of Medicare, FFS claims were processed by NGOs/agencies under contract to serve as the fiscal agent bt providers & the fed gov’t. They apply the Medicare coverage rules to determine appropriate reimb amnts, and make pmts to provider/suppliers. They were responsible to maintain records, establish patrols, safeguard against fraud/abuse, assist providers & bens. They processed most Medicare claims.

Legislation mandated the replacement of the older system with a new one of entities known as MACs. Each MAC processes and pays FFS claims for A+B services within its geo jurisdiction. They’re selected via competitive procedure. System is intended to improve Medicare services to bens, provider, suppliers, who now have a single POC for all claims-related biz. System enables Medicare FFS program to benefit from economy of scale/competitive performance pricing.

Question 25

Discuss the inherent vulnerabilities and actions taken in managing and adjudicating Medicare claims.

Answer 25

Because of its size & complexity, Medicare is vulnerable to improper pmts, ranging from inadvertent errors to outright fraud/abuse. Although providers are responsible for submitting accurate claims, and MACs are responsible for ensuring that only such claims are paid, additional groups prevent, reduce, and recover from improper payments.

QIOs (Quality Improvement ORgs, formerly peer review orgs PROs) are groups of practicing hc pros paid by the federal gov’t to improve effectiveness, efficiency, economy, and quality of svcs delivered to Medicare bens. One function of QIOs is to ensure Medicare pays only for goods/svcs reasonable & necessary, and provided in most appropriate setting.

Question 26

What various agencies/entities at the federal & state levels have admin responsibility for Medicare?

Answer 26

HHS has overall responsibility.
Within HHS, CMS administers Medicare.

The SSA assists by initially determining Medicare entitlement, withholding B prems from SS Ben checks, maintaining Medicare data, and a few other resps.

A Medicare Board of Trustees, composed of 2 appointed public members + 4 members by virtue of federal gov’t positions, oversee the financial ops of HI & SMI trust funds. The Secretary of the Treasury is the managing trustee.

State agencies (usually, state health dept under agrmt w CMS) identify, survey, inspect provider/supplier facilities/institutions wishing to participate n Medicare. In consultation with CMS, the agency certifies the facility is qualified.

Question 27

List 5 major challenges Medicare faces:

Answer 27

1. Solvency of the HI trust fund: it fails the Medicare BoT test of short-range financial adequacy, as annual spend exceed annual assets
2. Long-range health of HI trust fund, it fails the Medicare BoT long-range test of close actuarial balance
3. Rapid growth of SMI costs as % GDP. [Note: generally, B+D accounts in the SMI trust fund are in automatic financial balance, both short & long-range, bc premiums and revenue financing rates are reset each year to match estimated costs.)
4. Substantial reductions in B physician pmt rates required under SGR system in current law (which Congress keeps overriding)
5. Likelihood that lower pmt rate updates to most categories of Medicare providers, mandated by the ACA, won’t be viable long-term.

Question 28

Why (2 reasons) are people more concerned about their medical expenses during retirement when other expenses (housing ,transport, food) are greater?

Answer 28

1. Unpredictable - an unforeseen serious illness wreaks havoc on a plan
2. People know from xp that hc spending increases at faster rates than other kinds of spending

Question 29

3 suggestions financial planners might make to their clients to help them manage hc costs during retirement:

Answer 29

1. Make a one-time estimate of how much clients might pay for their ret hc
2. Encourage retired clients to reevaluate their plans each year during Medicare OE (Oct 15- Dec 7)
3. Encourage ret clients to track their hc expenses

Question 30

Why is it beneficial to make a one-time estimate of hc costs during retirement? 3 benefits:

Answer 30

1. Retiree awareness of potential costs may be motivated to manage them
2. By seeing several estimates, retiree will understand costs may vary widely
3. In discussion w financial planner, retiree may realize the bulk of hc spending will prob occur in late retirement

Question 31

Explain the late spending pattern of hc costs

Answer 31

Although retirees may know that hc inflation grows more quickly than others, they may be less aware of how much more they’ll spend during later ret on copay, rx drug, and non-covered services. Combo of hc inflation + greater use of services could mean that for some, the cost of hc in later ret may crowd out other kinds of spending.

Question 32

What part of Medicare has the greatest cost variation from year-to-year?

Answer 32

Part D

Question 33

What steps can a retiree take to estimate their medical expenses?

Answer 33

1. Call the ins company (ies) to find out how much they’ve paid in cost shares (ded, copay, coins).
2. Add the premiums paid, including Part B
3. Add estimates for non-covered services, such as routine dental/vision, hearing aids, OTC drugs.

Question 34

What rate of inflation should be used for retiree medical care costs?

Answer 34

No consensus

Medicare trustees project 4.3% annual rate thru 2025.

Other orgs use other rates, financial planners might want to choose 2-3 for projections.