Medicare (Title XVIII of the Social Security Act)
Medicare was established in 1965 under Title XVIII of the Social Security Act as a federal health insurance program for individuals age 65 and older, regardless of income or health status. Individuals pay taxes throughout their working lives and generally become eligible for Medicare when they reach age 65. More than 55 million people rely on Medicare for their health insurance. About 17 percent of these individuals are under age 65. The program is administered by the Centers for Medicare and Medicaid Services (CMS), an agency of the U.S. Department of Health and Human Services.
Eligible individuals have the option to enroll in “Original Medicare,” which is a traditional indemnity or fee-for-service program in which the insurer and the patient each pay a portion of the cost of a covered service. Alternatively, individuals can participate in managed care plan. The Patient Protection and Affordable Care Act (also known as the Affordable Care Act, PPACA, or ACA) expanded prescription drug and prevention benefits covered under Medicare and introduced new programs to improve the quality and delivery of care.
People are eligible for Medicare when they turn 65 if they have worked and paid into the Social Security system or if their spouse has paid into the system. In 1972, Medicare was expanded to include individuals under age 65 who receive Social Security Disability Insurance (SSDI) payments and people suffering from end-stage renal disease (ESRD). In 2001, Medicare eligibility was further expanded to cover people with amyotrophic lateral sclerosis (ALS, or Lou Gehrig’s disease).
Individuals with disabilities must wait for 29 months from the time the Social Security Administration (SSA) determines they have a severe and permanent disability to begin receiving Medicare benefits. Individuals with ALS are exempt from the waiting period. Certain dependent adult children of Medicare beneficiaries are eligible for Medicare if they developed a permanent and severe disability before age 22. Spouses and dependents can receive Medicare after the death of the primary Medicare beneficiary.
Not all physical and mental impairments meet the standard of disability. Individuals with drug addiction or alcoholism do not qualify as a person with a disability. People with a disabling condition only meet the criteria once the condition is in an advanced stage, such as persons with multiple sclerosis and other progressively disabling conditions.
For an adult to be considered disabled, the SSA must determine that the individual cannot engage in any “substantial gainful activity” because of a physical or mental impairment that is expected to result in death or to continue for at least 12 months.
Medicare Part A (Hospital Insurance)
All Medicare beneficiaries participate in the Part A program, which helps pay for:
- Inpatient care in hospitals (i.e. critical access hospitals, inpatient rehabilitation facilities, and long-term care hospitals)
- Inpatient care in a skilled nursing facility (not custodial or long-term care)
- Hospice care services for persons with a life expectancy of six months or less
- Home health care services
- Inpatient care in a Religious Nonmedical Health Care Institution
Medicare pays for up to 100 days of home health services for any beneficiary who needs skilled nursing care, therapy, and home health aide services due to an acute, advanced (terminal), or chronic (ongoing) condition. To qualify, a person must have been in the hospital for at least three days in the 14 days before receiving care and be homebound. A person can also get coverage for home health care without a hospital stay through Medicare Part B.
Enacted in the early 1970s, the homebound rule defines who is eligible to receive Medicare home health services. To be considered “homebound:”
- The individual must have “a normal inability to leave home.”
- Leaving home must require “a considerable and taxing effort by the individual,” typically by relying on a wheelchair, cane, or the assistance of another person.
- The person may leave home for any reason, but most absences outside the home must be of an “infrequent or of relatively short duration.”
The law specifically permits an individual to be absent from his or her home at any time to receive health care or to attend adult day care or religious services.
Part A is funded by a tax of 2.9% of earnings paid by employers and workers (1.45 percent each). The health care reform law increases the Medicare payroll tax for hospital insurance for higher-income taxpayers (more than $200,000/individual and $250,000/couple) by 0.9 percentage points, beginning in 2013.
Medicare Part B (Medical Insurance)
The Part B program is voluntary. When enrolling in Medicare, individuals decide whether or not to pay a premium to receive Part B benefits. Part B helps cover medically-necessary services such as doctors’ services, outpatient care, home health services, and other medical services, including some preventive services such as mammography and colorectal screening. The Affordable Care Act added a free annual comprehensive wellness visit and personalized prevention plan to the list of Medicare-covered benefits.
Part B covers ambulance services, clinical laboratory services, durable medical equipment, (DME), outpatient therapies, kidney supplies and services, outpatient mental health care, and diagnostic tests, such as x-rays and magnetic resonance imaging.
The DME benefit includes a broad range of items needed by people with disabilities, such as wheelchairs, augmentative communication devices, and glucose monitors. Medicare’s DME benefit also covers orthotics and prosthetics. These devices are considered medically necessary when they replace or support a body part. Certain medical supplies are also covered as DME, including oxygen, catheters, colostomy supplies, and test strips for people with diabetes. However, “personal convenience” items are not covered. Examples include raised toilet seat, shower/commode wheelchair, grab bars and other safety equipment for the bathroom. Similarly, hearing aids and dentures are not covered.
Medicare eligible individuals pay a Part B premium each month. Most people pay the standard premium amount ($109 per month). Beneficiaries who have higher annual incomes (over $85,000/individual or $170,000/couple) pay a higher Part B premium.
Medicare Part C (Medicare Advantage)
Eligible individuals have the option to enroll in the Part C program, known as Medicare Advantage, as an alternative to receiving Part A and Part B benefits through traditional Medicare. Individuals enrolled in Medicare Advantage plans are provided hospital and medical coverage and may receive additional coverage, such as vision, hearing, dental, and/or health and wellness programs. Most Medicare Advantage plans include Medicare prescription drug coverage (Part D).
Medicare pays a fixed amount for the enrollee’s care every month to the companies offering Medicare Advantage plans. These companies must follow rules set by Medicare but each plan can charge different out-of-pocket costs and have different rules for how services are provided, such as whether an individual needs a referral to see a specialist or can only go to doctors, facilities, or suppliers that belong to the plan for non‑emergency or non-urgent care. These rules can change each year.
Types of Medicare Advantage Plans:
- Health Maintenance Organization (HMO) Plans
- Preferred Provider Organization (PPO) Plans
- Private Fee-for-Service (PFFS) Plans
- Special Needs Plans (SNP)
- HMO Point of Service (HMOPOS) Plans, which is an HMO plan that allows some services out-of-network for a higher cost
- Medical Savings Account (MSA) Plans, which combines a high deductible health plan with bank deposits that can used to pay for health care services during the year.
Medicare Part D (Prescription Drug Coverage)
Medicare prescription drug coverage is an outpatient benefit established by the Medicare Modernization Act of 2003 (MMA) and launched in 2006. There are two ways to get Medicare prescription drug coverage:
- Prescription Drug Plans (PDPs), which add drug coverage to original Medicare, some Medicare Cost Plans, and some Medicare Private Fee-for-Service Plans; or
- Medicare Advantage prescription drug (MAPD) plans that offer prescription drug coverage. Medicare Advantage Plans with prescription drug coverage are sometimes called “MA-PDs.”
The Part D monthly premium varies by plan and may be adjusted based on income. Many people qualify for help paying for their Medicare prescription drug costs, but may not be aware of it. Most who qualify and join a Medicare drug plan will get 95 percent of their costs covered. The Affordable Care Act sought to narrow the gap in drug coverage, known as the “donut hole,” by 2020.
For additional information, see the Centers for Medicare and Medicaid Services website.