THE ADVISOR’S GUIDE TO MEDICARE AND MEDICAID (2015 EDITION)

Researched and Written by: Edward J. Barrett CFP , ChFC , CLU, CEBS, RPA, CRPS, CRPC 

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Disclaimer This course is designed as an educational program for financial advisors and insurance professionals. EJB Financial Press is not engaged in rendering legal or other professional advice and the reader should consult legal counsel as appropriate. We try to provide you with the most accurate and useful information possible. However, one thing is certain and that is change. The content of this publication may be affected by changes in law and in industry practice, and as a result, information contained in this publication may become outdated. This material should in no way be used as a source of authority on legal and/or tax matters. Laws and regulations cited in this publication have been edited and summarized for the sake of clarity. Names used in this publication are fictional and have no relationship to any person living or dead.

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ABOUT THE AUTHOR Edward J. Barrett CFP®, ChFC®, CLU, CEBS®, RPA, CRPC®, CRPS®, began his career in the financial and insurance services back in 1978 with IDS Financial Services, becoming a leading financial Advisor and top district sales manager in Boston, Massachusetts. In 1986, Mr. Barrett joined Merrill Lynch in Boston as an estate and business-planning specialist working with over 400 Financial Advisors and their clients throughout the New England region assisting in the sale of insurance products. In 1992, after leaving Merrill Lynch and moving to Florida, Mr. Barrett founded The Barrett Companies Inc., Broker Educational Sales & Training Inc., Wealth Preservation Planning Associates and The Life Settlement Advisory Group Inc. Mr. Barrett is a qualifying member of the Million Dollar Round Table, Qualifying Member Court of the Table® and Top of the Table® producer. He holds the Certified Financial Planner designation CFP®, Chartered Financial Consultant (ChFC), Chartered Life Underwriter (CLU), Certified Employee Benefit Specialist (CEBS), Retirement Planning Associate (RPA), Chartered Retirement Planning Counselor (CRPC) and the Chartered Retirement Plans Specialist (CRPS) professional designations. EJB Financial Press

EJB Financial Press, Inc. (www.ejbfinpress.com) was founded in 2004, by Mr. Barrett to provide advanced educational and training manuals approved for correspondence continuing education credits for insurance agents, financial advisors, accountants and attorneys throughout the country. Broker Educational Sales & Training Inc.

Broker Educational Sales & Training Inc. (BEST) is a nationally approved provider of continuing education and advanced training programs to the mutual fund, insurance and financial services industry. For more information visit our website at: www.Bestonlinecourses.com or call us at 800-345-5669.

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TABLE OF CONTENTS ABOUT THE AUTHOR .................................................................................................. 3  SECTION 1 MEDICARE ........................................................................................... 11  CHAPTER 1 INTRODUCTION TO MEDICARE ................................................... 13  Overview ....................................................................................................................... 13  Learning Objectives ...................................................................................................... 13  History of Medicare ...................................................................................................... 14  Medicare Administration .............................................................................................. 14  Medicare Parts .............................................................................................................. 15  Original Medicare: Part A and Part B ...................................................................... 15  Medicare Part C ........................................................................................................ 15  Medicare Part D ........................................................................................................ 15  Medicare Eligibility ...................................................................................................... 16  Applying for Medicare Benefits ............................................................................... 16  Choosing Medicare Coverage ................................................................................... 16  Number of People Enrolled in Medicare .................................................................. 17  Medicare Financing ...................................................................................................... 18  Medicare Trust Funds ................................................................................................... 19  The Hospital Insurance (HI) Trust Fund ................................................................... 19  The Supplementary Medical Insurance (SMI) Trust Fund ....................................... 19  Trust Fund Board of Trustees ................................................................................... 19  Medicare Spending ....................................................................................................... 20  Medicare Gaps and Out-of-Pocket Costs ...................................................................... 23  The 2014 Trustees Report on Medicare ........................................................................ 23  Short-Range Results.................................................................................................. 25  Long-Range Results .................................................................................................. 26  Conclusion ................................................................................................................ 26  Medicare and the Affordable Care Act (ACA) of 2010 ............................................... 27  Medicare SGR Update .................................................................................................. 27  Chapter 1 Review Questions ......................................................................................... 29  CHAPTER 2 MEDICARE PART A .......................................................................... 31  Overview ....................................................................................................................... 31  Learning Objectives ...................................................................................................... 31  Who Is Eligible For Part A (HI) ................................................................................... 31  Special Eligibility Rules for Persons with End-Stage Renal Disease ....................... 32  Special Rules for Government Employees ............................................................... 32  Part A Premium............................................................................................................. 33  State Medicare Savings Program .............................................................................. 33  Part A Financing ........................................................................................................... 34  HI Trust Fund ................................................................................................................ 34  Part A Covered Services ............................................................................................... 36  Inpatient Hospital Services ....................................................................................... 37  Costs for Services ......................................................................................................... 39  Costs for SNF Stay.................................................................................................... 39  Part A Enrollment Periods ............................................................................................ 39  Automatic Enrollment Period (AEP) ........................................................................ 40  Initial Enrollment Period (IEP) ................................................................................. 40  General Enrollment Period ....................................................................................... 40  5

Special Enrollment Period (SEP) .............................................................................. 41  Part A Late Enrollment Fee ...................................................................................... 42  Chapter 2 Review Questions ........................................................................................ 43  CHAPTER 3 MEDICARE PART B .......................................................................... 45  Overview ....................................................................................................................... 45  Learning Objectives ...................................................................................................... 45  Eligibility ...................................................................................................................... 45  Part B Financing ........................................................................................................... 46  SMI Trust Fund ......................................................................................................... 46  Part B Premiums ........................................................................................................... 47  Standard Part B Premium.......................................................................................... 47  Income-Related Monthly Adjusted Amount (IRMAA) ............................................ 48  Part B Deductibles and Coinsurance Amounts ............................................................. 49  Part B Types of Services Covered ................................................................................ 51  Types of Common Services Covered ....................................................................... 51  Types of Preventive Services Covered ..................................................................... 54  Type of Services Not Covered .................................................................................. 55  Part B Enrollment Periods ............................................................................................ 55  Automatic Enrollment Period (AEP) ........................................................................ 55  Initial Enrollment Period........................................................................................... 56  General Enrollment Period ....................................................................................... 56  Special Enrollment Period (SEP) .............................................................................. 56  Part B Late Enrollment Fees ..................................................................................... 57  Chapter 3 Review Questions ........................................................................................ 58  CHAPTER 4 MEDICARE ADVANTAGE PLANS (PART C) .............................. 59  Overview ....................................................................................................................... 59  Learning Objectives ...................................................................................................... 59  History of MA Plans ..................................................................................................... 60  The Balanced Budget Act of 1997 ............................................................................ 60  Medicare and the Medicare Modernization Act of 2003 .......................................... 61  Medicare Advantage Benefits ....................................................................................... 62  MA Enrollment ............................................................................................................. 63  MA Plan Types ............................................................................................................. 63  Health Maintenance Organizations (HMO) Plans .................................................... 64  Preferred Provider Organization (PPO) Plans .......................................................... 65  Private Fee-for-Service Plans (PFFS) ....................................................................... 67  Special Needs (SNP) Plans ....................................................................................... 67  Medical Savings Accounts ........................................................................................ 69  Payments to Medicare Private Plans ............................................................................. 71  Supplemental and Prescription Drug Benefit ............................................................... 72  Medicare Advantage Premiums .................................................................................... 72  Choosing a MA Plan ..................................................................................................... 73  MA Enrollment Periods ................................................................................................ 73  MA Plans and the ACA ................................................................................................ 79  Chapter 4 Review Questions ........................................................................................ 80  CHAPTER 5 MEDICARE PART D .......................................................................... 81  Overview ....................................................................................................................... 81  Learning Objectives ...................................................................................................... 81  6

History of Part D ........................................................................................................... 81  Types of Medicare Part D Plans ................................................................................... 82  Part D Administration ................................................................................................... 83  Part D Financing ........................................................................................................... 83  Part D SMI Trust Fund ............................................................................................. 84  Medicare Funding Warning (“Medicare Trigger”) ................................................... 84  Part D Costs .................................................................................................................. 85  2015 PDP Monthly Premiums ...................................................................................... 85  Part D National Average Monthly Bid Amount ....................................................... 85  Part D Base Beneficiary Premium ............................................................................ 86  Part D IRMAA Premiums ............................................................................................. 87  The Standard (Model) Drug Benefit Plan ..................................................................... 89  True Out-Of-Pocket (TrOOP) Costs ......................................................................... 89  Payments Counted Towards TrOOP ......................................................................... 90  Part D and ACA ............................................................................................................ 90  Drug Formularies and Tiers .......................................................................................... 92  Excluded Drugs ............................................................................................................. 93  Pharmacies .................................................................................................................... 94  Part D Market Concentration ........................................................................................ 95  Part D PDP Plan Availability in 2015........................................................................... 96  Part D Monthly Premiums in 2015 ........................................................................... 97  Benefit Designs ......................................................................................................... 98  Other Notable Trends For 2015 ................................................................................ 99  Medicare Plan Finder .................................................................................................. 100  Part D Enrollment ....................................................................................................... 100  Extra Help Program .................................................................................................... 104  Background ............................................................................................................. 104  Eligibility Criteria ................................................................................................... 105  Resource Limits ...................................................................................................... 105  Income Limits ......................................................................................................... 106  Household Size ....................................................................................................... 107  Chapter 5 Review Questions ...................................................................................... 109  CHAPTER 6 MEDICARE SUPPLEMENTAL INSURANCE POLICIES ......... 111  Overview ..................................................................................................................... 111  Learning Objectives .................................................................................................... 111  Background ................................................................................................................. 111  Medigap Legislation ............................................................................................... 113  Trends in Medigap Coverage ...................................................................................... 115  Companies Offering Coverage, 2013 ..................................................................... 115  Consumer Satisfaction with Medigap Policies ....................................................... 118  Standard Medigap Plans ............................................................................................. 119  Basic Benefits ......................................................................................................... 120  Medigap Plan A ...................................................................................................... 121  Medigap Plan B....................................................................................................... 121  Medigap Plan C....................................................................................................... 122  Medigap Plan D ...................................................................................................... 123  Medigap Plan E ....................................................................................................... 123  Medigap Plan F ....................................................................................................... 124  7

Medigap Plan G ...................................................................................................... 125  Medigap Plan H ...................................................................................................... 125  Medigap Plan I ........................................................................................................ 126  Medigap Plan J ........................................................................................................ 127  Medigap Plan K ...................................................................................................... 127  Medigap Plan L ....................................................................................................... 128  Medigap Plan M ...................................................................................................... 129  Medigap Plan N ...................................................................................................... 129  Medigap Premiums ..................................................................................................... 129  Issue Age ................................................................................................................. 130  Attained Age ........................................................................................................... 130  Community Age Rated ........................................................................................... 131  Medigap Premium Rates ............................................................................................. 131  Choosing a Medigap Policy ........................................................................................ 132  Medigap Enrollment Dates ......................................................................................... 133  Open Enrollment ..................................................................................................... 133  Guaranteed Issue ..................................................................................................... 134  Regulation of Medigap Policies .................................................................................. 134  Role of the NAIC .................................................................................................... 134  State Regulation ...................................................................................................... 135  Medigap Policies and the ACA................................................................................... 135  Chapter 6 Review Questions ...................................................................................... 138  CHAPTER 7 OPTIONS FOR REFORMING MEDICARE ................................. 139  Overview ..................................................................................................................... 139  Learning Objective...................................................................................................... 139  Background ................................................................................................................. 140  Raise the Medicare Eligibility Age ............................................................................. 140  Argument in Favor .................................................................................................. 140  Argument Against ................................................................................................... 141  Raise Medicare Premiums for Higher-Income Beneficiaries ..................................... 141  Argument in Favor .................................................................................................. 141  Argument Against ................................................................................................... 141  Generate New Revenue by Increasing the Payroll Tax Rate ...................................... 142  Argument in Favor .................................................................................................. 142  Argument Against ................................................................................................... 143  Increase Supplemental Plan Costs and Reduce Coverage .......................................... 143  Argument in Favor .................................................................................................. 144  Argument Against ................................................................................................... 145  Impose Cost Sharing for the First 20 days of a Stay in a SNF ................................... 145  Argument in Favor .................................................................................................. 146  Argument Against ................................................................................................... 146  Require Drug Companies to Give Rebates or Discounts to Medicare........................ 146  Argument in Favor .................................................................................................. 147  Argument Against ................................................................................................... 147  Medicare Outlook ....................................................................................................... 148  Chapter 7 Review Questions ...................................................................................... 149  SECTION 2 MEDICAID ........................................................................................... 151  CHAPTER 8 INTRODUCTION TO MEDICAID ................................................. 153  8

Overview ..................................................................................................................... 153  Learning Objectives .................................................................................................... 153  Background ................................................................................................................. 153  State Participation Requirements ............................................................................ 154  Medicaid Financing .................................................................................................... 155  Medical Costs Covered by Medicaid .......................................................................... 157  Services Covered in Every State ............................................................................. 158  Optional Services .................................................................................................... 158  Eligibility for Medicaid............................................................................................... 159  General Requirements ............................................................................................. 160  Requirements for Coverage ........................................................................................ 161  Care Must Be Prescribed by Doctor ....................................................................... 161  Provider Must Be Participating In Medicaid .......................................................... 161  Treatment Must Be Medically Necessary ............................................................... 161  Medicaid Coverage Groups ........................................................................................ 162  Category Needy .......................................................................................................... 162  SSI Based Standards ............................................................................................... 162  Section 209(b) States .............................................................................................. 164  Medicaid Eligibility Rules for Married Spouses .................................................... 164  Treatment of Assets .................................................................................................... 165  The Community Spouse Resource Allowance (CSRA) ......................................... 165  The Assessment .......................................................................................................... 167  Treatment of Income ................................................................................................... 167  The Minimum Monthly Maintenance Needs Allowance........................................ 168  The Revised Community Spouse Resource Allowance.......................................... 168  Reconciling the Revised CSRA and the CSMIA .................................................... 169  Medically Needy Program .......................................................................................... 170  Medicaid Needy Eligibility ..................................................................................... 171  Spend-Down ........................................................................................................... 171  Income Eligibility ................................................................................................... 172  Budget Period.......................................................................................................... 173  Pay-In Spend-down ................................................................................................. 174  Costs of Medicaid Coverage ....................................................................................... 174  No Payments to Medical Providers......................................................................... 175  Fees to States for Medicaid Services ...................................................................... 175  Enrollment Fee ........................................................................................................ 175  Monthly Premium ................................................................................................... 175  Co-payments ........................................................................................................... 175  The Deficit Reduction Act (DRA) of 2005................................................................. 176  The Look-Back Period [Section 6011] ................................................................... 176  The Penalty Period Start Date [Section 6011(b)] ................................................... 177  When Period of Ineligibility Starts and the Penalty ............................................... 177  Imposing Partial Months of Ineligibility [Section 6016(a)] ................................... 178  Hardship Waivers [Section 6011(d)(e)] .................................................................. 178  Codifying “Income First” Methodology for Protecting Community Spouse ......... 179  Home Equity Limits (Section 6014) ....................................................................... 180  Disclosure and Treatment of Annuities (Section 6012) .......................................... 180  State Long-Term Care Partnerships (Section 6021) ............................................... 180  9

Continuing Care Retirement Communities (Section 6015) .................................... 181  Promissory Note, Loan, or Mortgage ..................................................................... 181  Life Estate ............................................................................................................... 181  ACA Impact on Medicaid ........................................................................................... 182  Chapter 8 Review Questions ...................................................................................... 183  CHAPTER 9 MEDICAID PLANNING................................................................... 185  Overview ..................................................................................................................... 185  Learning Objective...................................................................................................... 185  The Ethics of Medicaid Planning ................................................................................ 185  Transferring Assets to Qualify for Medicaid .............................................................. 187  Permitted Transfers ................................................................................................. 189  Medicaid Planning and Trusts .................................................................................... 189  Revocable Trusts ..................................................................................................... 190  Irrevocable Trust ..................................................................................................... 190  Special Needs Trusts ............................................................................................... 191  Qualified Income (‘Miller”) Trusts ......................................................................... 193  Testamentary Trusts ................................................................................................ 195  Medicaid Planning and Annuities ............................................................................... 195  How Purchasing an Annuity Depletes Assets ......................................................... 195  Single Premium Immediate Annuity ...................................................................... 195  Why Annuities Don’t Violate Medicaid Rules ....................................................... 196  Annuity Requirements to Avoid Medicaid Penalties.............................................. 196  Recent Court Cases ................................................................................................. 197  Medicaid Planning and IRAs ...................................................................................... 201  IRA in Payout Status............................................................................................... 201  Use of an Annuity in an IRA .................................................................................. 202  Medicaid and Promissory Notes ................................................................................. 203  How It Works .......................................................................................................... 204  Medicaid Estate Recovery Program (MERP) ............................................................. 205  Status of Estate Recovery Program......................................................................... 205  Use of Liens ............................................................................................................ 206  Role of the Children .................................................................................................... 206  Filial Responsibilities Laws ........................................................................................ 207  Generally Not Enforced .......................................................................................... 207  Chapter 9 Review Questions ...................................................................................... 209  CHAPTER 10 MEDICAID EXPANSION UNDER ACA ..................................... 211  Overview ..................................................................................................................... 211  Learning Objective...................................................................................................... 211  PPACA Background ................................................................................................... 211  Medicaid Expansion.................................................................................................... 212  States Participating/Not Participating in the Medicaid Expansion ......................... 213  Who Pays For Medicaid Expansion? ...................................................................... 214  Additional Provisions Affecting Medicaid Expansion ........................................... 215  Projected Costs of ACA on the Medicaid Program .................................................... 216  Chapter 10 Review Questions .................................................................................... 217  CHAPTER REVIEW ANSWERS............................................................................... 219  CONFIDENTIAL FEEDBACK FORM ..................................................................... 221  10

SECTION 1

MEDICARE

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CHAPTER 1

INTRODUCTION TO MEDICARE Overview Medicare is a federal insurance program that pays covered health care services of qualified beneficiaries. While commonly known as Medicare, it was established in 1965 under Title XVIII - Health Insurance for the Aged and Disabled within the Social Security Act as a federal entitlement program. As part of the Social Security Amendments of signed into law by President Lyndon B. Johnson in 1965, the Medicare legislation established a health insurance program for aged persons that would complement the retirement, survivors, and disability insurance benefits created under Title II of the Social Security Act. It was established in 1965 under Title XVIII of the Social Security Act, as a federal entitlement program designated “Health Insurance for the Aged and Disabled,” is commonly known as Medicare. As part of the Social Security Amendments of 1965, signed into law by President Lyndon B. Johnson, the Medicare legislation established a health insurance program for aged persons to complement the retirement, survivors, and disability insurance benefits under Title II of the Social Security Act. In this chapter, we will examine the background of the federal health insurance program: Medicare. We will examine the differences between Traditional Medicare and Medicare Advantage (Part C), the financing and rules for eligibility. At the end of the chapter, we will examine the finances of the two Medicare Trust Funds (HI and SMI) and review the short-range and long-range conclusions of the 2014 Medicare Trustees Report.

Learning Objectives Upon completion of this chapter, you will be able to:      

Relate the history and the administration of the Medicare program; Identify the various Parts of Medicare: Part A, Part B, Part C, and Part D; Distinguish the differences in coverage between Traditional Medicare and Medicare Advantage (Part C); Explain the financing and spending budgets of Medicare; Outline the Medicare gaps and out-of-pocket costs for the beneficiaries; and Introduce the financial outlook of the Medicare program

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History of Medicare Medicare was established in 1965 as a federal insurance program to provide what the private insurance market did not: adequate, affordable health insurance for America elderly population regardless of income or health status. Prior to Medicare only half of the population age 65 and older had health insurance. Even among those 65 and older who were insured, premiums and other out-of-pocket costs were close to three times what younger people paid, even though the elderly had on average only half as much income. Since 1965, the Medicare program has undergone considerable change. Most recently, the Patient Protection and Affordable Care Act (ACA) of 2010 (ACA, P.L. 111-148 as amended), made numerous changes to the Medicare program. It is important to remember, that the Medicare program is an entitlement program, which means that it is required to pay for covered services provided to enrollees so long as specific criteria are met. Currently, Medicare is the nation’s largest health insurance program, accounts for one in five health care dollars, and currently accounts for 15.1 percent of the federal budget—a figure that is expected to reach 17.4 percent. According to CMS, persons enrolled for Medicare coverage increased from 19.1 million in 1966 to a projected 54.0 million in 2014, a 183 percent increase (see Table 1.1).

