The original Medicare legislation established a health insurance program for Americans age 65 and older.
The Centers for Medicare & Medicaid Services (CMS) sets the parameters for Medicare benefit coverage of health care services.
The Medicare system provides services through fee-for-service models and Medicare Advantage plans.
The United States has grappled with universal health care coverage for many decades. From Presidents Theodore Roosevelt, Franklin Delano Roosevelt, Harry Truman, and John Kennedy, attempts to provide government sponsored health care coverage have been hotly debated and soundly defeated.
Where did Medicare originate from?
In the early 20th century, several government sanctioned studies supported the notion of providing health care coverage for aging Americans. Some individual states provided varying coverage, however, a significant number of older Americans were overwhelmed by the cost of health care services. Even with Social Security benefits, most older Americans could not afford the cost of hospitalization. After decades of debate over a solution, President Lyndon B. Johnson gained more support for health care reform following the 1963 national elections. As the political tide and congressional support for health programs grew, “The Great Society Movement” fostered social welfare legislation such as Medicare and Medicaid, which were embedded in the Social Security Act.
The Medicare program, Title XVIII of the Social Security Act, was designed to provide federal government administered medical assistance services for older Americans. The original health insurance program provided limited coverage of medical services but offered considerable relief for older American health care consumers. The program targeted coverage for Americans aged 65+ and included moderate cost sharing for participants.
The cost of Medicare is primarily funded through payroll taxes and contributions from beneficiaries. There were more than 57 million Americans covered by Medicare as of 2016. The Medicare program operates under the U.S. Department of Health and Human Services’ (HHS) Centers for Medicare and Medicaid Services (CMS). This agency oversees Medicare policy and administration.
Who is eligible for Medicare?
The original Medicare legislation established a health insurance program for Americans age 65 and older. Medicare also covers certain widows and widowers under age 65 with disabilities, as well as adult children with disabilities of retired, deceased, or disabled workers.
The Medicare legislation was written to include financial responsibility for its beneficiaries. Medicare costs for most beneficiaries include premiums, deductibles, co-payments, and co-insurance. In general, beneficiaries do not pay a monthly premium for Part A, which partially covers hospitalization costs. People are eligible for premium free Part A coverage if they are aged 65+ and they or their spouse worked and paid Medicare taxes for at least 10 years. People who are aged 65+ and have not met the Medicare work requirements may pay a premium for Part A coverage. Eligible consumers must make an affirmative election for Part B coverage. This election must occur upon your eligibility date or later during a defined enrollment period. Everyone must pay for Part B coverage. The premium is deducted from Social Security, Railroad Retirement, or Civil Service Retirement checks. Medicare directly bills beneficiaries who don’t receive any of these retirement benefits.
Both Parts A and B require deductibles and co-insurance. A deductible is the amount paid out-of-pocket each year before one’s Medicare plan begins cost sharing. Premium and deductible amounts may change each year. A copay is a fixed amount of money the beneficiary pays for a certain service with Medicare paying for the rest of the cost. Coinsurance refers to the percentage paid by the beneficiary and the percentage paid by the Medicare. The Part D prescription drug benefit, requires beneficiaries to enroll in a private plan and pay premiums and co pays for this coverage.
Legislative amendments enacted in 1972-73 expanded coverage for people with disabilities under the age of 65 after they have been covered under Social Security Disability Income for 24 months. As of 2016, Medicare covers more than nine million people with disabilities under age 65, or 16% of the Medicare population. Beneficiaries living with disabilities are the fastest growing segment of the Medicare population. Additionally, people under age 65 who are diagnosed with end-stage renal disease or Lou Gehrig’s Disease (ALS) became eligible to automatically qualify for Medicare upon diagnosis with no wait period.
Some Medicare beneficiaries are eligible for both Medicare and Medicaid services. Medicaid assistance for qualifying low-income Medicare beneficiaries may help pay for the Medicare Part A and Part B deductibles, coinsurance, copayments, and inpatient and/or community long-term care services. These beneficiaries are referred to as dual eligibles or duals. Duals may be under or over age 65. There are approximately 10 million dual eligible Americans. Many of them have intensive and/or multiple chronic conditions and consume a disproportionate share of Medicare/Medicaid dollars.
What services are covered under Medicare?
The Centers for Medicare & Medicaid Services (CMS) sets the parameters for Medicare benefit coverage of health care services. Medicare coverage was initially designed as an acute care insurance program. Over the years, it has evolved to include more preventive services. Medicare benefit coverage is divided into three Parts: A, B, and D.
