If you are one of over 40 million Americans currently on Medicare supplements, chances are that its structure and benefits are a book with seven seals to you.
Getting to the bottom of all those deductibles and copayments as well as knowing what an “allowable” charge is and what is not can be downright confusing. The entire program is complex and probably what one would expect from a government agency. With that said, this article will focus on Medicare Supplemental coverage and how to protect your hard earned assets from going down the drain with a catastrophic hospital bill.
Although there are alternatives to so-called Medigap policies, such as managed care (HMO’s), those require an entire article by themselves and will not be addressed in detail here.
A BRIEF HISTORY
Medicare was established under Title XVIII of the Social Security Act of 1965. The purpose is to provide a health insurance program to various eligible Social Security recipients. In 1973 people with disabilities were also added to Medicare. The program is administered by the Center for Medicare/Medicaid Services formerly known as Health Care Financing Administration or HCFA.
Medicare Part A (Hospital Insurance)
Medicare Part A is covered by part of the Social Security Tax (FICA) and as you know a percentage of your income (7.65% if employed, twice that if unemployed) is earmarked for this benefit. Today the ratio of workers paying Social Security taxes to retirees drawing benefits is 3.3 to 1. In other words, for every person drawing benefits, just over 3 people are paying into the system. As baby boomers retire this ratio is expected to worsen. By 2030, primarily because retirees will be living longer, this ratio is expected to drop to 2.1 workers per retiree.
Medicare Part B (Medical coverage, physician and outpatient services)
Medicare Part B is a voluntary program which is financed using various government revenues. Each participant is required to pay a monthly premium ($54 for 2002) which is set annually by the federal government. Part B only pays for 80% of approved charges and also has an annual deductible ($100 in 2002). There is the word – “approved charges”. This is where it can get confusing for most folks so let’s tackle this one.
Let’s say that this is January and you’re visiting your physician for the first time this year. If your doctor accepts Medicare assignment he or she will accept payment in full from Medicare for services rendered. If the bill sent to Medicare was for $100 but Medicare decides the approved charge is only $75 Medicare will pay nothing (remember this is your first visit?) and you will end up paying the full $75 which is then applied to your $100 deductible.
On your next visit, Medicare would pay 80% of that $75 charge minus the remaining deductible of $25 ($35) and you would end up paying the rest ($40). All visits after that are split 80/20. If on the other hand, your physician does not accept Medicare assignment (a rare occurrence but it does happen) he will bill you 15% of anything Medicare won’t approve – on top of the 20% you already have to pay. He can never charge you more than that.
Medicare Part B covers some preventative care such as annual mammograms and semi-annual pap smears; it will also cover colorectal and prostate cancer screening, diabetes services and supplies, annual flu shots and glaucoma screenings. All of these may be subject to the 20% co-pay under Part B. To find out all charges covered under this plan visit www.medicare.gov for detailed information. Prescriptions are not covered under either Part A or Part B and although lobbyists are hammering away at this it may be a long wait, so don’t hold your breath.
Which leads us to the paramount question: “Just how much can I end up spending out of pocket without any supplemental coverage?” Good question and I will address this in depth in the following table.
Medicare Part A
With all those fancy numbers it is evident that your out of pocket expenses could sky-rocket into the unmanageable realm. Since we would all prefer to remain with our feet planted firmly in our homes and divert second and third or even reverse mortgages, let’s explore the options then.
Medicare Supplemental Coverage (Medigap)
These types of policies are basically broken into ten standardized plans – plans A through J. Each insurance company that offers these types of insurance policies carries the same benefit, although premiums can vary greatly from company to company and by age group and location. It is absolutely imperative that you do your homework before deciding on a particular carrier, never jump into something because Uncle Joe down the road had a policy with company XYZ. What was good for him may not be good for you. Also, not all insurance companies will offer all plans. Some may only sell plan A, B, and F, while others may sell only A, C, and G – check with the agent or company first. Prescription benefits are not part of any plans except H through J.
Plans A and B
These offer basic coverage and are the least expensive. All insurance companies must offer plan A which covers your Part A co-insurance amount, the cost of 365 extra days of hospital care during your lifetime after Medicare coverage ends, the Part B co-payments (your 20%) and the first three pints of blood every year. Plan B also covers your Part A deductible ($812 see above). If you continue to work and feel you need supplemental coverage then Plan A should do the trick.
Plans C, D, and E
Are basically identical in that they all offer Skilled Nursing Coinsurance (stays over 20 days see table above), the Medicare Plan A deductible ($812) as well as Foreign Travel Emergency benefits. Plan C includes the Part B deductible ($100). Plan D includes an at-home recovery benefit and plan E includes preventative care, which incidentally Medicare now pays for so this coverage is actually redundant.
Foreign Travel Emergency Benefits
If you travel to Greece and break your leg you are still required to pay for all care out of pocket first. Once back home turn your bills into your carrier for reimbursement, make sure to keep all receipts. If you never travel outside of the US this benefit is really not necessary unless you prefer to be pro-active and have it just in case one of your kids decides to give you a 2-week cruise to the Bahamas.
Plans F and G
These, again, are almost identical, except that plan F will cover your part B deductible ($100) and 100% of excess charges (remember assignment vs. non-assignment?); plan G will not cover this deductible and only 80% of excess charges. Both plans include the foreign travel benefit as well as the redundant at-home recovery benefit. These types of plans are a good choice if you prefer to see a specialist instead of the family physician for certain ailments, most specialist will not accept assignment and you will be billed for the difference. If you want to make sure that all contingencies are planned for then plan F is probably the right choice for you since it will cover all out of pocket expenses, except prescriptions.