Medicare Administration The Department of Health and Human Services (DHHS) has the overall responsibility for administration of the Medicare program. Within the Department of Health and Human Services (DHHS), responsibility for administering Medicare rests with the Centers for Medicare & Medicaid Services (CMS), whose central office is in Baltimore, Maryland. The Social Security Administration (SSA) offices assists, however, by initially determining an individual’s Medicare entitlement, by withholding Part B premiums from the Social Security benefit checks of most beneficiaries, provide general information about the program, and by maintaining Medicare data on the master beneficiary record, which is the Social Security Administration’s primary record of beneficiaries. The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) requires Social Security Administration (SSA) to undertake a number of additional Medicarerelated responsibilities, including making low-income subsidy determinations under Part D, notifying individuals of the availability of Part D subsidies, withholding Part D premiums from monthly Social Security cash benefits for those beneficiaries who request such an arrangement, and, for 2007 and later, making determinations as to the amount of the individual’s Part B premium if the income-related monthly adjustment applies. The Internal Revenue Service (IRS) in the Department of the Treasury collects the Part A payroll taxes from workers and their employers. IRS data, in the form of income tax returns, play a role in determining which Part D enrollees are eligible for low-income subsidies (and to what degree) and, for 2007 and later, which Part B enrollees are subject to the income-related monthly adjustment amount (IRMAA) in their premiums (and to what degree). 14

Medicare Parts Medicare originally consisted of two parts:  

Hospital Insurance (HI), also known as Part A, and Supplementary Medical Insurance (SMI), which in the past was also known simply as Part B.

Original Medicare: Part A and Part B Original Medicare is made up of both Part A and Part B. Part A helps pay for inpatient hospital, home health, skilled nursing facility, and hospice care. Part A is provided free of premiums to most eligible people; certain otherwise ineligible people may voluntarily pay a monthly premium for coverage (see Chapter 2 for a full discussion of Part A). Part B helps pay for physician, outpatient hospital, home health, and other services. To be covered by Part B, all eligible beneficiaries must pay a monthly premium (see Chapter 3 for a full discussion of Part B).

Medicare Part C A third part of Medicare, sometimes known as Part C, is the Medicare Advantage program, which was established as the Medicare+ Choice program by the Balanced Budget Act (BBA) of 1997 (Law 105-33) and subsequently renamed and modified by the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 (Public Law 108-173). The Medicare Advantage program expands beneficiaries’ options for participation in private-sector health care plans (see Chapter 4 for a full discussion of Part C).

Medicare Part D The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 also established a fourth part of Medicare, known as Part D, to help pay for prescription drugs not otherwise covered by Original Medicare (Part A and/or Part B). Part D initially provided access to prescription drug discount cards, on a voluntary basis and at limited cost, to all enrollees (except those entitled to Medicaid drug coverage) and, for lowincome beneficiaries, transitional limited financial assistance for purchasing prescription drugs and a subsidized enrollment fee for the discount cards. This temporary plan began in mid-2004 and phased out during 2006. In 2006 and later, Part D provides subsidized access to prescription drug insurance coverage on a voluntary basis, upon payment of premium, for all beneficiaries, with premium and cost-sharing subsidies for low-income enrollees (see Chapter 5 for a full discussion of Part D). Note: Part D activities are handled within the SMI trust fund, but in an account separate from Part B. It should thus be noted that the traditional treatment of “SMI” and “Part B” as synonymous is no longer accurate, since SMI now consists of both Parts B and D. The purpose of the two separate accounts within the SMI trust fund is to ensure that funds from one part are not used to finance the other. 15

Medicare Eligibility As was discussed above, when first implemented in 1966, Medicare covered most persons age 65 or over. In 1973, the following groups also became eligible for Medicare benefits:  Persons entitled to Social Security or Railroad Retirement disability cash benefits for at least 24 months,  Most persons with end-stage renal disease (ESRD), and  Certain otherwise non-covered aged persons who elect to pay a premium for Medicare coverage. Beginning in July 2001, persons with Amyotrophic Lateral Sclerosis (Lou Gehrig’s disease) are allowed to waive the 24-month waiting period.

Applying for Medicare Benefits Medicare benefits become available at the beginning of the beneficiaries birth month upon reaching their 65th birthday. This is true even if the beneficiary is still working. If they are eligible, they will receive their Medicare card (red, white and blue) in the mail 3 months before their 65th birthday. Medicare benefits are also available after an individual has been receiving Social Security disability benefits for two years (receive their Medicare card on their 25th month of disability) or has end-stage renal disease (ESRD) requiring renal dialysis or a kidney transplant. If, a beneficiary doesn’t want Part B, he/she must follow the instructions that come with the card, and send the card back. If the beneficiary keeps the card, he/she keeps Part B and will be required to pay the Part B premiums (discussed below). Note: The best and official source of answers to many Medicare questions can be found in the “Medicare and You 2015” booklet. To download a copy visit www.medicare.gov/Publications/Pubs/pdf/10050.pdf

Choosing Medicare Coverage There are two main choices an individual, who qualifies for Medicare, can choose to receive Medicare coverage. They are:  

Original Medicare (Medicare Part A and Part B); or Medicare Advantage Plan (Part C).

Here are the following steps a Medicare beneficiary must take to choose his or her Medicare program. In the following chapters, the words “beneficiary, they, their(s), he/she, and patient, etc.”, means the “person enrolling for coverage”.

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Step 1: Decide as beneficiary which option of coverage: A. Original Medicare o Part A (HI) o Part B (MI) Or B. Part C: Medicare Advantage Plan (like and HMO or PPO) o Combines Part A, Part B and usually Part D Step 2: Decide if the beneficiary needs drug coverage (Part D) o Medicare Prescription Drug Plan; or o Medicare Advantage with Drug Plan (MA-PD) Step 3: Decide if beneficiary needs to add supplemental coverage to their Original Medicare. Note: If beneficiary joins a Medicare Advantage Plan, they will not need (and can’t be sold) a Medicare Supplement policy (also known as Medigap).

Number of People Enrolled in Medicare In 2014, 54 million people (or approximately one out of every six individuals) received care financed through one or more parts of Medicare. While 83 percent of Medicare enrollees are 65 and older, 17 percent are under 65 and disabled (see Table 1.1). Approximately 19 percent of Medicare enrollees are also eligible for Medicaid, the federal-state health insurance program for low and modest income people, and are known as “dual-eligibles.” Table 1.1 Medicare Enrollment (1996-2014) 1996 1970 1975 1980 1985 1990 1995 2000 2005 2010 2011 2012 2013 2014

Total Persons

Aged Persons

Disabled

19.1 20.4 24.9 28.4 31.1 34.3 37.6 39.7 42.6 47.7 48.9 50.9 52.3 54.0

19.1 20.4 22.7 25.5 28.1 31.0 33.2 34.3 35.8 39.6 40.5 42.2 43.5 45.0

--2.2 3.0 2.9 3.3 4.4 5.4 6.8 8.1 8.4 8.6 8.8 9.0

NOTES: Represents those enrolled in HI (Part A) and/or SMI (Part B and Part D). Data for 1966-1995 are as of July. Numbers may not add to totals because rounding. Based on 2014 Trustees Report. Source: CMS, Office of the Actuary; http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/CMS-Statistics-ReferenceBooklet/Downloads/CMS_Stats_2014_final.pdf#tablei1

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Table 1.2 displays the projected average monthly enrollment during fiscal year. According to CMS’ Office of the Actuary, it projects that 99 percent of total persons (beneficiaries) participate in Part A, 91 percent participate in Part B and 75 percent participate in Part D. Table 1.2 Medicare Enrollment/Coverage (in millions)

All persons Aged persons Disabled persons

SMI

HI And/or SMI

HI

53.6 44.6 8.9

53.2 44.4 8.9

Part B

Part D

HI And SMI

HI Only

SMI Only

49.0 41.0 8.0

40.3 ---

48.6 40.6 8.0

4.6 3.7 0.9

0.3 0.3 0.0

NOTES: Projected average monthly enrollment during fiscal year 2014. Aged/disabled split of Part D enrollment not available. Based on 2014 Trustees Report. Numbers may not add to totals because of rounding. Source: CMS, Office of the Actuary; http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trendsand-Reports/CMS-Statistics-Reference-Booklet/Downloads/CMS_Stats_2014_final.pdf#tablei2

CMS’ Office of the Actuary projects that the total number of people enrolled in the Medicare program will increase to 81 million in 2030 (see Table 1.3). The rate of increase in Medicare enrollment will accelerate until 2030 as more members of the babyboom generation has become eligible. Table 1.3 Enrollment in Medicare Program is Projected to Grow Rapidly in the next 20 Years 110.5

120 100

80.6

96.1

103.2

2050

2060

2070

63.7

80 60 40

87.2

90.3

20.1

28.0

1970

1980

33.7

39.3

1990

2000

48.0

20 0 2011

2020

2030

2040

2080

Note: Enrollment numbers are based on Part A enrollment only. Beneficiaries enrolled in Part B are not included. Source: CMS Office of the Actuary, 2014

Medicare Financing Under current law, the government draws from several sources of revenue to finance Medicare. Those sources are as follows:  

A dedicated Medicare payroll tax, General revenue (primarily federal income taxes), 18

  

Premiums collected from beneficiaries, A tax on Social Security benefits, and Since 2006, payments from states required for the Medicare drug benefit, which shifted some state Medicaid program expenditures to Medicare.

All revenue collected is deposited into the Medicare Trusts funds.

Medicare Trust Funds Medicare’s financial operations are accounted for through two trust funds maintained by the Department of Treasury. They are:  

The Hospital Insurance (HI) Trust Fund for Part A; and The Supplementary Medicare Insurance (SMI) Trust Fund for Parts B and D.

Note: For beneficiaries enrolled in the Medicare Advantage (Part C), payments are made on their behalf in appropriate portions from the HI and SMI trust funds.

The Hospital Insurance (HI) Trust Fund The HI trust fund, into which Medicare payroll taxes and other dedicated revenue are credited, pays for inpatient hospital stays and other benefits provided under Medicare Part A. Total HI payroll tax income in calendar year 2013 amounted to $220.8 billion. The payroll tax accounted for 88 percent of total revenue collected in the HI Trust fund. This increase in tax income resulted primarily from increases in the number of workers and in their average earnings, and also because the estimated adjustments to payroll tax credits to the HI trust fund for prior period in 2010 exceeded the subsequent actual amounts.

The Supplementary Medical Insurance (SMI) Trust Fund The SMI is used to pay for physician visits and other Medicare Part B services as well as the Medicare Part D prescription drug benefit. The SMI Trust Fund is financed primarily through monthly Part B and Part D premiums paid by beneficiaries and general revenue. In 2013, general revenue accounted for 73 percent of the SMI Trust Fund revenue and 40 percent of all Medicare revenue, while total beneficiary premiums made up 22.5 percent of the SMI Trust Fund revenue and 13 percent of Medicare revenue overall.

Trust Fund Board of Trustees A Board of Trustees, composed of two appointed members of the public and four members who serve by virtue of their positions in the Federal government, oversees the financial operations of the HI and SMI trust funds. The Secretary of the Treasury is the managing trustee. The Board of Trustees reports to Congress on the financial and actuarial status of the Medicare trust funds on or about the first day of April each year. 19

State agencies (usually State Health Departments under agreements with CMS) identify, survey, and inspect provider and supplier facilities and institutions wishing to participate in the Medicare program. In consultation with CMS, these agencies then certify the facilities that are qualified. The Centers for Medicare and Medicaid Services (CMS) is also responsible for establishing the reimbursement rate of all covered services.

Medicare Spending Medicare spending has grown 14-fold over the past three decades, from $37 billion in 1980 to $582.9 billion, or $11,910 per beneficiary in 2013, accounting for about 21% of national health spending and 3.5% of Gross Domestic Product (GDP). Medicare spending increased significantly after 2006 with the introduction of Part D, Medicare’s voluntary outpatient prescription drug program. Table 1.4 Medicare Income and Expenses in 2013 (in billions)

Assets at end of 2011 (billions) Total Income (2012) Payroll taxes Interest Taxes of benefits Premiums General revenues Transfer from States Other Total Expenditures Benefits Hospital Skilled nursing facility Home health care Physician fee schedule services Private health plans (Part C) Prescription drugs Other Administrative expenses Net change in assets Assets (end of 2011) Enrollment (millions Aged Disabled Total Average benefit per enrollee

HI Part A

SMI Part B

Part D

Total

$220.4 $251.1 220.8 9.3 14.3 3.4 0.9 --2.4 $266.2 261.9 136.8 28.4 6.8 --73.2 --16.7 $4.3 -$15.0 $205.4

$66.2 $255.0 ---2.4 --63.1 185.8 --3.7 $247.1 243.8 41.8 --11.5 68.6 72.7 --49.2 $3.3 $7.9 $74.1

$1.0 $69.7 --0.0 --9.9 51.0 8.8 --$69.7 69.3 ----------69.3 --$0.4 $0.0 $1.0

$287.6 $575.8 220.8 11.7 14.3 76.4 237.7 8.8 6.1 $582.9 575.0 178.6 28.4 18.4 68.6 145.9 69.3 65.8 $7.9 -$7.1 $280.5

43.1 8.8 51.9 $5,045

40.0 7.9 47.9 $5,092

n/a n/a 39.1 $1,773

43.5 8.8 52.3 $11,910

Source: Board of Trustees, 2014. Table II. B1. http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-andReports/ReportsTrustFunds/downloads/tr2014.pdf

Medicare spending is growing for many of the same reasons health care spending in the private sector is growing—higher prices for providers, intensity of services and new medical technology. According to the 2014 Medicare Trustee’s Report, thirty-two 20

percent of Medicare expenses were for payments for inpatient or outpatient hospital services. Another 12 percent was for physician services. Payments to private Medicare plans accounted for 25 percent, post-acute care (home health and skilled nursing facility care) accounted for 8 percent, and Part D accounted for 11 percent of Medicare expenses. Other benefits and administrative expenses made up 11 percent (see Figure 1.5). Figure 1.5 Medicare Benefit Payments by Type of Service, 2013 Outpatient  Prescription Drugs,  11%

Medicare Advantage,  25%

Hospital Inpatient  Services, 26%

Other Services, 11%

Home Health, 3% SNF, 5% Hospital Outpatient  Services, 6%

Physician Payments,  12%

Note: Does not sum to 100% due to rounding. Excludes administrative expenses and is net of recoveries. *Includes hospice, durable medical equipment, Part B drugs, outpatient dialysis, ambulance, lab services, and other services. SOURCE: Board of Trustees, 2014. Table II. B1.

The Congressional Budget Office (CBO) projects that mandatory spending for Medicare will grow at an average annual rate of 6.1 percent between 2011 and 2021. Medicare spending has also grown as a share of the economy from less than 1 percent when it was first started in 1965 to about 3.6 percent today. Projections suggest Medicare spending will make up 4 percent of GDP by 2020. Medicare, however, has an additional reason for its rapid growth: the projected increase in individuals eligible to enroll as the baby boom generation ages. The CBO estimates that enrollment in Medicare will nearly double in coming decades, reaching 80 million people by 2030. There are many drivers of national health care spending, ranging from rising prices for medical services and increasing reliance on new and more expensive medical technologies to our growing elderly population and imperfections in the market for medical goods and services. While per capita spending for both Medicare and private health insurance has increased in recent years, Medicare’s costs appear to have grown more slowly, according to national expenditure data compiled by Centers for Medicare & Medicaid Servicers’ (CMS) (see Table 1.6). The data indicate the Medicare expenditures since the enactment of the Balanced Budget Act of 1997 have grown by an annual average of 4.1 percent, compared to 6.4 percent for private health insurance. 21

Certaainly, the app parently low wer rate of grrowth of the Medicare prrogram comppared to planss in the comm mercial mark ket raises con ncerns amonng some aboout proposalss to more from the current system to on ne that would d increasinggly rely on coompeting priivate plans to proviide Medicaree coverage. Table T 1.6 Annual Percentage P Growth in Spending S P er Capita foor Medicaree and Private P Health Insuran nce (PHI) Average Medicare M Grrowth Rate,, 1997-2010: 4.1% Averag ge Private Health H Insurrance Grow wth Rate, 19997-2010: 6.44% Medicare p per enrollee cost grrowth (%)

PH HI per capita premiu um growth (%)

10.0% 8.0% 6.0% 4.0% 2.0% 0.0% 1997 1 1998 1999 2000 2001 200 02 2003 2004 22005 2006 2007 2008 2009 20110Average

Source: Centerrs for Medicare & Medicaid Serv vices, Office of Actuary, Nationnal Health Statisttics Group

Somee findings baased on analy ysis of CMS S National H Health Expennditures:  

If Medicaare expenditu ures had grow wn at the sam me rate as pprivate healthh insurance, Medicare expenditurees in 2010 would w have beeen 37 perceent higher orr an additionall $2,876 per enrollee by year 2010, aas shown in Figure 1.3. In 2010 alone, Medicare spending g would hav e been $1366 billion greaater if the h grown at a the same raate as privatee health insuurance. program had

S notes that comparing c th he spending of Medicaree and privatee health insurrance is CMS difficcult given thee different populations served s by eacch. Neverthheless, two faactors that are paarticularly worth w noting are: 



Provider Payments. Medicare’ss payments inn 2010 for pphysician serrvices o private paayment, accoording to the Medicare P Payment averaged 81 percent of n (MedPAC C). Private innsurers pay ddoctors and hhospitals Advisory Commission higher rattes than Med dicare becausse the insureer lacks the ggovernment’’s regulatoryy power to limit price in ncreases. Th hroughout M Medicare’s hiistory, the feederal governmeent has develloped varyin ng reimburseement methoodologies baased on actuaal input pricces. Administtrative Costts. Administtrative costs for Medicarre include coosts incurredd directly by governmen nt agencies that t collect rrevenue for M Medicare (inncluding for participating private plans p such ass Medicare A Advantage pplans, Mediccare prescriptions drug plaans and Med dicaid health maintenancce organizations) or 22

contribute to its administration. For private health insurers, administrative costs also include taxes, profits and marketing expenses. Most estimates of Medicare administrative expenses range from two to five percent of program expenditures, while private health insurance administrative expenses range from 12 to 30 percent. So you want to have your health insurance (Medicare) dependent on a competitive marketplace?

Medicare Gaps and Out-of-Pocket Costs Medicare provides protection against the costs of many health care services, but has relatively high deductibles and cost-sharing requirements, no limit on out-of-pocket spending, and (until 2020) a coverage gap (“doughnut hole”) in the prescription drug benefit. Moreover, Medicare does not pay for many services needed by elderly and disabled beneficiaries, such as long-term care, vision, hearing-aides or dental services. According to a recent report by the American Journal of Law and Medicine, Medicare pays for only 59% of the average healthcare costs for an American senior, and they have estimated that a Medicare beneficiary with an AGI of $85,000 ($170,000 if married filing jointly) will spend on average $8,000 each year on routine medical expenses in retirement. In a recent report released by the Kaiser Foundation, “How Much Is Enough? Out-ofpocket Spending among Medicare Beneficiaries: A Chartbook,”(July 2014), their key findings is that in 2010, Medicare beneficiaries spend $4,734 out of their own pockets for health care spending, on average, including premiums for Medicare and other types of supplemental insurance and costs incurred for medical and long-term care services.  

Premiums for Medicare and supplemental insurance accounted for 42 percent of average total out-of-pocket spending among beneficiaries in traditional Medicare in 2010 Of the remaining 58 percent of average total out-of-pocket spending on services, long-term facility costs are the largest component (accounting for 18 percent of total out-of-pocket spending), followed by medical providers/supplies (14%), prescription drugs (11%), and dental care (6%). Neither long-term care services and supports nor dental services are covered by Medicare.