Part A is often referred to as Medicare hospital insurance and it includes:
- Skilled nursing care
- Nursing home care
- Inpatient hospital stays
- Hospice care
- Some home health services
Part B provides coverage for non-hospital physician services such as:
- Doctor visits
- Preventive care such as exams, shots, and screenings
- Outpatient services
- Medical supplies
- Tests and x-rays
- Ambulance services
- Durable Medical Equipment (DME)
- Some mental health services
- Partial hospitalization
- Second opinion before surgery
- Limited outpatient prescription drugs (e.g., certain drugs that are administered in a doctor’s office)
To address the growing use of prescription drug therapy and the increasing financial burden beneficiaries faced paying for outpatient retail drug coverage, new Medicare legislation was enacted. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 introduced the Part D prescription drug insurance benefit. Implemented in 2006, Part D helps beneficiaries pay for Medicare-covered outpatient retail prescription drugs.
To administer the Part D insurance benefit, CMS contracts with department-certified private companies to sell coverage to beneficiaries. Medicare beneficiaries interested in purchasing Part D insurance may elect to enroll in these CMS authorized private plans. Enrollment in a Part D plan requires payment of monthly premiums and often requires annual deductibles, co-payments, and sometimes coinsurance.
Over the years, as beneficiary needs and insurance industry standards have evolved, Medicare coverage has expanded. The Part D coverage described above is one such amendment. Additionally, in 2011, the Affordable Care Act (ACA) enhanced Medicare’s coverage of preventative services and introduced the annual wellness visit. Medicare provides payment for this visit and for the creation of a personalized prevention plan including completion of a health risk assessment. The ACA also eliminated some cost-sharing for many of the preventive services covered by Medicare, making preventative care less expensive for beneficiaries.
How does the Medicare system work?
The original Medicare program was established as a fee-for-services (FFS) model. Under the FFS model, Medicare pays separately for each health care service that is provided. This payment model gives incentives to the health care delivery system, emphasizing quantity of services provided over quality of the care that is provided. Additionally, the FFS model offers little or no provision for coordination of care or utilization management. Hence, managing costs and quality in FFS is challenging. The result is that the Medicare program is at full financial risk for all services provided under FFS arrangements; that is, Medicare is expected to pay for the quantity of services rendered but has little control over managing the volume or quality of those services.
As of 2016, 38 million of the 57 million Medicare beneficiaries access services via the FFS system even though there are other models of care of available, such as Medicare Advantage (MA) plans (described below) that are growing rapidly. FFS beneficiaries often choose to continue to use the FFS model because their preferred doctors may not be affiliated with a MA Plan, or there is limited access to MA Plans in rural areas.
Medicare Advantage (MA) Plans
To address the lack of accountability for coordination of care and utilization management (costs) in Medicare, The Tax Equity and Fiscal Responsibility Act of 1985 (TEFRA) was enacted as the federal government’s early attempt to test a managed care model for Medicare. Under TEFRA, the government established a prepayment mechanism to pay a monthly rate to Health Maintenance Organizations (HMOs) known as capitation, passing responsibility for managing health care costs on to HMOs. This allowed the government greater opportunity to exercise control over financial risk through a predetermined budget for HMO-enrolled beneficiaries. The initial Medicare capitation rate was set to be equal to 95% of the projected monthly beneficiary health care service cost. Initially, in return for this capitation payment, the HMO provided all Part A and B covered benefits. Many health plans also provided non-Medicare covered benefits such as outpatient retail prescription drugs. The HMOs earned profits by managing medical costs through utilization management controls and risk-sharing arrangements with their network providers.
Through the years, there have been additional changes to the Medicare structure. The Balanced Budget Act of 1997 added a new Part to Medicare called Medicare+Choice. The term Part C was introduced in this legislation and represents managed Medicare plan options that include such privatized services as: Health Maintenance Organizations (HMO); Preferred Provider Organizations (PPO); Private Fee-for-Services (PFFS); Special Needs Plans (SNPs); HMO Point-of-Services (HMOPOS) and Medical Savings Accounts (MSA). The 2003 Modernizing Medicare Act (MMA) is considered the largest overhaul of Medicare in the program’s history, enhancing the Part C program, and replacing Medicare+Choice with Medicare Advantage (MA). The terms MA Plan and Part C Plan are often used interchangeably. In addition to offering Part A and Part B coverage, MA Plans may also offer Part D coverage.
The new MA Plan structure was established with several changes from Medicare+Choice plans. For example, with the MA plan:
- Beneficiaries enroll in a health plan for an entire year;
- Beneficiaries can be restricted to use specific networks of providers; and
- Federal reimbursement can be adjusted according to the health risk of the enrollees
In 2016, nearly 19 million of the 57 million Medicare beneficiaries were enrolled in an MA Plan. MA Plans are private insurance or managed care organizations authorized and contracted by CMS to enroll Medicare beneficiaries who have both Part A and B coverage. The rules and regulations for MA are documented in the voluminous Medicare Managed Care Manual, with 21 chapters of detailed requirements/standards for contracting with the Medicare program. There are many differences between the Plans, including costs and rules for access to care. Not every plan option is available universally. MA Plans offer their members broad benefits, often above and beyond the standard coverage in Medicare FFS. These benefits may include vision and dental services, outpatient retail prescription drug coverage, reduced out-of-pocket costs, and special non-clinical services and supports like Silver Sneakers programs or YMCA memberships.