You can view the report at: http://files.kff.org/attachment/how-much-is-enough-out-ofpocket-spending-among-medicare-beneficiaries-a-chartbook-report op

The 2014 Trustees Report on Medicare The Social Security Act requires that the Board, among other duties, report annually to the Congress on the financial and actuarial status of the HI and SMI trust funds. The 2014 report is the 49th that the Board has submitted. 23

The projections in this report, with one additional specification, are based on current law; that is, they assume that laws on the books will be implemented and adhered to with respect to scheduled taxes, premium revenues, and payments to providers and health plans. The additional specification is that the projections disregard payment reductions that would result from the projected depletion of the Medicare Hospital Insurance trust fund. Under current law, payments would be reduced to levels that could be covered by in-coming tax and premium revenues when the HI trust fund was depleted. If the projections reflected such payment reductions, then any imbalances between payments and revenues would be automatically eliminated, and the report would not serve its essential purpose, which is to inform policy makers and the public about the size of any trust fund deficits that would need to be resolved to avert program insolvency. To date, lawmakers have never allowed the assets of the Medicare HI trust fund to become depleted. Projections of Medicare costs are highly uncertain, especially when looking out more than several decades. One reason for uncertainty is that scientific advances will make possible new interventions, procedures, and therapies. Some conditions that are untreatable today will be handled routinely in the future. Spurred by economic incentives, the institutions through which care is delivered will evolve, possibly becoming more efficient. While most health care technological advances to date have tended to increase expenditures, the health care landscape is shifting. No one knows whether these future developments will, on balance, increase or decrease costs. The financial outlook for Medicare is also uncertain because some provisions of current law that are designed to reduce expenditures may be difficult to sustain. The clearest example of this issue is the sustainable growth rate (SGR) formula for physician fee schedule payment levels. The projections in this report assume that, as required by current law, CMS will implement a reduction in Medicare payment rates for physician services of almost 25 percent at the start of 2014. However, it is a virtual certainty that lawmakers, cognizant of the disruptive consequences of such a sudden, sharp reduction in payments, will override this reduction as they have every year since 2003. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, introduced even larger policy changes and projection uncertainty. This legislation, referred to collectively as the “Affordable Care Act” or ACA, contains roughly 165 provisions affecting the Medicare program by reducing costs, increasing revenues, improving benefits, combating fraud and abuse, and initiating a major program of research and development to identify alternative provider payment mechanisms, health care delivery systems, and other changes intended to improve the quality of health care and reduce costs. The Board assumes that the various cost-reduction measures—the most important of which are the reductions in the annual payment rate updates for most categories of Medicare providers by the growth in economy-wide multifactor productivity—will occur as the Affordable Care Act requires. The Trustees believe that this outcome is achievable if health care providers are able to realize productivity improvements at a faster rate than experienced historically. However, if the health sector cannot transition to more efficient models of care delivery and achieve productivity increases commensurate with economy-wide productivity, and if the provider reimbursement rates paid by commercial insurers continue to follow the same negotiated process used to date, then the availability and quality of health care received 24

by Medicare beneficiaries would, under current law, fall over time relative to that received by those with private health insurance. Given these uncertainties, future Medicare costs could be substantially higher than shown in the Trustees’ current-law projections. At a minimum, readers should not assume that the SGR-related payment reductions will take place (see below SGR Update).

Short-Range Results The estimated depletion date for the HI trust fund is 2030, 4 years later than was shown in last year's report. As in past years, the Trustees have determined that the fund is not adequately financed over the next 10 years. HI taxable earnings in 2013 were slightly higher than last year’s estimate; after 2013, however, projections of earnings throughout the period are lower mostly due to lower GDP based on lower assumptions for the GDP deflator and real GDP. HI expenditures in 2013 were significantly lower than the previous estimate, and through 2016 the projected level grows more slowly than shown in last year’s report largely due to reductions in utilization assumptions, reflecting recent trends. HI expenditures have exceeded income annually since 2008, and projected amounts continue doing so through 2014. The Trustees then project slight surpluses in 2015 thorough 2022 with a return to deficits thereafter until the fund becomes depleted in 2030. In 2013, $15.0 billion in trust fund assets were redeemed to cover the shortfall of income relative to expenditures. The Treasury also paid from the general fund $9.3 billion in interest to the HI trust fund in 2013. The assets were $220.4 billion at the beginning of 2013, representing about 83 percent of expenditures during the year, which is below the Trustees’ minimum recommended level of 100 percent. The HI trust fund has not met the Trustees’ formal test of short-range financial adequacy since 2003. Growth in HI expenditures has averaged 2.5 percent annually over the last 5 years and is projected to average 3.9 percent over the next 5 years. The SMI trust fund is adequately financed over the next 10 years and beyond because premium and general revenue income for Parts B and D are reset each year to cover expected costs and ensure a reserve for Part B contingencies. Part B and Part D costs have averaged 6.2 percent and 7.2 percent, respectively, over the last 5 years, as compared to growth of 2.7 percent for GDP. Under the projected baseline scenario, the Trustees project an average annual Part B growth rate of 5.7 percent over the next 5 years; under current law, the average annual Part B growth rate would instead be 4.9 percent. For Part D, the estimated average annual increase in expenditures is 9.9 percent over the next 5 years. The projected average annual rate of growth for the U.S. economy is 5.0 percent during this period, significantly slower than for Part D and slightly slower than the growth rate for Part B. The difference between Medicare’s total outlays and its “dedicated financing sources” reaches an estimated 45 percent of outlays in fiscal year 2014 through 2020. Therefore, the Trustees will not be issuing a determination of projected excess general revenue Medicare funding in this report. Determinations were previously made in each of the 2006 through 2013 reports. 25

Long-Range Results For the 75-year projection period, the HI actuarial deficit has decreased from 1.11 percent of taxable payroll, as shown in last year’s report, to 0.87 percent of taxable payroll. (Under the illustrative alternative projections, the HI actuarial deficit would be 1.92 percent of taxable payroll, compared to 2.17 percent in last year’s report.) The 0.24 percent of payroll reduction in the actuarial deficit was primarily due to (i) lower-thanexpected spending in 2013 for most HI service categories, especially for inpatient hospital (about 0.11 percent of payroll); (ii) lower utilization assumptions for inpatient hospital (about 0.11 percent of payroll); (iii) lower case mix increase assumptions about skilled nursing facilities and home health agencies (about 0.07 percent of payroll). Partially offsetting these favorable changes were assumptions about MA plan beneficiaries (about 0.06 percent of payroll). Part B outlays were 1.5 percent of GDP in 2013, and the Board projects that they will grow to just less than 3.2 percent by 2088 under the projected baseline scenario. These projections are lower than those in last year’s report under the “alternative to SGR” scenario mostly due slightly to (i) lower-than-expected spending in 2012 and 2013 for most types of services; and (ii) lower assumptions for volume and intensity for some types of service. (Part B costs in 2088 would be 2.6 percent and slightly over 3.2 percent of GDP under current law and the illustrative alternative scenario, respectively.) The Board estimates that Part D outlays will increase from 0.4 percent of GDP in 2013 to about 1.4 percent by 2088. These outlay projections are slightly lower than those shown in last year’s report primarily because (i) the projected drug cost trend for the next 10-year period is lower than last year; and (ii) rebates are assumed to be higher throughout the projection. Transfers from the general fund are the major source of financing for the SMI trust fund and are central to the automatic financial balance of the fund’s two accounts. Such transfers represent a large and growing requirement for the Federal budget. SMI general revenues currently equal 1.4 percent of GDP and would increase to an estimated 3.3 percent in 2088.

Conclusion Total Medicare expenditures were $583 billion in 2013. The Board projects that expenditures will increase in future years at a somewhat faster pace than either aggregate workers’ earnings or the economy overall and that, as a percentage of GDP, they will increase from 3.5 percent in 2013 to 6.9 percent by 2088 (based on the Trustees’ intermediate set of assumptions). Under current law, Medicare spending would represent 6.3 percent of GDP in 2088. If the reduced price increases for other health services under Medicare are not sustained and do not take full effect in the long range as in the illustrative alternative projection, then Medicare spending would instead represent roughly 8.4 percent of GDP in 2088. Growth under any of these scenarios, if realized, would substantially increase the strain on the nation’s workers, the economy, Medicare beneficiaries, and the Federal budget. 26

The Trustees project that HI tax income and other dedicated revenues will fall short of HI expenditures in most future years. The HI trust fund does not meet either the Trustees’ test of short-range financial adequacy or their test of long-range close actuarial balance. The Part B and Part D accounts in the SMI trust fund are adequately financed under current law because premium and general revenue income are reset each year to cover expected costs. Such financing, however, would have to increase faster than the economy to cover expected expenditure growth under current law. The financial projections in this report indicate a need for additional steps to address Medicare’s remaining financial challenges. Consideration of further reforms should occur in the near future. The sooner solutions are enacted, the more flexible and gradual they can be. Moreover, the early introduction of reforms increases the time available for affected individuals and organizations—including health care providers, beneficiaries, and taxpayers—to adjust their expectations and behavior. The Trustees recommend that Congress and the executive branch work closely together with a sense of urgency to address the depletion of the HI trust fund and the projected growth in HI (Part A) and SMI (Parts B and D) expenditures.

Medicare and the Affordable Care Act (ACA) of 2010 As mentioned above in the 2013 Medicare Trustees report, the “Affordable Care Act” or ACA contains roughly 165 provisions affecting the Medicare program including enhanced benefits (free prevention services and phasing out the Part D coverage gap), spending reductions affecting plans and providers, delivery system reforms, premium increases for higher-income beneficiaries, and a payroll tax on earnings for higherincome people. In addition, the law authorizes a new Independent Payment Advisory Board tasked with constraining the growth in Medicare spending over time. In fact, the 2014 Medicare Trustees Report shows that passing health care reform legislation was important in extending the solvency of the Medicare Trust Fund. Medicare’s costs are projected to be substantially lower due to savings in the ACA. However, the report also points out the need to further reform our health care system so that Medicare’s costs, which will grow due to the retirement of the baby boom generation and the increase in health spending per beneficiary, are affordable for both the federal government and individuals (see Chapter 7 Medicare reform Proposals).

Medicare SGR Update Congress has been debating the shortcoming of the SGR policy for more than a decade. Each year for the past decade, the SGR has perpetuated a vicious cycle that has threatened dramatic payment cuts to physicians and endangered access to care for seniors. Over the same time, the SGR has also forced a series of extremely expensive short-term Congressional patches to be passed -16 patches in all costing American taxpayers $154 billion. And what has Congress obtained for $154 billion? Some would 27

say: perpetuation of a bad policy and the obligation to spend more money on future patches. Since 2003, Congress has invested more in legislative patches than the most recent CBO estimated cost of $117 billion to simply repeal the SGR altogether. The cost of each short-term patch has grown significantly over time. In the last three years alone, the cost of stopping the looming cut grew from $14.9 billion in 2011 to $25.2 billion in 2013. Previously, short-term legislative patches have grown the problem by increasing an SGR proposed payment cut from 5 percent in 2007 to 24 percent for 2014. At the same time, it has been reported that there is an enormous and widening gap between what Medicare pays and the actual cost of caring for seniors. Since 2001, the cost of care has risen by 25 percent while physician payments have risen less than 4 percent. Today, average Medicare practice expense payments cover only 54 percent of physicians’ direct costs. Many are calling on Congress to take action. Well, Congress has begun to listen. On March 14, 2014, House Bill 4015, Repeal and Medicare Provider Payment Modernization Act of 2014, was passed by the House and now goes before the Senate for consideration. The bill would amend Title XVIII of the Social Security Act to repeal the Medicare sustainable growth rate and improve Medicare payments for physicians and other professionals, and for other purposes (often referred to as the “doc fix”). Senate Bill 2110, Repeal and Medicare Beneficiary Act of 2013 was introduced in the Senate March 11, 2014 but at the time of writing this book, the Senate has not taken any action on the bill. As of December 2014, Congress has taken no action on either bill. Stay tuned!

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Chapter 1 Review Questions 1. Which of the following statements about Medicare is FALSE? ( ( ( (

) A. Medicare is health insurance for people age 65 and older ) B. Medicare is a state run program for low-income people ) C. Medicare was enacted by Congress in 1965 ) D. Medicare may be provided to people under age 65 with certain disabilities

2. Which of the following are parts of the Medicare health insurance program? ( ( ( (

) A. Part A ) B. Part B ) C. Part D ) D. All of the above

3. Who has the overall responsibility for administration of the Medicare program? ( ( ( (

) A. Department of Health and Human Services ) B. Department of Elder Affairs ) C. Department of the Interior ) D. Department of Medicaid and Medicare Services

4. Which Medicare program expands beneficiaries’ options for participation in privatesector health care plans? ( ( ( (

) A. Medicare Part A ) B. Medicare Part B ) C. Medicare Part C ) D. Medicare Part D

5. According to the 2014 Medicare Trustees Report, what is the estimated depletion date for the HI trust fund? ( ( ( (

) A. 2026 ) B. 2016 ) C. 2028 ) D. 2030

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CHAPTER 2

MEDICARE PART A Overview Medicare Part A is referred to as Hospital Insurance (HI) and covers most of the cost of inpatient care in hospitals (such as critical access hospitals, inpatient rehabilitation facilities and long-term care hospitals) and several other services. In this chapter, we will review Medicare Part A, its eligibility requirements, services provided, how it is financed, its various out-of-pocket costs (such as premiums, deductibles and copays), and the enrollment periods.

Learning Objectives Upon completion of this chapter, you will be able to:    

Determine eligibility for Part A; Explain the financing of Part A; Outline Part A covered services and costs; and Observe Part A enrollment periods and late fees.

Who Is Eligible For Part A (HI) All persons age 65 and over who are entitled to monthly Social Security benefits (or would be entitled to benefits except that an application for benefits has not been filed), or monthly benefits under Railroad Retirement programs (whether retired or not), are eligible for benefits. Persons age 65 and over can receive Medicare benefits even if they continue to work. Enrollment in the program while working will not affect the amount of any future Social Security benefits. A dependent or survivor of a person entitled to HI benefits, or a dependent of a person under age 65 who is entitled to retirement or disability benefits, is also eligible for HI (Part A) benefits if the dependent or survivor is at least 65 years old. For example, a woman age 65 or over who is entitled to a spouse’s or widow’s Social Security benefit is eligible for benefits under Hospital Insurance. A Social Security disability beneficiary is covered under Medicare after entitlement to disability benefits for 24 months or more. Those covered include disabled workers at any 31

age, disabled widows and widowers age 50 or over, beneficiaries age 18 or older who receive benefits because of disability beginning before age 22 and disabled qualified railroad retirement annuitants. Medicare coverage is automatic. No application is required. A person who becomes re-entitled to disability benefits within five years after the end of a previous period of entitlement (within seven years in the case of disabled widows or widowers and disabled children) is automatically eligible for Medicare coverage without the need to wait another 24 months. However, if the previous period of disability ends on or after March 1, 1988 and the current impairment is the same as or directly related to the impairment in the previous period of disability, he/she is covered without again needing to meet the 24-month waiting period requirement. However, and further, if the previous period of disability ends on or after March 1, 1988, he/she is covered without again needing to meet the 24-month waiting period requirement, if the current impairment is the same as (or directly related to) that in the previous period of disability. Coverage will continue for 24 months after an individual is no longer entitled to receive disability payments because he/she has returned to work, provided he/she was considered disabled on or after December 10, 1980, and the disabling condition continues.

Special Eligibility Rules for Persons with End-Stage Renal Disease Part A coverage is also provided to insured workers (and their dependents) with endstage renal diseases (ESRD) who require renal dialysis or a kidney transplant even if they are working. Coverage can begin with the first day of the third month after the month dialysis treatments begins.

Special Rules for Government Employees Federal employees who were not covered under Social Security (temporary workers have been covered since 1951) began paying the Hospital Insurance (HI) portion of Social Security tax in 1983. Those covered under Social Security, such as virtually all hired after 1983, pay the HI tax as well as the Social Security Old-Age, Survivors, and Disability Insurance (OASDI) tax. A transitional provision provides credit for retroactive quarters of coverage for federal employees who were employed before 1983 and also on January 1, 1983. State and local government employees hired after March 31, 1986, are covered under Medicare coverage and tax provisions. A person who was performing substantial and regular service for a state or local government before April 1, 1986, is covered provided he/she was a bona fide employee on March 31, 1986, and the employment relationship was not entered into in order to meet the requirements for exemption from coverage. State or local government employees whose employment is terminated after March 31, 1986, are covered under Medicare if they are later rehired. 32

Beginning after June 30, 1991, state and local government workers who are not covered by a retirement system in conjunction with their employment, and who are not already subject to the HI tax, are also automatically covered and must pay the tax. A retirement system is defined as a pension, annuity, retirement, or similar fund or system established by a state or by a political subdivision of a state. Also, if the beneficiary or their spouse has a sufficient period of Medicare-only coverage in Federal, State, or local government employment, they are eligible beginning at age 65. Similarly, if they have been entitled to Social Security or Railroad Retirement disability benefits for at least 24 months, and government employees with Medicare-only coverage who have been disabled for more than 29 months, are entitled to Part A benefits. (The waiting period is waived for persons with Lou Gehrig’s Disease.)

Part A Premium Part A is generally provided automatically, and free of premiums, to the beneficiary if they are age 65 or over and are eligible for Social Security (40 quarters) or Railroad Retirement benefits, whether they have claimed these monthly cash benefits or not. People older than 65 who are not eligible for free Medicare Part A coverage (neither they nor their spouse have paid Medicare taxes for a minimum of 10 years—40 quarters) can nevertheless enroll in it and pay a monthly premium. The premium is $224 (down from $234 in 2014) per month if the beneficiary paid FICA taxes for 30-39 calendar quarters, and $407 (down from $426 in 2014) per month if the beneficiary paid FICA for fewer than 30 quarters. In most cases, if an individual chooses to buy Part A, he/she must also have Part B and pay monthly premiums for both.

State Medicare Savings Program If a beneficiary has limited income and resources, their state may help them pay for Part A (and/or Part B). There are four State Medicare Savings Programs. They are:    

Qualified Medicare Beneficiary (QMB) Specified Low-Income Medicare Beneficiary (SLMB) Qualifying Individual (QI) Qualified Disabled & Working Individuals (QDWI)

Each program has a different income and resource liability limit. Even if an individual does not qualify for Medicaid, he/she may qualify for one of these programs to help cover their Medicare costs. If a beneficiary qualifies for a QMB, SLMB, or QI program, they automatically qualify to get Extra Help paying for Medicare prescription drug coverage (see Chapter 5).

33

Part A Financing Similar to the Social Security system, Part A (HI) portion of Medicare was designed to be self-supporting, and is financed through dedicated sources of income rather than relying on general tax revenues. The primary source of income credited to the HI trust fund is payroll taxes (FICA tax) paid by employees and employers: each pays a tax of 1.45% on earnings. The self-employed (SECA tax) pay 2.9%. Unlike Social Security there is no upper limit on earnings subject to the tax. ACA imposes an additional tax of 0.9% on high-income workers with wages over $200,000 for single filers and $250,000 for joint filers (not indexed with inflation). ACA also imposes an additional surtax of 3.8% on unearned income (IRC § 1411). However, this tax is not credited to the HI trust fund. (For the purpose of this additional surtax, investment income includes taxable interest, capital gains, dividends, royalties, annuities, and income from business conducted as sole proprietorships, partnerships or S corporations in which the owner is not an active participant. The Medicare tax will not apply to pensions, distributions from 401(k)s, IRAs, etc.) Revenue collected under this surtax (IRC § 1411) will be paid to the Treasury’s general account. Note: There is a special federal (and generally following through to state) income tax deduction of 50% of the OASDI/HI self-employment (SECA) tax. This income tax deduction, which is available regardless of whether or not the beneficiary itemizes deductions, is designed to treat the self-employed in much the same manner as employees and employers are treated for Social Security and income tax purposes. However, the additional surtax will not be deductible.

HI Trust Fund As shown in Table 2.1, in 2013, total income to the HI trust fund was $251.1billion. Payroll taxes of workers and their employers accounted for $220.8 billion (87.9%), with the remainder coming from interest and government credits, premiums (from those buying into the program), and taxation of Social Security benefits. The HI program paid out $266.8 billion most of which was for benefit costs, and about 1.5% was for administrative expenses. Similar to years 2008 through 2011, expenditures again exceeded income in 2012, and the trust fund balance was reduced from $244.2 billion at the end of 2011 to $220.4 billion at the end of 2012 (a loss of $23.8 billion). Each year, the Trustees estimate the year through which the HI Trust Fund will remain solvent, i.e. the date through which reserves are sufficient to cover 100 percent of costs. The 2014 Trustees report finds that HI Trust Funds will be solvent through 2030; 4 years later than was shown in last year’s report (see Table 2.2). If no changes are made by that year, the HI Trust Fund will still be able to cover 87 percent of hospital insurance expenditures that year. Put another way, when HI Trust Fund reserves are depleted in 2030, payments to doctors and hospitals can still be made, but only from current Medicare payroll tax contributions; these tax contributions will be sufficient to cover 87 cents on the dollar. 34

In the past, HI solvency has been avoided through frequent adjustments to the program to ensure that spending and resources are in balance. However, in the past presidential elections and with the recent political stalemate over the fiscal cliff—the future of Medicare is a top concern. Table 2.1 Medicare Data for Part A for Calendar Year 2013 Enrollment (millions) Aged Disabled Total Average Expenditures per enrollee Total Assets at end of 2012 Total Income Payroll taxes Interest Taxes on benefits Premiums General revenues Transfer from States Other Total Expenditures Benefits Hospital Skilled nursing facility Home health care Physician fee schedule services Private health plans (Part C) Prescription drugs Other Administrative expenses Net change in assets Assets at end of 2013

43.1 8.8 51.9 $5,045 $220.8 $251.1 220.8 9.3 14.3 3.4 0.9 --2.4 $266.2 261.9 136.8 28.4 6.8 --73.2 --16.7 $4.3 -$15.0 $205.4

Source: Board of Trustees, 2014. Table II. B1.

Table 2.2 Medicare HI Trust Fund Intermediate Assumptions Estimate

Year Costs Exceed Income

Year HI Trust Fund Assets Are Exhausted

High Intermediate Low

2008 2008 2008

2019 2030 Never*

* Under the low-cost assumptions, trust fund assets would start to increase in 2014 and continue to increase throughout the projection period. Source: 2014 Annual Report of the Board of Trustees of the Medicare Trust Funds; CMS Office of the Actuary

35

Part A Covered Services In 2013, according to the 2014 Medicare Trustees Report, Part A provided protection against the costs of hospital and specific other medical care to about 51.9 million people (43.1 million aged and 8.8 million disabled enrollees). Part A benefit payments totaled $266.2 billion in 2013. The following health care services are covered under Part A: 









Blood. In most cases, the hospital gets blood from a blood bank at no charge, and the beneficiary will not have to pay for it or replace it. If the hospital has to buy blood for the beneficiary, they must either pay the hospital costs for the first 3 units of blood they get in a calendar year or have the blood donated by them or someone else. Hospital Stays (Inpatient). Includes costs of a semi-private room, meals, regular nursing services, operating and recovery rooms, intensive care, inpatient prescription drugs, laboratory tests, X-rays, psychiatric hospitals, inpatient rehabilitation, and long-term care hospitalization when medically necessary, as well as all other medically necessary services and supplies provided in the hospital. An initial deductible payment is required if they are admitted to a hospital, plus co-payments for all hospital days following day 60 within a benefit period (described later). Skilled nursing facility (SNF) care is covered by Part A only if it follows within 30 days (generally) of a hospitalization of 3 days or more and is certified as medically necessary (patient receives medical care 7 days per week, or rehabilitation care 5 days per week). Covered services are similar to those for inpatient hospital but also include rehabilitation services and appliances. The number of skilled nursing facility (SNF) days provided under Part A is limited to 100 days per benefit period (described later), with a co-payment required for days 21-100. Part A does not cover nursing facility care if the beneficiary does not require skilled nursing or skilled rehabilitation services. Home Health Services. Limited to medically necessary part-time or intermittent skilled nursing care, or physical therapy, speech-language pathology, or a continuing need for occupational therapy. A doctor must order care for the beneficiary, and a Medicare certified-home health agency (HHA) must provide it. Home health services may also include medical social services, part-time or intermittent home health aide services, durable medical equipment, and medical supplies for use at home. The beneficiary must be homebound, which means that leaving the home is a major effort. Home health care under Part A (and Part B) has no co-payment and no deductible. Hospice care is a service provided to terminally ill persons with life expectancies of 6 months or less who elect to forgo the standard Medicare benefits for treatment of their illness and to receive only hospice care for it. Such care includes drugs for pain relief and symptom management; medical, nursing, and social services; and other covered services as well as services Medicare usually doesn’t cover, such as grief counseling. A Medicare-approved hospice usually gives hospice care in their home or other facility like a nursing home. Hospice care doesn’t include room and board unless the hospice medical team determines that your client needs short-term inpatient stays for pain and symptom 36

management that can’t be addressed in the home. These stays must be in a Medicare-approved facility, such as a hospice facility, hospital, or skilled nursing facility. Medicare also covers inpatient respite care, which is care they will get in a Medicare-approved facility so that their usual caregiver can rest. The beneficiary can stay up to 5 days each time they get respite care. Medicare will pay for covered services for health problems that aren’t related to their terminal illness. They can continue to get hospice care as long as the hospice medical director or hospice doctor recertifies that they are terminally ill. The beneficiary pays no deductible for the hospice program, but will pay a small coinsurance amount for drugs and inpatient respite care. An important Part A component is the benefit period, which starts when they first enter a hospital and ends when there has been a break of at least 60 consecutive days since inpatient hospital or skilled nursing care was provided. There is no limit to the number of benefit periods covered by Part A during their lifetime; however, inpatient hospital care is normally limited to 90 days during a benefit period, and co-payment requirements (detailed later) apply for days 61-90. If the 90 days of inpatient hospital care available in a benefit period is exhausted, the beneficiary can elect to use days of Medicare coverage from a non-renewable “lifetime reserve” of up to 60 (total) additional days of inpatient hospital care. Co-payments are also required for such additional days.

Inpatient Hospital Services Following are the specific inpatient services covered by Medicare Part A: 

    

  

Bed and Board in a semi-private room (two to four beds) or a ward (five or more beds). Hospital Insurance will pay the cost of a private room only if it is required for medical reasons. If the beneficiary requests a private room, Hospital Insurance will pay the cost of semi-private accommodations: the beneficiary must pay the extra charge for the private room. All meals, including special diets. Nursing services provided by or under the supervision of licensed nursing personnel (other than the services of a private duty nurse or attendant). Services of the hospital’s medical social workers. Use of regular hospital equipment, supplies and appliances, such as oxygen tents, wheel chairs, crutches, casts, surgical dressings, and splints. Drugs and biologicals ordinarily furnished by the hospital. A limited supply of drugs needed for use outside the hospital is also covered, but only if medically necessary in order to facilitate the beneficiary’s departure from the hospital and the supply is necessary until the patient can obtain a continuing supply. Diagnostic or therapeutic items and services ordinarily furnished by the hospital or by others (including clinical psychologists, as defined by the Centers for Medicare and Medicaid Services), under arrangements made with the hospital. Operating and recovery room costs, including hospital costs for anesthesia services. Services of interns and residents in training under an approved teaching program. 37



        

Blood transfusions, after the first three pints. Hospital Insurance helps pay for blood (whole blood or units of packed red blood cells), blood components, and the cost of blood processing and administration. If the patient receives blood as an inpatient of a hospital or skilled nursing facility, Hospital Insurance will pay for these blood costs, except for any non-replacement fees charged for the first three pints of whole blood or units of packed red cells per calendar year. The nonreplacement fee is the amount that some hospitals and skilled nursing facilities charge for blood that is not replaced. The beneficiary is responsible for the nonreplacement fees for the first three pints of units of blood furnished by a hospital or skilled nursing facility. If they are charged non-replacement fees, they have the option of either paying the fees or having the blood replaced. If the beneficiary chooses to have the blood replaced, they can either replace the blood personally or arrange to have another person or an organization replace it. X-rays and other radiology services, including radiation therapy, billed by the hospital. Lab tests. Respiratory or inhalation therapy. Independent clinical laboratory services under arrangements with the hospital. Alcohol detoxification services when furnished as inpatient services. Dental services when they require hospitalization because of the severity of the dental procedure or because of their underlying medical condition and clinical status. Cost of special care units, such as physical therapy, occupational therapy, and speech therapy pathology services. Appliances (such as pacemakers, colostomy fittings, and artificial limbs) that are permanently installed while in a hospital. Lung and heart –lung implants.

Medicare Part A does not pay for: 

   

Services of physicians and surgeons, including the services of pathologists, radiologists, anesthesiologists, and physicians. (Nor does Hospital Insurance pay for the services of a physician, resident physician or intern—except those provided by an intern or resident in training under an approved teaching program.) Services of a private duty nurse or attendant, unless the condition requires such services and the nurse or attendant is a bona fide employee of the hospital. Personal convenience items supplied at the beneficiary’s request, such as television rental, radio rental, or telephone. The first three pints of whole blood (or packed red blood cells) received in a calendar year. Supplies, appliances and equipment for use outside the hospital, unless continued use is required (e.g., a pacemaker).

Medicare beneficiaries have the right to receive the care necessary for the proper diagnosis. 38

Costs for Services Under Part A Hospital Insurance, except for the deductible amount that must be paid by the beneficiary, Medicare helps pay for inpatient hospital services for up to 90 days in each “benefit period.” In 2015, the beneficiary pays:      

$1,260 (up from 1,216 in 2014) deductible and no co-coinsurance for days 1-60 in each benefit period. $315 (up from $304 in 2014) per day for days 61-90 in each benefit period. $630 (up from $608 in 2014) per “lifetime reserve day” after day 90 in each benefit period (up to 60 days over the beneficiary’s lifetime) All costs for each day after the lifetime reserve days Inpatient mental health care in a psychiatric hospital limited to 190 days in a lifetime. Skilled nursing facility stays (SNF discussed below).

The coinsurance amounts are based on those in effect when services are furnished rather than on those in effect at the beginning of the spell of illness (benefit period). Medicare pays for hospital care if the beneficiary meets the following four conditions:    

A doctor prescribes inpatient hospital care for treatment of the illness or injury, They require the kind of care that can only be provided in a hospital, The hospital is participating in Medicare, and The Utilization Review Committee of the hospital, a Quality Improvement Organization (QIO), or an intermediary does not disapprove of the stay.

Costs for SNF Stay In 2015, for skilled nursing home (SNF) the beneficiary will be responsible to pay the following out-of-pocket costs:   

$0 for the first 20 days each benefit period $157.50 (up from $152 in 2014) per day for days 21-100 each benefit period All costs for each day after day 100 in a benefit period

Part A Enrollment Periods If the beneficiary wishes to enroll in Part A, Hospital Insurance (HI), here are the following times period during which he/she must sign up:  

Automatic Enrollment Period; Initial Enrollment Period; 39

 

General Enrollment Period; and Special Enrollment Period

Automatic Enrollment Period (AEP) If the beneficiary is receiving Social Security benefits prior to age 65, they should be automatically enrolled. Coverage begins the first day of their birth month if they are 65 years old, or the first day of the 25th month of recurring benefits: 



They will receive a Medicare card in the mail from Social Security three months before their 65th birthday notifying them of enrollment in Medicare Part A (and Part B). If they do not want Part B, they must return the card appropriately marked and they will be enrolled for Part A coverage only. If no card is received, the beneficiary should contact their nearest Social Security Administration office prior to their 65th birthday.

Initial Enrollment Period (IEP) The initial enrollment period (IEP) applies if the beneficiary is just turning 65 and has not been receiving Social Security benefits. This is a seven month period. The seven-month initial enrollment period begins three months prior to their birth month and ends three months following their birth month (see Table 2.3). Table 2.3 Initial Enrollment Period Month 1

Month 2

Month 3

Birth Month

Month 5

Month 6

Month 7

The month of enrollment determines when Medicare coverage becomes effective.   

If the beneficiary enrolls during the three months prior to his/her birth month they are covered beginning on the first day of their birth month (fourth month or month of eligibility). If the beneficiary is enrolling during their birth month (fourth month), coverage begins the first day of the following month or the 5th month of IEP. If the beneficiary enrolls during the fifth month of his/her IEP, coverage begins the first day of the 2nd month following their month of enrollment or the last month of their IEP.

General Enrollment Period (GEP) The general enrollment period (GEP) is the period from January 1 through March 31 of each year. The GEP allows a beneficiary who didn’t sign-up for Part A when he/she was first eligible, to sign up for Part A. However, their coverage will begin July 1 (see Table 2.4). They may also have to pay a higher premium for late enrollment (discussed below).

40

Table 2.4 General Enrollment Period January

 

February

March

Coverage begins July 1

If the beneficiary enrolls during the general enrollment period, coverage begins on July 1 of that year. If the beneficiary waits until after the general enrollment period to sign up for Part A they are charged with a late enrollment fee (discussed below).

Special Enrollment Period (SEP) The special enrollment period will apply if the beneficiary:      

Continues to work past age 65 and are covered under an employer group health plan (EGHP). They must notify Social Security of their intent to remain covered by the employer group health plan (EGHP). These individuals may enroll at any time after age 65 but they must enroll no later than eight (8) months after the month of their retirement, or of the person who is working. They also have the option of enrolling anytime during the year while they are still working if they decide they want Medicare coverage, or if their EGHP is discontinued. If they enroll in any other month, coverage begins the month following. If they are eligible for special enrollment, they are not penalized with a 10 percent surcharge provided they enroll no later than eight months after the month of retirement.

This Special Enrollment Period doesn’t apply to people with End-Stage Renal Disease (ESRD). Table 2.5 Part A Key Enrollment Dates Enrollment Period

When It Occurs

Automatic Enrolment Period

If the beneficiary is receiving Social Security benefits prior to age 65, they should be automatically enrolled. Coverage begins the first day of their birth month if they are 65 years old, or the first day of the 25th month of recurring benefits

Initial Enrollment Period

It begins 3 months before your 65th birthday month and runs until 3 months after that month

General Enrollment Period

January 1 through March 31

41

Part A Late Enrollment Fee If the beneficiary is not eligible for premium-free Part A, and did not purchase when first eligible (at age 65), their monthly premium may go up 10%. If the beneficiary did not enroll during this period, but decides to enroll later, he/she will be required to pay a late enrollment penalty. The beneficiary’s monthly premium will increase by 10 percent for a number of years, equaling twice the time he/she waited before enrolling in Part A after their eligibility started. Example: If Bob was ineligible for premium-free Part A and did not purchase for 2 years, he would have to pay the higher premium for 4 years. Once again, a beneficiary can avoid this late enrollment fee if he/she signs up during either the Initial Enrollment Period and/or the Special Enrollment Period discussed above.

42

Chapter 2 Review Questions 1. Medicare Part A is referred to as: ( ( ( (

) A. Hospital Insurance (HI) ) B. Medical Insurance (MI) ) C. Supplemental Medical Insurance (SMI) ) D. Physician Services (PI)

2. In 2015, what is the Part A (HI) FICA tax rate for an employee? ( ( ( (

) A. 2.90% ) B. 1.45% ) C. 0.90% ) D. 3.80%

3. A benefit period ends when the patient has been out of a hospital or other facility primarily providing skilled nursing or rehabilitative services for how many days in a row (including the day of discharge). ( ( ( (

) A. 20 days ) B. 30 days ) C. 60 days ) D. 90 days

4. People older than 65 who have only 30-39 quarters of coverage can purchase Part A with a monthly premium of what amount in 2015? ( ( ( (

) A. $224 ) B. $152 ) C. $149 ) D. $426

5. The initial enrollment period for Part A begins how many months prior to the beneficiary’s birth month? ( ( ( (

) A. 3 ) B. 5 ) C. 7 ) D. 12

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CHAPTER 3

MEDICARE PART B Overview Medicare Part B is referred to as Supplementary Medical Insurance (SMI) and covers doctors’ services and outpatient care. It also covers some other medical services that Part A doesn’t cover, such as some of the services of physical and occupational therapists, and some home health care. In this chapter, we will review Medicare Part B, it’s eligibility requirements, the type of services covered and not covered, the financing, the various out-of-pocket costs (such as premiums, deductibles and copays), and the various enrollment periods.

Learning Objectives Upon completion of this chapter, you will be able to:     

Determine eligibility for Medicare Part B; Explain the financing of Medicare Part B; Outline the beneficiaries costs (premiums), deductibles, co-payments and coinsurance amounts; List the various types of services covered and not covered by Medicare Part B; and Observe the Part B enrollment periods and late fees.

Eligibility All persons entitled to premium-free Hospital Insurance (Part A), or premium Hospital Insurance (Part A) or the working disabled under Medicare may enroll in Medicare Part B. Social Security and Railroad Retirement beneficiaries, age 65 or over, are therefore automatically eligible. But any other person age 65 or over may enroll provided that he/she is a resident of the United States and is either:  

A citizen of the United States; or An alien lawfully admitted for permanent residence who has resided in this country five consecutive years before applying for Medicare.

Disabled beneficiaries (workers under age 65, widow(er)s, aged 50-64, and children aged 18 or over and disabled before age 22) who have been on the benefit roll as a disability beneficiary for at least two years are covered in the same manner as persons age 65 or 45

over. (This includes disabled Railroad Retirement beneficiaries.) Disability cases are also covered for 48 months after cash benefits cease for a worker who is engaging in substantial gainful employment but has not medically recovered. (Disability benefits are, under such circumstances, paid for the first nine months of the trial-work period and then for an additional three months.) After 48 months, and during continued disability, voluntarily coverage is available in the same manner as non-insured persons age 65 or over. A person can continue to buy Medicare Hospital Insurance (Part A) only, or both Hospital Insurance and Supplement Medical Insurance (Part B) as long as he/she remains disabled. Such a person may enroll during his/her initial enrollment period which begins with the month the person is notified he/she is no longer eligible for premium-free Hospital Insurance and continues for seven full months after that month. If a person does not enroll during this initial enrollment period, the person may enroll in a subsequent general enrollment period (January1 through March 31 of each year) or during a special enrollment period. Also covered are persons with end-stage renal disease who require dialysis or a kidney transplant and are eligible for Hospital Insurance (Part A). Similar to Medicare Part A, Part B eligibility and enrollments are handled by the Social Security Administration.

Part B Financing Financing of Part B (the SMI Trust fund) differs fundamentally from the HI trust fund with regards to the nature of its financing. The nature of financing for Part B is primarily financed by contributions from the general fund of the U.S. Treasury (and to a much lesser degree) monthly premiums paid by the beneficiary (discussed below). For Part B, the contributions from the general fund of the U.S. Treasury are the largest source of income, since the monthly premium is generally set at a level that covers only 25 percent of the average expenditures for aged beneficiaries.

SMI Trust Fund In 2013, Part B of the SMI trust fund brought in $255 billion in income, general revenues made up $185.8 billion of that amount (73%), premiums accounted for $63.1 billion (25%), and interest and other income made up the remaining $3.7 billion (1.4%). The Part B SMI Trust, in 2013, had total expenditures of $247.1 billion; similar to HI, nearly this entire amount was used to cover benefits and 1.3% covered administrative expenses (see Table 3.1).

46

Table 3.1 Part B Medicare Data for Calendar year 2013 Enrollment (millions) Aged Disabled Total Average expenditures per enrollee Assets at end of 2012 (billions) Total Income (2012) Payroll taxes Interest Taxes on benefits Premiums General revenues Transfer from States Other Total Expenditures Benefits Hospital Skilled nursing facility Home health care Physician fee schedule services Private health plans (Part C) Prescription drugs Other Administrative expenses Net change in assets Assets (end of 2013)

40.0 7.9 47.9 $5,092 $66.2 $255.0 ---2.4 --63.1 185.8 --3.7 $247.1 243.8 41.8 --11.5 68.6 72.7 --49.2 $3.3 $7.9 $74.1

Source: Board of Trustees, 2014. Table II. B1.

Part B Premiums If a beneficiary voluntarily elects Part B coverage, they are charged a standard monthly premium. Social Security beneficiaries, as well as railroad retirees and civil service annuitants, have their Part B premiums deducted from their monthly checks, when possible.