In most cases, Part C MA Plans include prescription drug coverage (Medicare Part D), though this benefit is not offered by all Plans. However, under current CMS rules, people who enroll in an MA Plan that does not include prescription coverage are not eligible to enroll in a stand-alone Part D plan. Consumers interested in Part D coverage must either select an MA Plan that offers the same coverage or remain in FFS for Parts A & B, and select a Part D plan for prescription drug coverage.
What are the Medicare Advantage (MA) plan options?
As noted above, MA Plans are offered by different types of privatized services that, in turn, encompass different coverage and stipulations. It is important for a community-based organization seeking to develop a partnership to understand the unique characteristics of the coverage offered by the privatized service. The most common include: Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs); Private Fee-for-Service Plans (PFFSs); and Special Needs Plans (SNPs). Characteristics of each type of service is described below.
- Health Maintenance Organization (HMO)
- Requires selection of a primary care doctor;
- The primary doctor coordinates care;
- A referral is required to see a specialist;
- Most covered services must be obtained exclusively through the HMO’s contracted provider network, with emergencies being the exception;
- Accessing care outside the network or without referrals as necessary may result in the member bearing the full cost of care; and
- Except under certain circumstances, individuals are typically not covered for services obtained outside of the plan’s network of Medicare providers.
- Preferred Provider Organization (PPO)
- Allows more freedom than an HMO to access services from non-network doctors, hospitals, etc., but costs more to access care outside the network;
- Specialty referrals are not always required, but use of out-of-network providers can increase out-of-pocket costs; and
- Have less restrictive rules than HMOs, but higher premiums.
- Private Fee-For-Service (PFFS)
- No requirement to select a primary care doctor to manage care and referrals;
- Higher popularity due to absence of specific contracted network requirements that lock members to limited providers;
- In 2011, new Medicare rules required some PFFS plans to establish contracted networks.
What are Medicare Special Needs Plans (SNPs)?
Approximately two-thirds of Medicare beneficiaries have multiple chronic conditions requiring coordination of care among a variety of health care providers including primary care doctors, specialists, mental health specialists, and inpatient and outpatient facilities. Established in the 2003 MMA, Special Needs Plans (SNPs) are MA Plans that are available for beneficiaries with specialized health needs or who require support for other specific circumstances (e.g., the beneficiary is institutionalized).
These plans offer tailored benefits and coverage to meet the unique needs of the targeted population, while reducing costs. Medicare SNPs cover all Part A, B, and D services, and may coordinate coverage of Medicaid services depending on the SNP designation (described below). CMS encourages SNPs to consider expanded benefits in their plan offerings, such as social services supports (e.g., connection to community resources) and transportation services. SNP models emphasize integrated care to eliminate fragmented, clinically-centered care that can lead to poor outcomes, waste health care dollars, and confuse beneficiaries. The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) extended the SNP program authorization through December 31, 2018. The February 2018 CHRONIC Care Act permanently extended SNPs.
There are 3 SNP options that include:
- Chronic Condition SNP (C-SNP)- This plan is for beneficiaries with severe or disabling chronic conditions, such as diabetes, renal failure, chronic heart failure, and dementia. There are 15 CMS-approved chronic conditions for C-SNP designation. These conditions are defined in Chapter 16B of the Medicare Manual. C-SNPs may cover a single chronic condition or multiple chronic conditions.
- Institutional SNP (I-SNP)– This plan is for beneficiaries who reside or are expected to reside for 90 or more days in a long-term care facility (defined as either: skilled nursing facility, nursing facility, intermediate care facility, or inpatient psychiatric facility) and those living in the community who meet institutional level of care eligibility.
- Dual Eligible SNP (D-SNP)– This plan is for beneficiaries who qualify for both Medicare and Medicaid. Dual eligible Medicare beneficiaries tend to have multiple chronic conditions and complex health/social needs that are not always addressed in a standard system of care. D-SNPs have seen significant growth since the enactment of the ACA. Dual Demonstrations authorized under the ACA have allowed states to create waivers to enroll dually eligible beneficiaries into D-SNPs to enhance the coordination of care, support more fluid navigation of Medicare/Medicaid policy administration, and reduce health care costs. The dual demonstrations helped pave the way for the expansion of Medicaid Long Term Care (MLTSS) reforms which are picking up momentum as state Medicaid programs continue to struggle with the rising cost of managing care for these beneficiaries.