Standard Part B Premium Medicare Part B premiums typically rise or fall with Part B program costs. The Balanced Budget Act of 1997 (B97, P.L. 105-33) permanently set the standard Medicare Part B premium at 25% of estimated program costs for the aged, which include a contingency reserve. Federal general revenues account for the remaining Part B program costs. In other words, every $1 in Part B premiums that the beneficiary pays, it is matched by $3 in general revenues. The standard Medicare premium for new enrollees in 2009 was $96.40 per month, and in 2010 it rose to $110.40. For 2011 the monthly premium for new enrollees rose again to $115.40, before being reduced to $99.90 in 2012. The monthly 47

premium for new enrollees in 2015 will remain at $104.90. All income for Part B premium is credited to the Supplemental Trust Fund.

Income-Related Monthly Adjusted Amount (IRMAA) Up until the enactment of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, referred to as the Medicare Modernization Act (MMA, P.L. 108-173) all beneficiaries paid the same monthly Part B amount. The MMA established an income-related Part B premium that took effect in 2007, requiring high-income Medicare beneficiaries to pay a greater share of average Part B costs (35 percent to 80 percent, depending on their income. The Internal Revenue Service supplies the tax filing status, adjusted gross income, and tax-exempt interest income to the Social Security Administration to determine if the beneficiary has an income related monthly adjustment amount (IRMAA). The Social Security Administration will add adjusted gross income together with tax-exempt interest income to get an amount called the modified adjusted gross income (MAGI). The income-related monthly adjustment amount is effective from January 1 through December 31 each calendar year. The Social Security Administration will refigure the beneficiary’s Part B premium amount again next year when the Internal Revenue Service updates the information. Prior to the enactment of the ACA, the income thresholds had been indexed annually to increase at the rate of inflation to prevent a growing share of beneficiaries from having to pay the higher Part B premium. That all changed with the enactment of the Affordable Care Act (ACA) of 2010 which froze the threshold for the income-related Part B premium at 2010 levels through 2019, effective in 2011. Those levels were $85,000 for a single taxpayer and $170,000 for a couple filing jointly. Freezing the income threshold will increase the number and share of beneficiaries required to pay the higher premium over time. This provision is estimated to generate savings to the federal government of $25.0 billion over the 10 year period 2010-2019. By 2019, the HHS Office of the Actuary projects income-related Part B premium amounts will range from $224 to $512 per month. By freezing the income thresholds for Part B premiums beginning in 2011, and not allowing them to rise each year as they have since 2007: 

 

The share of Medicare beneficiaries required to pay the income-related premium will rise from 5 percent in 2011 to 14 percent in 2019—increasing the number of beneficiaries who pay the higher premium from 2.4 million beneficiaries in 2011 to 7.8 million by 2019. Freezing the income thresholds will increase the total number of people subject to the higher Part B premiums by 3.5 million Medicare beneficiaries in 2019, relative to having thresholds that increase over time. By 2019, nearly one-fifth of Medicare beneficiaries enrolling in Part B for the first time (new enrollees) will pay an income-related Part B premium—increasing from 8 percent in 2010 to 18 percent in 2019. This is because beneficiaries’ 48

incomes tend to be higher when they first become eligible for Medicare at age 65, and then decline with age. In 2015, the income-related Part B premium will range from $104.90 to $335.20 (same figures as 2014) per month, depending on income (see Table 3.2). Table 3.2 Part B Premiums for 2015 Beneficiaries who file an individual tax return with income 2015 Monthly Premium is

Beneficiaries who file a joint tax return with income

If Beneficiary’s Yearly Income in 2013 was

$104.90

$85,000 or less

$170,000 or less

$146.90 (premium + 40%) ($104.90 +$42.00)

$85,001-$107,000

$170,001-$214,000

$107,001-$160,000

$214,001-$320,000

$272.70 (premium + 160%) ($104.90 + 167.80)

$160,001-$214,000

$320,001-$428,000

$335.70 (premium +220%) ($104.90 +$230.80)

Above $214,000

Above $428,000

$209.80 (premium + 100%) ($104.90 + $104.90)

Part B Deductibles and Coinsurance Amounts Costs for Part B services depend on whether the beneficiary has Original Medicare (both Medicare A and Medicare B) or he/she is in a Medicare private health plan. Table 3.3 below gives information about what the beneficiary must pay if they have Original Medicare. For some services, there are no costs, but they may have to pay for the visit to the doctor. If the Part B deductible ($147 in 2015) applies, they pay all of the costs until they meet the yearly Part B deductible before Medicare begins to pay its share. Then after the deductible has been met, the beneficiary will typically pay 20% of the Medicareapproved amount of the service (known as coinsurance). Note: They can save money if they choose doctors or providers who accept assignment.

49

Table 3.3 Part B Costs for Covered Services and Items, 2015

Part B Deductible

Blood

In 2015, the beneficiary pays the first $147 yearly for Part B-covered services or items. In most cases, the provider gets blood from a blood bank at no charge, and the Medicare beneficiary will not have to pay for it or replace it. However, the Medicare beneficiary will pay a co-payment for the blood processing and handling services for every unit of blood he/she receives, and the Part B deductible applies. If the provider has to buy blood for the Medicare beneficiary, he/she must either pay the provider costs for the first 3 units of blood he/she receives in a calendar year or have the blood donated by them or someone else. Medicare beneficiary pays a co-payment for additional units of blood he/she receives as an outpatient (after the first 3), and the Part B deductible applies.

Clinical Laboratory Services

Home Health Care Services

Medical and Other Services

Mental Health Services

Other Covered Services

Outpatient Hospital Services

Medicare Part B pays 100% of the approved charges. No deductible required. Medicare Part B pays 100% of the approved charges. No deductible. However, if using medical equipment (wheelchair, special bed) the Medicare beneficiary must pay 20% of the Medicare-approved amount for durable medical equipment. Pay 20% of the Medicare-approved amount for most doctor services (including most doctor services while the Medicare beneficiary is a hospital inpatient), outpatient therapy*, most preventive services, and durable medical equipment. Pay 45% of the Medicare-approved amount for most outpatient mental health care. Pay co-payment or coinsurance amounts. Pay a coinsurance or co-payment amount that varies by service for each Medicare beneficiary outpatient hospital service. No co-payment for a single service can be more than the amount of the inpatient hospital deductible.

*In 2015, there may be limits on physical therapy, occupational therapy, and speech-language pathology services. If so, there may be exceptions to these limits.

50

Part B Types of Services Covered There are two kinds of Part B-covered services. They are:  

Medically-necessary services. Services or supplies that are needed to diagnose or treat a Medicare beneficiary’s medical condition and that meets accepted standards of medical practice. Preventive services. Health care to prevent illness or detect it at an early stage, when treatment is most likely to work best (for example, Pap tests, flu shots, and colorectal cancer screenings).

Making the effort to learn what is and is not covered can be important, because many Medicare beneficiaries may get the most benefits by fitting their medical treatments into the covered categories whenever possible.

Types of Common Services Covered Here is a list of common services that Medicare Part B covers: 



Outpatient Hospital Services. Services a Medicare beneficiary gets as an outpatient as part of a doctor’s care. The Medicare beneficiary pays 20% of the Medicare-approved amount for the doctor’s services. The Medicare beneficiary may pay more for a doctor’s care in a doctor’s office. The Medicare beneficiary pays a specified co-payment for each service he/she receives in an outpatient hospital setting. The co-payment cannot be more than the Part A hospital stay deductible ($1,260 in 2015). The Part B Deductible applies ($147 in 2015). Outpatient Medical and Surgical Services and Supplies. For approved procedures (like X-rays, a cast, or stitches). The Medicare beneficiary pays 20% of the Medicare-approved amount for the doctor’s services. The Medicare beneficiary pays a specified co-payment for each service he/she receives in an outpatient hospital setting. For each service, this amount can’t be more than the Part A hospital stay deductible ($1,260 in 2015). The Part B Deductible applies ($147) and the Medicare beneficiary pays all charges for items or services that Medicare doesn’t cover.



Pap Tests and Pelvic Exams (includes clinical breast exam). Checks for cervical, vaginal, and breast cancers. Medicare covers these screening tests once every 24 months, or once every 12 months for women at high risk, and for women of childbearing age who have had an exam that indicated cancer or other abnormalities in the past 3 years. No cost to the Medicare beneficiary for the Pap lab test. The Medicare beneficiary pays 20% of the Medicare-approved amount for Pap test specimen collection, and pelvic and breast exams. If the pelvic exam was provided in a hospital outpatient setting, Medicare beneficiary pays a copayment.



Physical Exam (one-time “Welcome to Medicare” physical exam). A one-time review of the Medicare beneficiary’s health, and education and counseling about preventive services, including certain screenings, shots, and referrals for other care if needed. Medicare will cover this exam if the Medicare beneficiary gets it 51

within the first 12 months they have Part B. The Medicare beneficiary pays 20% of the Medicare-approved amount. In a hospital outpatient setting, the Medicare beneficiary pays a co-payment. When the Medicare beneficiary makes the appointment, they should let the doctor’s office know that they would like to schedule their “Welcome to Medicare” physical exam. 

Physical Therapy. Evaluation and treatment for injuries and diseases that change the Medicare beneficiary’s ability to function when their doctor certifies that they need it. There may be limits on these services and exceptions to these limits. Medicare beneficiary pays 20% of the Medicare-approved amount, and the Part B deductible applies ($147 in 2015).



Pneumococcal Shot. Helps prevent pneumococcal infections (like certain types of pneumonia). Most people only need this preventive shot once in their lifetime. No cost if the doctor or supplier accepts assignment for giving the shot.

 Prescription Drugs (limited). Includes a limited number of drugs such as injections the Medicare beneficiary gets in a doctor’s office, certain oral cancer drugs, drugs used with some types of durable medical equipment (like a nebulizer or infusion pump) and under very limited circumstances, certain drugs the Medicare beneficiary gets in a hospital outpatient setting. The Medicare beneficiary pays 20% of the Medicare-approved amount for these covered drugs. If the covered drugs the Medicare beneficiary gets in a hospital outpatient setting are part of the service he/she receives, they pay the co-payment for the services. However, if the Medicare beneficiary gets other types of drugs in a hospital outpatient setting, what he/she pays depends on whether they have Part D or other prescription drug coverage, whether the Medicare beneficiary drug plan covers the drug, and whether the hospital is in his/her drug plan’s network. Keep in mind that under Part B, the Medicare beneficiary pays 100% for most prescription drugs, unless he/she has Part D or other drug coverage. 

Prostate Cancer Screenings. Helps detect prostate cancer. Medicare covers a digital rectal exam and Prostate Specific Antigen (PSA) test once every 12 months for all men with Medicare over age 50. The Medicare beneficiary pays 20% of the Medicare-approved amount, and the Part B deductible applies for the doctor’s visit. In a hospital outpatient setting, the Medicare beneficiary pays a copayment. The Medicare beneficiary pays nothing for the PSA test.



Prosthetic/Orthotic Items. Including arm, leg, back, and neck braces; artificial eyes; artificial limbs (and their replacement parts); some types of breast prostheses (after mastectomy); and prosthetic devices needed to replace an internal body part or function when the Medicare beneficiary’s doctor orders it. For Medicare to cover prosthetic or orthotic, the Medicare beneficiary must go to a supplier that is enrolled in Medicare. The Medicare beneficiary pays 20% of the Medicare-approved amount, and the Part B deductible applies.



Pulmonary Rehabilitation. Medicare covers a comprehensive program of pulmonary rehabilitation if the Medicare beneficiary has moderate to very severe chronic obstructive pulmonary disease (COPD) and has a referral for pulmonary rehabilitation from the doctor treating his/her chronic respiratory disease. The Medicare beneficiary pays 20% of the Medicare-approved amount if he/she 52

received the service in a doctor’s office. The Medicare beneficiary pays a copayment per session if he/she receives the service in a hospital outpatient setting. 

Rural Health Clinic Services. Includes many outpatient primary care services. Medicare beneficiary pays 20% of the amount charged, and the Part B deductible applies.



Second Surgical Opinions. Covered in some cases for surgery that isn’t an emergency. In some cases, Medicare covers third surgical opinions. Medicare beneficiary pays 20% of the Medicare-approved amount, and the Part B deductible applies.



Smoking Cessation (counseling to stop smoking). Includes up to 8 face-to-face visits in a 12-month period if the Medicare beneficiary is diagnosed with an illness caused or complicated by tobacco use, or he/she takes a medicine that is affected by tobacco. Medicare beneficiary pays 20% of the Medicare-approved amount, and the Part B deductible applies. In a hospital outpatient setting, Medicare beneficiary pays a co-payment.



Speech-Language Pathology Services. Evaluation and treatment given to regain and strengthen speech and language skills including cognitive and swallowing skills when a doctor certifies the Medicare beneficiary’s need for it. There may be limits on these services and exceptions to these limits. Medicare beneficiary pays 20% of the Medicare-approved amount, and the Part B deductible applies.



Surgical Dressing Services. For treatment of a surgical or surgically-treated wound. Medicare beneficiary pays 20% of the Medicare-approved amount for the doctor’s services. Medicare beneficiary pays a fixed co-payment for these services when he/she receives them in a hospital outpatient setting. Medicare beneficiary pays nothing for the supplies. The Part B deductible applies.



Telehealth. Includes a limited number of medical or other health services, like office visits and consultations provided using an interactive two-way telecommunications system (like real-time audio and video) by an eligible provider who is at a location different from the patient’s. Available in some rural areas, under certain conditions, and only if the patient is located at one of the following places: a doctor’s office, hospital, rural health clinic, federally-qualified health center, hospital-based dialysis facility, skilled nursing facility, or community mental health center. Medicare beneficiary pays 20% of the Medicare-approved amount, and the Part B deductible applies.



Tests. Including X-rays, MRIs, CT scans, EKGs, and some other diagnostic tests. Medicare beneficiary pays 20% of the Medicare-approved amount, and the Part B deductible applies. If the test is done at a hospital as an outpatient, Medicare beneficiary pays a co-payment that may be more than 20% of the Medicareapproved amount, but it can’t be more than the Part A hospital stay deductible.



Transplants and Immunosuppressive Drugs. Including doctor services for heart, lung, kidney, pancreas, intestine, and liver transplants under certain conditions and only in a Medicare-certified facility. Medicare covers bone marrow and cornea transplants under certain conditions. Immunosuppressive drugs are covered if Medicare paid for the transplant, or an employer or union group health plan that was required to pay before Medicare paid for the transplant. 53

Medicare beneficiary must have been entitled to Part A at the time of the transplant, and must be entitled to Part B at the time they get immunosuppressive drugs. Medicare beneficiary pays 20% of the Medicare-approved amount, and the Part B deductible applies. Note: Medicare drug plans (Part D) may cover immunosuppressive drugs, even if Medicare or an employer or union group health plan didn’t pay for the transplant. 

Travel (health care needed when traveling outside the United States) (limited). Medicare generally doesn’t cover health care while the Medicare beneficiary is traveling outside the U.S. (the “U.S.” includes the 50 states, the District of Columbia, Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa). There are some exceptions including some cases where Medicare may pay for services that the Medicare beneficiary receives while on board a ship within the territorial waters adjoining the land areas of the U.S. In rare cases, Medicare may pay for inpatient hospital, doctor, or ambulance services your client gets in a foreign country in the following situations: o If an emergency arose within the U.S. and the foreign hospital is closer than the nearest U.S. hospital that can treat the medical condition. If the Medicare beneficiary is traveling through Canada without unreasonable delay by the most direct route between Alaska and another state when a medical emergency occurs and the Canadian hospital is closer than the nearest U.S. hospital that can treat the emergency. o If the Medicare beneficiary lives in the U.S. and the foreign hospital is closer to his/her home than the nearest U.S. hospital that can treat the medical condition, regardless of whether an emergency exists. The Medicare beneficiary pays 20% of the Medicare-approved amount, and the Part B deductible applies.



Urgently-Needed Care. To treat a sudden illness or injury that isn’t a medical emergency. Medicare beneficiary pays 20% of the Medicare-approved amount for the doctor’s services, and the Part B deductible applies.

Types of Preventive Services Covered Here is a list of Medicare-covered “preventive services”:          

Abdominal Aortic Aneurysm Screening Bone Mass Measurement Cardiovascular Screenings Fecal Occult Blood Test Colonoscopy Barium Enema Flexible Sigmoidoscopy Diabetes Screenings Diabetes Self-management Training EKG Screening 54

      

Flu Shots Glaucoma Tests Hepatitis B Shots HIV Screening Mammogram (screening) Medical Nutrition Therapy Services Prostate Cancer Screenings

Type of Services Not Covered It is important to remember Medicare does not cover everything. If a Medicare beneficiary needs certain services that Medicare doesn’t cover, he/she will have to pay out-of-pocket unless they have other insurance to cover the costs. Even if Medicare covers a service or item, the Medicare beneficiary generally will have to pay deductibles, coinsurance, and co-payments. All of these out-of pocket costs can add up to a significant amount of money. Items and services that Medicare doesn’t cover include, but aren’t limited to:       

Long-term care, Routine dental care, Dentures, Cosmetic surgery, Acupuncture, Hearing aids, and Exams for fitting hearing aids.

Part B Enrollment Periods Enrollment in Part B (similar to Part A) can happen automatically or during three different types of enrollment periods. They are:    

Automatic Enrollment Period; Initial Enrollment Period; General (Open) Enrollment Period; and Special Enrollment Period

Automatic Enrollment Period (AEP) If the beneficiary is receiving Social Security benefits prior to age 65, they should be automatically enrolled in Part B. Coverage begins the first day of their birth month if they are 65 years old, or the first day of the 25th month of recurring benefits 

The beneficiary will receive a Medicare card in the mail from Social Security three months before their 65th birthday notifying them of enrollment in Medicare 55



Part A and Part B. If they do not want Part B, they must return the card appropriately marked and they will be enrolled for Part A coverage only. If no card is received, the beneficiary should contact their nearest Social Security Administration office prior to their 65th birthday.

Initial Enrollment Period The initial enrollment period applies if they are just turning 65 and have not been receiving Social Security benefits. The seven-month initial enrollment period begins three months prior to their birth month and ends three months following their birth month (see Table 3.4). Table 3.4 Initial Enrollment Period Month 1

Month 2

Month 3

Birth Month

Month 5

Month 6

Month 7

The month of enrollment determines when Medicare coverage becomes effective.   

If the beneficiary enrolls during the three months prior to their birth month they are covered beginning on the first day of their birth month. If the beneficiary enrolls during their birth month, coverage begins two months later. If the beneficiary enrolls during the second or third months after their birth month, coverage begins three months later.

General Enrollment Period The general (open) enrollment period is an annual enrollment opportunity if the beneficiary did not sign up for Part B during the initial enrollment period. General enrollment runs from January 1 through March 31st each year (see Table 3.5). Table 3.5 General Enrollment Period January

 

February

March

Coverage begins July 1

If the beneficiary enrolls during the general (open) enrollment period, coverage begins on July 1 of that year. If the beneficiary waits until after the general enrollment period to sign up for Part B he/she will be charged with a late enrollment fee (discussed below).

Special Enrollment Period (SEP) The special enrollment period will apply if the beneficiary continues to work past age 65 and is covered under an employer group health plan (EGHP). The beneficiary must notify Social Security of their intent to remain covered by the employer group health plan (EGHP). The beneficiary may enroll at any time after age 65 but he/she must enroll no 56

later than eight (8) months after the month of their retirement or of the person who is working. The beneficiary also has the option of enrolling anytime during the year while he/she is still working if they decide they want Medicare coverage or if their EGHP is discontinued. If they enroll in any other month, coverage begins the month following. If they are eligible for special enrollment, they are not penalized with a 10 percent surcharge provided they enroll no later than eight months after the month of retirement. This Special Enrollment Period doesn’t apply to people with End-Stage Renal Disease (ESRD). If the beneficiary is receiving Medicare because of End-Stage Renal Disease (ESRD), they can sign up for Part B when they sign up for Part A. If he/she delays signing up for Part B, they can only get it during the general enrollment period, and they will have to pay a late enrollment penalty. In addition, the SEP does not apply for those workers who use COBRA. If an individual signs up for COBRA and waits until his/her coverage expires to enroll in Part B they will be disqualified from using the eight-month grace period. Why? Because the law states that the individual must have been covered by an employer group health plan. COBRA is not an employer group health plan. Instead, the individual now must wait to sign up during the general (open) enrollment period, which is Jan. 1 to March 31 each year, and their coverage won’t begin until July 1 of that year. They also get hit with a late penalty, an extra charge added permanently to their Part B premiums (discussed below).

Part B Late Enrollment Fees Similar to Part A, if the beneficiary does not sign up for Part B when he/she is first eligible, he/she may have to pay a late enrollment penalty for as long as they have Medicare. The monthly premium for Part B may go up 10% for each full 12-month period that they could have had Part B, but didn’t sign up for it. Usually, the beneficiary does not have to pay a late enrollment penalty if they had signed up for Part B during the special enrollment period. Note: If your client is age 65 or older, after they sign up for Part B, they have a 6-month Medigap open enrollment period which gives them a guaranteed right to buy a Medigap (Medicare Supplement Insurance) policy.

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Chapter 3 Review Questions 1. Medicare Part B is referred to as: ( ( ( (

) A. Supplemental Medical Insurance ) B. Hospital Insurance ) C. Medical Advantage ) D. In-patient Care

2. Which of the following is responsible for handling eligibility and enrollments for Part B? ( ( ( (

) A. Centers for Medicare and Medicaid ) B. State Medicaid Departments ) C. Department of Health and Human Services ) D. Social Security Administration

3. Which of the following services will not be covered by Medicare Part B? ( ( ( (

) A. Dental care ) B. Second Surgical Opinions ) C. Pap tests ) D. Surgical dressing services

4. Under Part B, what is the beneficiary’s coinsurance percentage amount? ( ( ( (

) A. 75% ) B. 80% ) C. 20% ) D. 25%

5. When will Part B coverage begin if a beneficiary signs up during the general enrollment period (GEP)? ( ( ( (

) A. April 1 of that year ) B. June 1 of the following year ) C. July 1 of that year ) D. September 1 of the following year

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CHAPTER 4

MEDICARE ADVANTAGE PLANS (PART C) Overview Medicare Advantage (MA), also known as Medicare Part C, is the private insurance option for Medicare beneficiaries. Since the 1970s, Medicare beneficiaries have had the option to receive their Medicare benefits through private health plans, mainly health maintenance organizations (HMOs), as an alternative to the federally administered traditional (Original) Medicare program (Parts A and B). MA plans provide all of the hospital and related services covered by Medicare Part A as well as the physician and outpatient services covered by Part B, and some MA plans include prescription drugs, known as MA-PD. Medicare payments to MA plans are projected to total $154 billion in 2014, accounting for 26% of total Medicare spending (CBO May 2013 Medicare Baseline). Over the past decades, Medicare payment policy for plans has shifted from one that produced savings to one that focused more on expanding access to private plans and providing extra benefits to Medicare private plan enrollees. These policy changes resulted in Medicare paying private plans more per enrollee than the cost of care for beneficiaries in traditional Medicare, on average (MedPAC 2010). In addition, the Affordable Care Act (ACA) of 2010 produced another shift in payment policy by reducing federal payments to Medicare Advantage plans over time, bringing them closer to the average costs of care under the traditional Medicare program. It also provided for new bonus payments to plans based on quality ratings, beginning in 2012, and required plans beginning in 2014 to maintain a medical loss ratio of at least 85%, restricting the share of premiums that Medicare Advantage plans can use for administrative expenses and profits. In this chapter, we will review Medicare Advantage (MA)(also known as Part C) program, it’s history, the various types of MA Plans offered, the services provided, eligibility requirements, and enrollment dates.

Learning Objectives Upon completion of this chapter, you will be able to:    

Relate the basic rules of Medicare Advantage plans; Describe the various types of Medicare Advantage plans; Distinguish the differences between HMOs, PPOs, and MSAs; Determine the coverage, and eligibility rules for the various MA plans; 59

  

Outline the costs, premiums, deductibles, and co-payments; Identify the reasons why a Medicare Beneficiary may want to choose an MA Plan instead of Original Medicare (Part A & Part B); and Observe the enrollment dates.

History of MA Plans The original form of what is now known as a Medicare Advantage (MA) plan was the Medicare risk contract that was part of the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982. The risk contract, which are still in use today in modified or evolved form, utilize a methodology wherein an HMO assumes all the insurance risk from the government and is paid a fixed monthly payment by the Centers for Medicare and Medicaid Services (CMS) to cover all of the costs of electing beneficiaries associated with the traditional Medicare benefit, in addition to frequently enhanced benefits such as prescription drugs (before the advent of Medicare Part D in 2003—discussed in Chapter 5), eyeglasses, reduced co-pays, and deductibles. The HMO often then contracts with provider organizations, such as physician groups or integrated health systems, on a prepaid or capitated basis to provide all health services to the enrolled Medicare beneficiaries, with the HMO retaining a portion of the monthly payment for itself along with sufficient insurance risk to qualify as the “insurer” under relevant federal and state law. These risk contracts can be, and often are, very profitable for both the HMO and to the provider organizations.

The Balanced Budget Act of 1997 The Balanced Budget Act of 1997 (BBA) created a new Part C of the Medicare program, known as “Medicare + Choice” (M+C), that significantly expanded the health care options available to Medicare beneficiaries. Beginning January 1, 1999, eligible individuals could begin to receive Medicare benefits through enrollment in one of an array of private health plan choices beyond the Original Medicare Program (Parts A and B) or the plans that were available through Managed Care Organizations under section 1876 of the Social Security Act (referred to as 1876 cost plans). Prior to BBA, Medicare risk contractors received 95 percent of the adjusted average per capita cost (AAPCC) of fee-for-service (FFS) cost of traditional Medicare in their county of operations, which was supposed to save the federal government 5 percent. However, the AAPC reflected only adjustments for age, sex, institutional Medicaid eligibility, and disabled status. These criteria were shown in research studies to account for only 1 percent of the variation in Medicare spending for beneficiaries. Further, because the HMOs were shown to enroll healthier elderly insureds as compared to the traditional Medicare program, the risk contract actually cost the federal government money, rather than saving it the 5 percent implied in the 95 percent formula. The effect of this original formula was to increase payments to Medicare HMOs at the same rate as spending in traditional Medicare, often resulting in substantial profits. After the BBA, the payment was linked to a formula that generally resulted in Medicare risk contractors receiving an annual increase from the 1997 base year of only 2 percent per 60

annum. Subsequent legislation granted a special one-time increase of 3 percent in 2000. Medical contractors under the BBA, and hospital services in particular increased more rapidly. This eroded some of the profits earned by HMOs and provider organizations that participated in the program. In some instances, significant losses were incurred and the providers dropped out of the risk contract program.

Medicare and the Medicare Modernization Act of 2003 The Medicare+ Choice program was renamed Medicare Advantage and significantly expanded to more traditional private market insurance programs in the 2003 Medicare Modernization Act (MMA) signed into law by President George W. Bush, including private fee-for-service plans and preferred provider organizations (PPOs—described below). Medicare HMOs under the Medicare+ Choice program declined steadily after the BBA. According to the House/Senate Conference Report on 2003’s Medicare Modernization Act, enrollment fell from 6.2 million beneficiaries in 1998 to 4.6 million beneficiaries in November 2003 and the number of plans decreased from 346 to 155. As a result of the MMA legislation, commencing in 2004 all plans were paid at a rate at least as high as the rate for traditional FFS Medicare (before giving effect to the severity- of-illness adjusters), as recommended by the Medicare Payment Advisory Council (MedPAC). After 2004, private plans’ capitation rates grew at the same rates as FFS Medicare. Under the MMA, existing Medicare+ Choice plans were paid a per capita rate (excluding severity of illness adjusters) by county, set at the highest of three amounts:   

A minimum payment (or floor) rate. A rate calculated as a blend of an area-specific (local) rate and a national rate. A rate reflecting a minimum increase from the previous year’s rate (currently 2 percent).

Health plans and providers had been confronted with a 2 or 3 percent annual increase in revenue while costs had been increasing at double-digit rates. This was compounded in large part by the negotiating strategy of hospitals which, dissatisfied with fee-for-service Medicare inpatient and outpatient rates, attempted to recover these losses through negotiations with the health plans in capitated Medicare and commercial insurance products Effective in 2006, the MMA requires MA plans to submit bids to the government that provide an estimate of what the per enrollee cost for the Medicare-covered services described earlier would be in each county that they operate in. If the bid exceeds the benchmark established by CMS for that particular county, beneficiaries enrolling in the MA plan are charged a premium for the difference and the federal government gets the other 25 percent as a savings. The plan was, in turn, required to rebate the 75 percent and enrollee benefits.

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Under the MMA, plans must provide reduced cost-sharing, additional benefits, or reduced Part B premiums valued at 100 percent of the difference between the projected cost of providing Medicare-covered services to its commercial population and the expected revenue for Medicare enrollees. The legislation also requires a plan to provide an enrollee with a monthly rebate equal to 75 percent of any average per capita savings, based upon the adjusted community rate (ACR) proposal that health plans are required to submit. The beneficiary rebate can be credited toward the provision of supplemental health care benefits (including a reduction in cost sharing, additional benefits or a credit toward any plan monthly supplemental beneficiary premium). The prescription drug premium, or the Part B premium—the remaining 25 percent of the average per capita savings will be retained by the federal government.

Medicare Advantage Benefits Next let’s discuss some of the benefits for choosing a Medicare Advantage plan. 





Coverage. Medicare Advantage plans at a minimum cover everything offered by traditional Medicare (Parts A and B). They also may offer additional benefits not covered by traditional Medicare like dental care, hearing and vision screening, prescription drug programs, and other services that would otherwise have to be selected under a supplement insurance policy. Cost. While getting extra coverage benefits, the enrollees out-of-pocket costs are likely to be less with a Medicare Advantage plan than if they chose a traditional Medicare and a Medigap policy. Everyone in a Medicare Advantage plan must pay the same monthly premium as those enrolled in Medicare Part B. From that point, an enrollee’s cost will depend on the benefits provided by the plan. There are some plans that don’t require the enrollee to pay an extra premium, but have deductible and copayment requirements. Other Medicare Advantage plans may charge a premium, but have lower deductibles and copayments (discussed later in the chapter). In addition, Medicare enrollees should also compare each plan’s outof-pocket maximum costs, the most an enrollee who stays within a plan’s network can pay out-of-pocket. There is no cap on out-of-pocket expenses for someone who chooses Original Medicare. However, Medicare rules limit medical and hospitalization to $6,700 per year for MA plans. Convenience. Medicare Advantage plans offer more convenience than traditional Medicare, Medigap and Part D coverage. By having all health coverage under one umbrella, an enrollee doesn’t have to worry about coordinating benefits between different plans and providers - all statements, bills, etc. will come from only one source.

As with anything else in life, Medicare Advantage plans may not meet your all of your client’s needs. When evaluating their Medicare options, however, apply the three C’s (coverage, cost, and convenience) to see whether traditional Medicare measures up to their particular needs.

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MA Enrollment According to the Kaiser Foundation, in 2013, the majority of the 52 million people on Medicare were enrolled in the Traditional Medicare program (Part A and Part B), while about 28 percent of Medicare beneficiaries nationally are now enrolled in MA plans, the share varies by state, ranging from 49 percent in Minnesota to less than 4 percent in Iowa and Alaska. Reports indicate that nearly 1.5 million seniors joined a MA plan in 2013. And since 2004, the number of beneficiaries enrolled in private plans has almost tripled from 5.3 million to 15.7 million in 2014 (see Table 4.1). Table 4.1 Total Medicare Private Health Plan Enrollment, 1999 – 2014 In millions 18 16 14 12 10 8 6 4 2 0

8.4 6.9

6.8

6.2

5.6

5.3

5.3

5.6

9.7

10.5 11.1

11.9

13.1

14.4

15.7

6.8

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Note: PFFS is Private-fee-for-service plans, PPOs are preferred Provider Organizations, and HMOs are Health Maintenance Organizations. Others include MSAs, cost plans and demonstration plans. Includes enrollees in Special Needs Plans as well as other Medicare Advantage Plans. Source: MPR KFF analysis of the Centers for Medicare and Medicaid Services (CMS) Medicare Advantage enrollment files, 2014; Kaiser Family Foundation at: http://kff.org/medicare/factsheet/medicare-advantage-fact-sheet/

MA Plan Types Medicare contracts with insurers to offer the following different types of health plans:    

Health Maintenance Organizations (HMO) Plans Preferred Provider Organization (PPO) Plans Medical Savings Account (MSA) Plans Special Needs Plans (SNP)

Other less common types of MA plans include: 

Point of Service (POS) Plans—similar to HMOs, but your client may be able to get some services out-of –network for a higher cost. 63



Provider Sponsored Organizations (PSO)—Plans run by a provider or group of providers. In a PSO, your client will usually get their health care from the providers who are part of the plan.

Local HMOs and PPOs contract with provider networks to deliver Medicare benefits. HMOs account for the majority (64%) of total Medicare Advantage enrollment in 2014; local PPOs, account for 23% of all Medicare Advantage enrollees (see Figure 4.2). Figure 4.2 Distribution of Enrollment in MA Plans by Plan Type, 2014 PFFS, 2%

Other, 3%

Regional PPOs, 8%

Local PPOs,  23%

HMOs, 64%

Total Medicare Advantage Enrollment, 2014 = 15.7 million  Note: PFFS is Private-fee-for-service plans, PPOs are preferred Provider Organizations, and HMOs are Health Maintenance Organizations. Others include MSAs, cost plans and demonstration plans. Includes enrollees in Special Needs Plans as well as other Medicare Advantage Plans. Source: MPR KFF analysis of the Centers for Medicare and Medicaid Services (CMS) Medicare Advantage enrollment files, 2014; Kaiser Family Foundation at: http://kff.org/medicare/factsheet/medicare-advantage-fact-sheet/

Next, let’s review each of these plans in greater detail.

Health Maintenance Organizations (HMO) Plans An HMO is a managed care plan that provides to its members, who are also Medicare beneficiaries, either directly or through arrangement with others, at least all the Medicare covered services that are available to Medicare beneficiaries who are not enrolled in the HMO who reside in the geographic area serviced by the HMO. Some HMOs also provide services not covered by Medicare, either free to the Medicare beneficiary (that is, funded out of the payment Medicare makes to the HMO) or for an additional charge. HMOs typically charge a set monthly premium and nominal co-payments for services instead of Medicare’s coinsurance and deductibles. According to the Kaiser Medicare Fact Sheet, HMOs account for the majority (64%) of total Medicare Advantage enrollment in 2014. Each HMO managed care plan has its own network of hospitals, skilled nursing facilities, home health agencies, doctors and other professionals. Depending on how the plan is organized, services are usually provided either at one or more centrally located health facilities or in the private practice offices of the doctors and other health care 64

professionals that are part of the plan. As a member the beneficiary generally must receive all covered care through the plan or from health care professionals referred to by the plan. Most HMO managed health care plans will allow the beneficiary (enrollee) to select a primary care physician (PCP) from those that are part of the plan. If they do not make a selection, one will be assigned. The primary care physician (PCP) is responsible for managing their medical care, including admitting them, if necessary, to a hospital or referring them to specialists. The beneficiary (enrollee) will be allowed to change their primary care physician as long as another primary care physician affiliated with the plan is selected. Before they consider enrolling in a HMO managed care plan, the beneficiary (enrollee) should find out whether the plan has a “risk” or a “cost” contract with Medicare. There is an important difference. 



Risk Plans. These plans have “lock-in” requirements. This means that the beneficiary (enrollee) generally will be locked into receiving all covered care through the plan or through referrals by the plan. In most cases, if the beneficiary (enrollee) receives services that are not authorized by the plan, neither the plan nor Medicare will pay. The only exception that is recognized by all Medicarecontracting plans is for emergency services, which the beneficiary (enrollee) may receive anywhere in the United States, and for services they urgently need when temporarily out of the plan’s service area. Cost Plans. These plans do not have “lock-in” requirements. If the beneficiary (enrollee) chooses to enroll in a cost plan, they can either go to health care providers affiliated with the plan or go outside the plan. If the beneficiary (enrollee) chooses to go outside the plan, the plan probably will not pay but Medicare will pay its share of charges it approves. The beneficiary (enrollee) will be responsible for Medicare’s coinsurance, deductibles, and other charges, just as if they were receiving care under the regular Medicare program.

Preferred Provider Organization (PPO) Plans Preferred provider plans refers to physicians, hospitals, and other healthcare providers with whom the health plan has established a contractual agreement for fees. PPOs generally permit a beneficiary (enrollee) to see both in-network and out-of-network providers and, in contrast to HMOs, enrollees do not have to choose a Primary Care Physician (PCP). According to the Kaiser Medicare Fact Sheet, local PPOs will account for 23% of all Medicare Advantage enrollees in 2014. A Medicare PPO plan is offered by private insurance companies. Medicare will pay a set amount of money every month to the private insurance company that provides health care to Medicare beneficiaries who choose an MA PPO plan. Some MA PPO plans offer prescription drug coverage. Some plans also offer additional benefits, such as vision and hearing screenings, disease management, and other services 65

not covered under Original Medicare. Monthly premiums and how much they will pay will vary depending on the plan they choose. There are two types of MA PPO Plans. They are: 



Regional Preferred Provider Organizations Plans—these plans serve one of the 26 regions established by Medicare (these may be a single state or multi-state area). Local Preferred Provider Organizational Plans—these plans serve the counties the PPO plan chooses to include in its service area.

Regional PPO plans have added protection for Medicare Part A (HI) and Part B (Medical Insurance) benefits. There will be an annual limit on their out-of-pocket costs. This limit varies depending on the plan. According to the Kaiser Medicare Fact Sheet, these Regional PPOs will account for 8% of Medicare Advantage enrollment in 2014. Note: Medicare beneficiaries can get Medicare prescription drug coverage from their Medicare PPO plan (if their plan offers prescription drug coverage). Insurance companies offering a MA PPO plan are required to offer a plan that includes Medicare prescription drug coverage. If they join a MA PPO plan that doesn’t include such coverage, they are not allowed to join a Medicare prescription drug plan. Table 4.3 Comparison of HMOs, PPOs and Original Medicare Plans Original Medicare Premiums: Will the beneficiary (enrollee) have to pay more than the monthly Part B premium to be in the plan? Extra benefits: Does the plan cover more benefits than Medicare Part A and Part B?

Providers: Can the beneficiary (enrollee) go to providers who aren’t part of the plan’s network?

HMO

PPO

Generally, yes

Generally, yes

Generally, yes

Generally, no

Generally, yes

Yes, but if the Medicare beneficiary (enrollee) goes out-of-network providers, he/she will usually have to pay more.

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No No, unless your client buys a Medigap policy to covers services Original Medicare doesn’t cover

Yes

Private Fee-for-Service Plans (PFFS) A Private Fee-For-Service (PFFS) plan is a Medicare Advantage (MA) health plan, offered by a State licensed risk bearing entity, which has a yearly contract with the Centers for Medicare & Medicaid Services (CMS) to provide beneficiaries (enrollee) with all their Medicare benefits, plus any additional benefits the company decides to provide. The PFFS plan:    

Pays providers on a fee-for-service basis without placing the providers at financial risk; Varies provider payment rates only based on the specialty or location of the provider or to increase utilization of certain preventive or screening services; Does not restrict members' choices among providers that are lawfully authorized to furnish services and accept the plan's terms and conditions of payment; and Does not permit the use of prior authorization or notification.

PFFS plans can offer full or partial networks of providers, or, in certain cases, they may not use a network of providers at all. No matter what kind of network a PFFS plan provides, its enrollees can see any provider who is eligible to receive payment from Medicare and agrees to accept the plan's terms and conditions of payment. According to the Kaiser Medicare Fact Sheet, PFFS enrollment increased ten-fold from 0.2 million enrollees in 2005 to 2.2 million in 2009, but has since declined to 0.3 million enrollees in 2014, or 2% of all Medicare Advantage enrollees.

Special Needs (SNP) Plans Medicare Special Needs Plans (SNPs) are a type of Medicare Advantage Plan that is restricted to beneficiaries who:   

Are dually eligible for Medicare and Medicaid; Live in long-term care institutions (or would otherwise require an institutional level of care; or Have certain chronic conditions.

Since 2006, the number of SNP enrollees have increased from 0.5 million to 1.9 million enrollees in 2014; enrollment in SNPs for dual eligible accounts for 82% of total enrollment in SNPs. Medicare SNPs provide their members with all Medicare Part A (Hospital Insurance), Medicare Part B (Medical Insurance) services, and Medicare prescription drug coverage (Part D). Medicare SNPs were created to give certain groups of people better access to Medicare by enrolling in a plan designed to meet their unique needs. An individual can join a Medicare SNP if they have Medicare Part A and Part B, live in the plan’s service area, and meet one of the following requirements:

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  

He/she has one or more specific chronic or disabling conditions like diabetes, congestive heart failure, a mental health condition, or HIV/AIDS, Live in an institution (like a nursing home), or requires nursing care at home, or Have both Medicare and Medicaid.

MA SNPs limits their membership to people in one of these groups, or a subset of these groups. For example, a MA SNP may be designed to serve only members who have been diagnosed with congestive heart failure. The plan would include access to a network of providers who specialize in treating congestive heart failure, and it would feature clinical case management programs designed to serve these special needs members with this condition. The plan’s formulary would be designed to cover the drugs that are usually used to treat congestive heart failure. If they join this type of plan they would get benefits specially tailored to their condition and have all their care coordinated through the MA SNP. MA SNPs are approved by Medicare and run by private companies. When they join a Medicare SNP, they will get all of their Medicare hospital and medical health care services through that plan, including Medicare prescription drug coverage. Because they offer all health care services through a single plan, MA SNPs can help them manage their different services and providers. The plan can make it easier for them to follow their doctor’s orders related to diet and prescription drug use. MA SNPs for people with both Medicare and Medicaid may also help them get help from the community and coordinate many of their Medicare and Medicaid services. Just like with other Medicare health plans, if he/she becomes a member of a MA SNP, he/she may have to see providers who belong to the plan or use certain hospitals to get covered services. The MA SNP will still provide coverage for emergency or urgently needed care, even if they are out of the plan’s service area. In most cases, they will need referrals to see specialists. If he/she becomes a member of a MA SNP and he/she dies not have both Medicare and Medicaid (or get other help from their state paying for their Medicare premiums), their exact costs will vary depending on the plan they chose. In general, they will pay the following:      

The monthly Medicare Part B premium. Any additional monthly premium the MA SNP charges above the Medicare Part B premium for Medicare Part A and B services. Any additional monthly premium the MA SNP charges for prescription drug benefits. Any additional monthly premium the MA SNP charges for extra benefits. Any plan deductible, coinsurance, or co-payment amounts the MA SNP charges. For example, the plan may charge a set co-payment amount, like $10 or $20, every time they see a doctor. Their costs will also depend on the type of health care services they need, how often they get health care services, whether they follow the plan’s rules, and what their plan charges for any extra benefits they may need. If they have Medicare and 68

Medicaid, the MA SNP can’t charge them higher cost-sharing amounts than they would pay in Original Medicare. All MA SNPs include Medicare prescription drug coverage (Part D). Usually, members pay a co-payment for their prescriptions. If the beneficiary has limited income and resources, they may be able to get Extra Help paying their prescription drug coverage costs. If they qualify they may be able to get their prescriptions filled and pay little or nothing out of pocket. There is no cost or obligation to apply for Extra Help, so anyone who thinks they might qualify should apply. For more detailed information about MA MSA plans you or your clients can go to: www.medicare.gov/Publications/Pubs/pdf/11302.pdf and download the booklet “Your Guide to Medicare Special Needs Plans”.

Medical Savings Accounts MA MSA Plans (offered by private companies) are one of the newest Medicare Advantage plan options available for getting Medicare healthcare benefits. Joining a Medicare MSA Plan is optional and is only an option if your client lives in an area that offers Medicare MSA Plans. If the beneficiary chooses this type of plan it will give them some control of their own health care dollars. MA MSA Plans are similar to Health Savings Account (HSA) plans available outside of Medicare. If they choose a MA MSA Plan, they are still in the Medicare program and are entitled to all Medicare benefits. MA MSA plans have two parts: 

Health plan. The first part of an MA MSA Plan is a special type of highdeductible plan. The plan will only begin to cover their costs once they meet a high yearly deductible, which varies by plan.; and



Savings account. The second part of an MA MSA plan is a special type of savings account. They would set up a special account with either a bank or a brokerage account in which their plan selects. The MA plan deposits money into their account (Note: They cannot add any of their personal funds into this account). When they need health care services they will withdraw from this savings account to pay their health care costs before they meet the deductible. When they use the money from this savings account (deposits and interest) to pay for medical expenses, the funds withdrawn are tax-free, but only Medicarecovered Part A and Part B services that count towards their deductible. If they use the money in this savings account for expenses other than qualified medical expenses, they will be taxed as income and there may be an additional penalty of 50%.

MA plans provide the beneficiary with Medicare Part A and Part B coverage. If they decide to join a MA MSA Plan, they will get their Medicare-covered health care through 69

a high-deductible MA plan (this plan will only pay for Medicare-covered services once they have reached their deductible). They won’t have to pay a monthly premium for this plan because it’s a high-deductible type of plan. However, they will have to continue to pay the Medicare Part B premium. Before they meet the deductible, they will be responsible for paying the costs for any Medicarecovered services. The beneficiary then has the option of using the funds in their savings account to pay these bills. Once they meet the plan’s deductible, the plan pays for Medicare-covered services. The high yearly deductible can vary by plan. (The yearly deductible is the amount of Medicare-covered health care costs they must have paid for out-of-pocket or by using the funds in their account before their plan coverage begins.) It’s important to know the amount of the deductible before they join. Some plans may cover extra benefits for an extra cost, like dental, vision, or long-term care not otherwise covered by Medicare. Note: MA MSA Plans do not cover Medicare Part D prescription drugs. If he/she joins a Medicare MSA Plan, he/she can also join a Medicare Prescription Drug Plan to add drug coverage. People with both Medicare Part A and Part B can generally join a MA MSA Plan. They cannot join a MA MSA Plan if any of the following apply to them:     

 

They have health coverage that would cover the Medicare MSA Plan deductible, including benefits under an employer or union group health plan. They get benefits from the Department of Defense (TRICARE) or the Department of Veterans Affairs. They are a retired Federal government employee and part of the Federal Employee Health Benefits Program (FEHBP). They are eligible for Medicaid (a joint Federal and state program that helps with medical costs for some people with limited income and resources). They have End-Stage Renal Disease (permanent kidney failure requiring dialysis or a kidney transplant). However, if they are a former enrollee of a MA Plan that left the Medicare Program and they haven’t joined another Medicare Advantage Plan, they can join a MA MSA Plan even if they have End-Stage Renal Disease. They are currently getting hospice care. They live outside the United States more than 183 (total) days a year. This is a very basic explanation of Medicare MSA Plans. There are rules about MA MSA Plans, like how they can be used, when money is taxed, and when the beneficiary can join or leave the plan.

For more detailed information about MA MSA plans you or your clients can go to: www.medicare.gov/Publications/Pubs/pdf/11206.pdf and download the booklet “Your Guide to Medicare Medical Savings Account Plans”.

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Payments to Medicare Private Plans Medicare pays MA plans a capitated (per enrollee) amount to provide all Part A and B benefits. In addition, Medicare makes a separate payment to plans for providing prescription drug benefits under Medicare Part D. Prior to the BBA of 1997, Medicare paid plans 95% of average traditional Medicare costs in each county because HMOs were thought to be able to provide care more efficiently than could be provided in traditional Medicare. These payments were not adjusted for health status, and HMOs typically enrolled beneficiaries who were healthier than average. Beginning in the late 1990s, Congress revised the payment formula to attract more plans throughout the country, particularly in rural and certain urban areas. The BBA of 1997 established a payment floor, applicable almost exclusively to rural counties. The Benefits Improvement and Protection Act (BIPA) of 2000 created payment floors for urban areas and increased the floor for rural areas. The MMA of 2003 increased payments across all areas. Since 2006, Medicare has paid plans under a bidding process. Plans submit “bids” based on estimated costs per enrollee for services covered under Medicare Parts A and B; all bids that meet the necessary requirements are accepted. The bids are compared to benchmark amounts that are set by a formula established in statute and vary by county (or region in the case of regional PPOs). The benchmarks are the maximum amount Medicare will pay a plan in a given area. If a plan’s bid is higher than the benchmark, enrollees pay the difference between the benchmark and the bid in the form of a monthly premium, in addition to the Medicare Part B premium. If the bid is lower than the benchmark, the plan and Medicare split the difference between the bid and the benchmark; the plan’s share is known as a “rebate,” which must be used to provide supplemental benefits to enrollees. Medicare payments to plans are then adjusted based on enrollees’ risk profiles. The ACA of 2010 revised the methodology for paying plans and reduced the benchmarks. For 2011, benchmarks were frozen at 2010 levels. Reductions in benchmarks will be phased-in over 2 to 6 years between 2012 and 2016. By 2017, when the new benchmarks are fully phased-in, the benchmarks will range from 95% of traditional Medicare costs in the top quartile of counties with relatively high per capita Medicare costs (e.g., Miami-Dade), to 115% of traditional Medicare costs in the bottom quartile of counties with relatively low Medicare costs (e.g., Boise). The ACA specified that plans with higher quality ratings would receive bonus payments added to their benchmarks, beginning in 2012. The ACA also reduced rebates for all plans, but allowed plans with higher quality ratings to keep a larger share of the rebate than plans with lower quality ratings. A CMS demonstration was implemented in 2012 that superseded bonuses specified by the ACA, raised the size of the bonus payments, and increased the number of plans that would receive bonus payments, providing an additional $8 billion in bonuses between 2012 and 2014.

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Supplemental and Prescription Drug Benefit Medicare Advantage plans are paid to provide all Medicare benefits. In addition, if they receive rebates, they are required to use these payments to provide additional benefits, such as eyeglasses, or reduce premiums or cost sharing for covered benefits. Medicare Advantage plans are generally required to offer at least one plan that covers the Part D drug benefit. In 2014, 83% of Medicare Advantage plans offer prescription drug coverage, and 50% provide some coverage in the gap. All Part D enrollees receive a 50% discount on brand-name drugs in the gap, beginning in 2011. Since 2011, all plans have been required to limit beneficiaries’ out-of-pocket spending to no more than $6,700.

Medicare Advantage Premiums The average premium for enrollees of Medicare Advantage Prescription Drug plans will be $39 per month in 2014, weighted by 2013 enrollment, if enrollees remain in the same plan (see Table 4.4). This reflects a 14% increase in premiums from 2013. Premiums were lower for HMOs and regional PPOs than for local PPOs and PFFS plans; we do not know whether cost sharing for individual services has changed and thus do not know to what extent enrollees’ out-of-pocket expenses have changed. Table 4.4 Weighted Average Monthly Premiums for Medicare Advantage Prescription Drug Plans, Total and by Plan Type, 2013-2014 2013

2014 (Weighted by 2013 Enrollment)

$70

$66 

$64  $56 

$60

$56 

$50 $40

$35 

$39  $27 

$30

$36 

$31 

$28 

$20 $10 $0 Total

HMO

Local PPO

PFFS

regional PPOs

Note: Excludes SNP, employer-sponsored (group) plans, demonstrations, HCPs, PACE plans, and plans for Special populations (e.g., Mennonites). Source: MPR/KFF of CMS’s Landscape Files for 2013-2014; CMS’s 2014 part C and D Crosswalk File and September 2013 Enrollment file

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Choosing a MA Plan To evaluate an MA Plan, the enrollee should get a complete written explanation of its coverage, costs, and procedures. These are usually contained in a printed brochure called a Summary of Benefits. Also, the enrollee should receive a chart showing premiums, copayments and the coverage of services. An excellent and free source of information about managed care plans is the State Health Insurance Assistance Program (SHIP), in some places called the Health Insurance Counseling and Advocacy Program (HICAP). You can visit: www.hapnetwork.org to find a local office near your client and get additional information about Medicare Advantage plans. Remember, if an enrollee joins a Medicare Advantage Plan, he/she will leave the Medicare program altogether. The insurance company that runs the managed care plan gets a monthly payment from Medicare on their behalf. The plan then approves or denies all of their medical coverage. If it denies coverage, it also decides any appeals. Also, if an enrollee leaves a managed care plan, he/she is always permitted to rejoin Original Medicare. But if they return to Medicare after the first year following their initial Medicare eligibility, they may find that not all Medigap supplemental insurance policies will accept them. And they may be able to join another managed care plan only during open enrollment period as discussed below. Another tool available to access detailed cost and benefit information about each Medicare Advantage Plan is the Medicare Options Compare Website (www.medicareoptions.info).

MA Enrollment Periods Enrolling in a Medicare Advantage plan is optional. However, the beneficiary must be entitled to both parts A and B. There are specific times when a beneficiary can sign up for Medicare Advantage (Part C), or make changes to coverage they already have:   

Initial Enrollment Period: When a beneficiary first becomes eligible for Medicare or when he/she turns 65, during their Initial Enrollment Period, also known as the Initial Coverage Election Period (ICEP). (See Table 4.5). Open Enrollment Period: During certain open enrollment periods that happen every year (see Table 4.6). Special Enrollment Period: Under certain circumstances that qualify the beneficiary for a Special Enrollment Period (SEP). (See Table 4.7).

.

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Table 4.5 Initial Enrollment Period

If this describes you…

You can…

At this time…

You’re newly eligible for Medicare because you turn 65.

Sign up for a Medicare Advantage Plan.

During the 7-month period that starts 3 months before the month you turn 65, includes the month you turn 65, and ends 3 months after the month you turn 65.

You’re newly eligible for Medicare because you’re disabled (under 65).

Sign up for a Medicare Advantage Plan.

During the 7-month period that starts 3 months before your 25th month of disability and ends 3 months after your 25th month of disability.



During the 7-month period that starts 3 months before the month you turn 65, includes the month you turn 65, and ends 3 months after the month you turn 65.

Note: This doesn’t apply if you have ESRD.

You’re already eligible for Medicare because of a disability, and you turn 65.

You HAVE Medicare Part A coverage, and you enroll in Medicare Part B during the Part B General Enrollment Period (January 1–March 31).

Sign up for a Medicare Advantage.  Switch from your current Medicare Advantage Plan to another Plan.  Drop a Medicare Advantage Plan completely.

You can sign up for a Medicare Advantage Plan (with or without prescription drug coverage).

If you sign up for a Medicare Advantage Plan during this time, you can drop that plan at any time during the next 12 months and go back to Original Medicare. Between April 1–June 30

Each year, a beneficiary has a chance to make changes to their Medicare Advantage plan for the following year. There are two separate enrollment periods each year. They are: 



The Fall Open Enrollment (sometimes referred to as the Annual Coordinated Election Period (ACEP) which runs from October 15 through December 7 every year. The Medicare Advantage Disenrollment Period (MADP) which occurs every year from January 1 through February 14.

Table 4.6 describes these dates and the elections an MA beneficiary may choose.

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Table 4.6 MA Separate Enrollment Periods

Enrollment Period Fall Open Enrollment Period (sometimes referred to as Annual Coordinated Election Period-ACEP)

What the Enrollee Can Do    

October 15–December 7 (Changes will take effect on January 1.)



 MA Disenrollment Period (MADP)  January 1–February 14

Change from Original Medicare to a Medicare Advantage Plan. Change from a Medicare Advantage Plan back to Original Medicare. Switch from one Medicare Advantage Plan to another Medicare Advantage Plan. Switch from a Medicare Advantage Plan that doesn’t offer drug coverage to a Medicare Advantage Plan that offers drug coverage. Switch from a Medicare Advantage Plan that offers drug coverage to a Medicare Advantage Plan that doesn’t offer drug coverage.   If you’re in a Medicare Advantage Plan, you can leave your plan and switch to Original Medicare. Your Original Medicare coverage will begin the first day of the following month. If you switch to Original Medicare during this period, you will have until February 14 to also join a Medicare Prescription Drug Plan to add drug coverage. Your prescription drug coverage will begin the first day of the month after the plan gets your enrollment form.

Note: During this period, you can’t do the following:  Switch from Original Medicare to a Medicare Advantage Plan.  Switch from one Medicare Advantage Plan to another.  Join, switch, or drop a Medicare Medical Savings Account Plan. 

Under special circumstances, a beneficiary may be eligible for a Special Enrollment Period (SEP) to change their health benefit and or drug plan outside of the usual enrollment or disenrollment periods (discussed above). If the beneficiary gets a SEP, their new coverage will usually start the first of the month after they sign up for or disenroll from a Medicare private health plan. Table 4.7 describes these dates and the elections an MA beneficiary may choose.

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Table 4.7 Special Enrollment Periods Changes where you live You can

If this describes you You move to a new address that isn’t in your plan’s service area.

Switch to a new Medicare Advantage Plan.

You move to a new address that’s still in your plan’s service area, but you have new plan options in your new location.

At this time If you tell your plan before you move, your chance to switch plans begins the month before the month you move and continues for 2 full months after you move. If you tell your plan after you move, your chance to switch plans begins the month you tell your plan, plus 2 more full months.

You move back to the United States after living outside the country.

Join a Medicare Advantage Plan.

Your chance to join lasts for 2 full months after the month you move back to the U.S.

You just moved into, currently live in, or just moved out of an institution (such as a skilled nursing facility or long-term care hospital).



Your chance to join, switch, or drop coverage lasts as long as you live in the institution and for 2 full months after the month you move out of the institution.

You’re released from jail.

Join a Medicare Advantage Plan.





Join a Medicare Advantage Plan. Switch from your current plan to another Medicare Advantage Plan. Drop your Medicare Advantage Plan and return to Original Medicare.

Your chance to join lasts for 2 full months after the month you’re released from jail.

Changes that Cause You to Lose Your Current Coverage If this describes you You’re no longer eligible for Medicaid.

Then you can Join a Medicare Advantage Plan.  Switch from your current plan to another Medicare Advantage Plan.  Drop your Medicare Advantage Plan, and return to Original Medicare.  Drop your Medicare prescription drug coverage. 

You leave coverage from your employer or union (including COBRA coverage).

Join a Medicare Advantage Plan.

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Your chance to change lasts for 2 full months after the month you find out you’re no longer eligible for Medicaid.

Your chance to join lasts for 2 full months after the month your coverage ends.

You involuntarily lose other drug coverage that is as good as Medicare drug coverage (creditable coverage), or your other coverage changes and is no longer creditable. You drop your coverage in a Program of All-Inclusive Care for the Elderly (PACE) plan.

Join a Medicare Advantage Plan with drug coverage..

Join a Medicare Advantage Plan.

Your chance to join lasts for 2 full months after the month you lose your creditable coverage or are notified of the loss of creditable coverage, whichever is later. Your chance to join lasts for 2 full months after the month you drop your PACE plan.

You have a chance to get other coverage You have a chance to enroll in other coverage offered by your employer or union. You have or are enrolling in other drug coverage as good as Medicare prescription drug coverage (such as TRICARE or VA coverage). You enroll in a Program of All-Inclusive Care for the Elderly (PACE) plan. You live in the service area of one or more Medicare Advantage or Medicare Prescription Drug Plans with an overall quality rating of 5 stars.

Drop your current Medicare Advantage Plan to enroll in the private plan offered by your employer or union. Drop your current Medicare Advantage Plan with drug coverage or your Medicare Prescription Drug Plan.

Whenever your employer or union allows you to make changes in your plan.

Drop your current Medicare Advantage Plan.

Anytime.

Join a Medicare Advantage Plan with an overall quality rating of 5 stars.

One time during the year for which the plan you are joining has the overall quality rating of 5 stars.

Anytime.

Changes in your contract with Medicare If this describes you Medicare takes an official action (called a “sanction”) because of a problem with the plan that affects you.

Then you can Switch from your Medicare Advantage Plan to another plan.

At this time Your chance to switch is determined by Medicare on a case-by-case basis.

Your plan’s contract ends (terminates) during the contract year.

Switch from your Medicare Advantage Plan to another plan.

Your chance to switch starts 2 months before and ends 1 full month after the contract ends.

Your Medicare Advantage Plan, Medicare Prescription Drug Plan, or Medicare Cost Plan’s contract with Medicare isn’t renewed for the next contract year.

Join another Medicare Advantage Plan.

Between October 15 and the last day in February

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Changes due to other special situations You’re eligible for both Medicare and Medicaid.

Join, switch, or drop Medicare Advantage coverage.

Anytime

You’re enrolled in a State Pharmaceutical Assistance Program (SPAP) or lose SPAP eligibility.

Join either a Medicare Advantage Plan with prescription drug coverage.

Once during the calendar year.

You dropped a Medigap policy the first time you joined a Medicare Advantage Plan.

Drop your Medicare Advantage Plan and enroll in Original Medicare. You will have special rights to buy a Medigap policy.

You have a severe or disabling condition, and there is a Medicare Chronic Care Special Needs Plan (SNP) available that serves people with your condition.

Join a Medicare Chronic Care SNP.

Your chance to drop your Medicare Advantage Plan lasts for 12 months after you join the Medicare Advantage Plan for the first time. You can join anytime, but once you join, your chance to make changes using this SEP ends.

You’re enrolled in a Special Needs Plan (SNP) and no longer have a condition that qualifies as a special need that the plan serves.

Switch from your SNP to a Medicare Advantage Plan.

You can choose a new plan starting from the time you lose your special needs status, up to 3 months after your SNP’s grace period ends.

You joined a plan, or chose not to join a plan, due to an error by a Federal employee.



Your chance to change coverage lasts for 2 full months after the month you get a notice of the error from Medicare.





Join a Medicare Advantage Plan with drug coverage. Switch from your current plan to another Medicare Advantage Plan with drug coverage. Drop your Medicare Advantage Plan with drug coverage and return to Original Medicare. 

For more detailed information about signing up for Medicare Advantage Plans (Part C), including instructions on how to join, visit: www.medicare.gov. You can also call 1-800MEDICARE (1-800-633-4227). TTY users should call 1-877-486-2048. You can also get an enrollee’s personalized information at: www.medicare.gov Visit www.medicare.gov to get detailed information about the enrollee’s Medicare eligibility and enrollment options with the following tools:  

Medicare Eligibility Tool: Provides Medicare eligibility status information. Select “New to Medicare?” and then “Find Out if You’re Eligible.” Medicare Plan Finder: Provides personalized information about available Medicare Prescription Drug Plans, Medicare Advantage Plans, other Medicare 78

health plans, and Medicare Supplement Insurance (Medigap) policies. Visit www.medicare.gov/find-a-plan.

MA Plans and the ACA The Affordable Care Act (ACA) of 2010 contains a number of provisions that make a number of changes to the Medicare Advantage program, driven largely by concerns about the payment system and its effect on Medicare spending. In fact, these plans were created to bring market inefficiencies to Medicare, but they actually cost taxpayers 14 percent more per enrollee than the traditional Medicare program does. The ACA aims to bring costs back into line. The law cuts plans’ reimbursements by about $156 billion to bring them more in line with traditional Medicare. The plans are still required to provide at least the same benefits as those available through traditional Medicare plans. And for the first time, the law ensures that plans that perform better will be paid better, so the care they provide should improve. In 2015, Medicare Advantage markets and plans will look much as they did in 2014, in terms of the number of plans available to beneficiaries, although premiums and out-ofpocket limits are projected to rise for current enrollees who do not change plans. Over the longer term, companies offering MA plans may respond to payment changes in several different ways, depending on the circumstances of the company, the location of their plans, their historical commitment to the Medicare market, their ability to leverage efficiencies in the delivery of care to enrollees, and possibly their quality ratings and bonus payments. Decisions made by these firms could have important implications for beneficiaries with respect to their choice of plans, out-of-pocket costs, and access to providers. Achieving a reasonable balance among multiple goals for the Medicare program— including keeping Medicare fiscally strong, setting adequate payments to private plans, and meeting beneficiaries’ health care needs—will continue to be a critical issue for policymakers in the future.

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Chapter 4 Review Questions 1. Medicare Advantage (MA) is also known as: ( ( ( (

) A. Medicare Part A ) B. Medicare Part B ) C. Medicare Part C ) D. Traditional Medicare

2. Which of the following Acts enacted by Congress created the Medicare + Choice Program? ( ( ( (

) A. The Balanced Budget Act of 1997 ) B. Social Security Act of 1965 ) C. Deficit Reduction Act of 2005 ) D. Omnibus Reconciliation Act of 1987

3. Which type of Medicare Advantage Plan typically charges a set monthly premium and nominal co-payments for services instead of Medicare’s co-insurance and deductibles? ( ( ( (

) A. PPO plans ) B. HMO plans ) C. Medical Savings Accounts (MSA) ) D. Special Needs Plan (SNP)

4. Which type of Medicare Advantage plan is similar to Health Savings Accounts? ( ( ( (

) A. Preferred Provider Organization (PPO) ) B. Special Needs Plan (SNP) ) C. Health Maintenance Organization (HMO) ) D. Medicare MSA Plans

5. The Medicare Advantage Disenrollment Period occurs every year between which of the following dates? ( ( ( (

) A. December 7- October 15 ) B. January 1 – February 14 ) C. Anytime ) D. July 1 – September 7

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CHAPTER 5

MEDICARE PART D Overview Medicare Part D was enacted into legislation by The Medicare Prescription Drug, Improvement, and Modernization Act (also called the Medicare Modernization Act of 2003 or MMA). It produced the largest overhaul of Medicare in the public health program’s 38-year history. Its most touted change was the introduction of an entitlement benefit for prescription drugs, through tax breaks and subsidies. Participation in the Medicare prescription drug coverage program is voluntary. In this chapter, we will review Medicare Part D, its history, the types of drug plans, available, their administration and financing, eligibility requirements, the specific out-ofpocket costs to Medicare beneficiaries and the Part D market concentration. It will also discuss the qualifications and benefits of the Extra Help program.

Learning Objectives Upon completion of this chapter, you will be able to:        

Relate the history of Medicare Part D; Determine eligibility for Medicare Part D; Outline the various types of prescription drug plans offered; Identify the costs and benefits of the various prescription drug plans; Explain the coverage gaps (“donut hole”); Distinguish which drugs are and are not covered under Part D; Manage when a beneficiary may join, switch or exchange their Part D plan; and Recognize the qualifications for the Extra Help Plan (Low-Income Subsidy— LIS).

History of Part D When Medicare Part A and B were first enacted in 1965, it did not provide prescription drug coverage, and prescription drugs accounted for a small portion of health care costs. With those costs increasing dramatically and with retiree drug costs now averaging 50 percent to 60 percent of employers’ health benefit expenditures, it had become increasingly clear that the original law’s lack of prescription drug benefits was a significant missing component.

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In 2002, a Congressional conference committee report made the following comments about the goal of providing prescription drugs to seniors as follows: “The typical senior now takes more than 20 prescriptions a year to improve their health or manage their diseases. While seniors are taking more drugs than any other demographic group, they are often paying the highest prices because about 25% of seniors have no prescription drug coverage. Similarly, low-income beneficiaries must often make unacceptable choices between life-saving medicines and other essentials. The addition of a prescription drug benefit to Medicare, while providing seniors additional choices in how they receive their health services, is a critical modernization of the program.” This report led to the narrow passing in Congress of the Medicare Prescription Drug Improvement and Modernization Act of 2003 (the “MMA”) which on December 8, 2003, President George W. Bush signed into law. This law established a voluntary drug benefit for Medicare beneficiaries and created the new Medicare Part D program. In short, the Medicare Modernization Act (MMA) and the Medicare Prescription Drug Improvement feature gives Medicare beneficiaries, that is seniors and disabled citizens eligible for Medicare, access to drug coverage that began January 1, 2006. A press release from the White House announcing the Medicare Part D legislation stated the following: “With the Medicare Act of 2003, our government is finally bringing prescription drug coverage to the seniors of America. With this law, we’re giving older Americans better choices and more control over their health care, so they can receive the modern medical care they deserve...Our nation has the best health care system in the world. And we want our seniors to share in the benefits of that system. Our nation has made a promise, a solemn promise to America’s seniors. We have pledged to help our citizens find affordable medical care in the later years of life. Lyndon Johnson established that commitment by signing the Medicare Act of 1965. And today, by reforming and modernizing this vital program, we are honoring the commitments of Medicare to all our seniors.” President George W. Bush, White House Press Release, 12/08/2003

Types of Medicare Part D Plans A beneficiary can obtain the Part D drug benefit by enrolling in one of the following two types of private plans:  

Medicare Prescription Drug Plans. These plans (sometimes called “PDPs”) add drug coverage to Original Medicare, and some Medicare Private Fee-for-Service (PFFS) Plans. Medicare Advantage Plans. Medicare Advantage Plan (MA), like an HMO or PPO, is other Medicare health plans that offer Medicare prescription drug coverage. If the beneficiary is a member of one of these plans, they would receive all of their Part A and Part B coverage, and prescription drug coverage (Part D), 82

through these plans. Medicare Advantage Plans with prescription drug coverage are sometimes called “MA-PDs.” According to CMS, in 2014, more than 37 million beneficiaries were enrolled in Medicare drug plans, including 23 million (62%) in PDPs and 14 million in MA-PD plans (see Table 5.1). That was an increase of 2 million compared to 2013 and 15 million since 2006. The majority (62 percent) of Part D enrollees were in PDPs, but enrollment in MA-PD plans is growing more rapidly, representing half of the net increase in enrollment from 2013 to 2014. About 6.5 million Medicare beneficiaries with drug coverage from their former employers now get that coverage through a Part D plan designed solely for the firms’ retirees. Partly due to changes in law that took effect in 2013, enrollment in employer plans has quadrupled since 2006. Table 5.1 Medicare part D Enrollment, by Type of Plan (Employer and Non-Employer PDP and MA-PD, 2006-2014

2006 2007 2008 2009 2010 2011 2012 2013 2014

PDP Enrollment (Non-ER)

MA-PD (Non-ER)

ER-only Group PDP

ER-only Group MA-PD

Total

15.5 16.2 16.5 16.6 16.7 17.1 17.6 18.1 18.6

5.5 6.2 7.0 7.9 8.5 9.4 10.3 11.3 12.3

0.7 0.8 0.9 0.9 0.9 1.5 2.2 4.4 4.7

0.8 1.1 1.2 1.4 1.5 1.4 1.4 1.5 1.8

22.5 24.2 25.6 26.7 27.6 29.3 31.5 35.3 37.4

Source: Kaiser Family Foundation; May 2014 http://kff.org/report-section/medicare-part-d-in-its-ninth-year-section-1-part-d-enrollment-and-plan-availability/

Note: In this chapter, we will only examine stand-alone PDPs.

Part D Administration The Centers for Medicare and Medicaid Services (CMS) is responsible for the administration of the Medicare Part D prescription drug program. Private insurance carriers actually implement the various Medicare Part D plans across the country under the direction of CMS.

Part D Financing Part D financing is made separately from the SMI Trust fund, which consists of both Part B and Part D of Medicare. As noted earlier, HI and SMI are financed differently. HI is funded by current workers through a payroll tax, SMI is funded by premiums from current beneficiaries and federal general revenues (discussed below). Because of this 83

financing, the SMI trust fund’s income is projected to equal expenditures for all future years.

Part D SMI Trust Fund Back in 1966, it was estimated that the net federal cost of Medicare Part D to be $37 billion in 2006, increasing to $67 billion in 2010, and totaling $724 billion for the decade of 2006–2015. In fact, according to the 2014 Medicare Trustees Report, total expenditures for 2013 were $69.7 billion while total income was reported at $697 billion. There were more than 37 million enrollees in Part D by year end 2013 with an average benefit of $1,773 (see Table 5.2). Table 5.2 Part D Medicare Data for Current Fiscal Year 2013 Average benefit per enrollee Assets at end of 2012 (billions) Total Income Payroll taxes Interest Taxes on benefits Premiums General revenues Transfer from States Other Total Expenditures Benefits Hospital Skilled nursing facility Home health care Physician fee schedule services Prescription drugs Administrative expenses Net change in assets Assets (end of 2013)

$1,773 $1.0 $69.7 --0.0 --9.9 51.0 8.8 --$69.7 69.3 --------69.3 $0.4 $0.0 $1.0

Source: Board of Trustees, 2014. Table II. B1.

Medicare Funding Warning (“Medicare Trigger”) Within the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), there is a provision that requires the Trustees report to include and expanded analysis of Medicare expenditures and revenues. Specifically, a determination must be made as to whether general revenue financing will exceed 45% of total Medicare outlays with the next seven years (on a fiscal basis). The law specifies that if an excess general revenue funding determination is made for two successive years, a “Medicare funding warning” is triggered, and the President is to submit a legislative proposal to respond to the warning. The Congress is required to consider the proposals on an expedited basis; however, passage of legislation within a specific time frame is not required. 84

In each report issued from 2006 through 2012, the Medicare trustees made a determination of excess general revenue funding. The 2014 report, again, made such a determination, projecting that general revenue funding would exceed 45% in FY 2014. This represents the ninth consecutive time that the threshold was estimated to be exceeded within the first seven years of the projection, and the eighth time that the trustees have issued a funding warning.

Part D Costs Payments for Medicare Part D can be broken down into the following three categories: 





Monthly Premium. If a Medicare beneficiary joins a Medicare Part D prescription drug plan, he/she will be paying a monthly premium ranging from only a few dollars up to over $100.00 dollars - depending on the benefits of their Part D plan and the state they live in. The Medicare beneficiary pays this in addition to the Part B premium. If the Medicare beneficiary belongs to a Medicare Advantage Plan (like an HMO or PPO) or a Medicare Cost Plan that includes Medicare prescription drug coverage, the monthly premium for that plan may include an amount for prescription drug coverage. Yearly Deductible. This is the amount the Medicare beneficiary pays for their prescriptions before the plan begins to pay. Some Medicare Part D plans have an initial deductible (the amount paid before the benefit begins) and some Part D plan have no initial deductible or a $0 deductible, providing coverage as soon as the beneficiary purchases their first prescriptions. Note: A beneficiary may pay a higher monthly premium for Part D plans with no deductible. Finally, when the beneficiary actually uses his/her Medicare Part D plan, their actual prescription costs will vary depending on the particular drug plan they choose. Co-payment or Coinsurance. The Medicare beneficiary pays these amounts for his/her prescriptions after they pay the deductible. Medicare beneficiary pays their share and the plan pays its share for covered drugs.

2015 PDP Monthly Premiums CMS released the following information pertaining to the monthly premium paid by a Part D beneficiary’s for 2015.

Part D National Average Monthly Bid Amount In accordance with Section 1860D-13(a)(4) of the Social Security Act (“the Act”), codified in 42 CFR §423.279, CMS has calculated the national average monthly bid amount for 2015. For each coverage year, CMS computes the national average monthly bid amount from the applicable Part D plan bid submissions in order to calculate the base beneficiary premium, as provided in 42 CFR §423.286(c). 85

The national average monthly bid amount is a weighted average of the standardized bid amounts for each prescription drug plan and for each MA-PD plan described in section 1851(a)(2)(A)(i) of the Act. The weights are based on the number of enrollees in that plan. The weight for each plan bid is equal to a percentage with the numerator equal to the number of Part D eligible individuals enrolled in the plan in the reference month (as defined in 42 CFR §422.258(c)(1)) and the denominator equal to the total number of Part D eligible individuals enrolled in the reference month in all applicable Part D plans. The calculation does not include bids submitted by MSA plans, MA private fee-for-service plans, specialized MA plans for special needs individuals, PACE programs under section 1894, any “fallback” prescription drug plans, and plans established through reasonable cost reimbursement contracts under section 1876(h) of the Act. The reference month for the 2015 calculation was June 2014. The national average monthly bid amount for 2015 is $70.18.

Part D Base Beneficiary Premium The base beneficiary premium is equal to the product of the beneficiary premium percentage and the national average monthly bid amount. The beneficiary premium percentage (“applicable percentage”) is a fraction, with a numerator of 25.5 percent and a denominator that is 100 percent minus a percentage equal to 

The total reinsurance payments that CMS estimates will be paid for the coverage year, divided by



That amount plus the total payments that CMS estimates will be paid to Part D plans based on the standardized bid amount during the year, taking into account amounts paid by both CMS and plan enrollees.

In accordance with section 1860D-13(a) of the Act, codified in 42 CFR §423.286, Part D beneficiary premiums are calculated as the base beneficiary premium adjusted by the following factors: 

The difference between the plan’s standardized bid amount and the national average monthly bid amount;



An increase for any supplemental premium; (iii) an increase for any late enrollment penalty;



A decrease for Medicare Advantage Prescription Drug Plans (MA-PDs) that apply MA A/B rebates to buy down the Part D premium; and (v) elimination or decrease with the application of the low-income premium subsidy.

The Part D base beneficiary premium for 2015 is $33.13. For the last four years—for plan years 2011, 2012, 2013, and 2014, the average premium for a Medicare Part D basic plan has been around $30-31. However, as noted above, the actual Part D premiums paid by individual beneficiaries equal the base beneficiary 86

premium adjusted by a number of factors. In practice, premiums vary significantly from one Part D plan to another and seldom equal the base beneficiary premium. The national average 2015 Medicare Part D premiums will range from a low of $12.60 to a high of $171.90. Part D premiums are significantly higher for plans with gap coverage. Major Part D plan sponsors are dropping their more expensive options, and developing lower cost ones. Extra-Help programs are available based on financial need (discussed later in the Chapter). Premiums may increase annually. Drug lists (aka “formularies”) may change with 60 day notice.

Part D IRMAA Premiums Before consideration of premium adjustments based on income, 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 equals 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. (For Part D plans with enhanced alternative coverage, the plan-specific total premium includes premium amounts for supplemental benefits in addition to the basic premium.) These adjustments were first effective January 1, 2011, as required by section 1860D13(a)(7) of the Social Security Act as added by Section 3308 of the Patient Protection and Affordable Care Act, as amended by the Health Care and Reconciliation Act of 2010 (P.L. 111-152). Under Section 1860D-13(a)(7), if a beneficiary’s “modified adjusted gross income” is greater than the specified threshold amounts ($85,000 in 2015 for a beneficiary filing an individual income tax return or married and filing a separate return, and $170,000 for a beneficiary filing a joint tax return), then the beneficiary is responsible for a larger portion of the total cost of Part D benefit coverage. In addition to the normal Part D premium paid to a plan, such beneficiaries must pay an income-related monthly adjustment amount (IRMAA). Unlike the normal Part D premium, beneficiaries will not pay the Part D income-related monthly adjustment amounts to Part D plans. Instead, the Part D income-related monthly adjustment amounts will be collected by the federal government. An estimated 5 percent of Part D enrollees were required to make these additional payments in 2015. Table 5.3 illustrates the 2015 Part D income-related monthly adjustment amounts to be paid by beneficiaries who file individual tax returns (including those who are single, head of households, qualifying widows or widowers with dependent children, or married individuals filing separately who lived apart from their spouses for the entire taxable year), or who file joint return. As specified in section 1860D-13(a)(7), the Part D income-related monthly adjustment amounts are determined by multiplying the standard base beneficiary premium by the following ratios: (35% − 25.5%)/25.5%, (50% − 25.5%)/25.5%, (65% − 25.5%)/25.5%, or (80% − 25.5%)/25.5%. Example: IRMAA 35% = $33.13 × 35% − 25.5% 87

=

$12.34 (rounded to $12.30)

Table 5.3 Part D IRMAA Premiums for Single Taxpayer in 2015 Beneficiaries who file individual tax returns with income:

Beneficiaries who file joint tax returns with income:

Less than or equal to $85,000 Greater than $85,000 and less than or equal to $107,000 Greater than $107,000 and less than or equal to $160,000 Greater than $160,000 and less than or equal to $214,000 Greater than $214,000

Less than or equal to $170,000 Greater than $170,000 and less than or equal to $214,000 Greater than $214,000 and less than or equal to 320,000 Greater than $320,000 and less than or equal to $428,000 Greater than $428,000

Applicable Percentage

Part D income-related monthly adjustment amount

N/A

$0.00

35%

$12.30

50%

$31.80

65%

$51.30

80%

$70.80

In addition, Table 5.3 illustrates the monthly premium rates to be paid by beneficiaries who are married, but file separate returns from their spouses and lived with their spouses at any time during the taxable year. Table 5.4 Part D IRMMA Premiums for Married Filing Separate (and lived with their spouses at any time during tax year) Beneficiaries who are married but file separate tax returns from their spouses, with income:

Part D income-related monthly adjustment amount

Less than or equal to $85,000

$0.00

Greater than $85,000 and less than or equal to $129,000More than $214,000 but less than or equal to $320,000

$51.30

Greater than $129,000

$70.80

**Plus any late enrollment or reenrollment fees for prescription drug coverage

Note: When the Internal Revenue Service (IRS) provides the Social Security Administration (SSA) with the tax filing status of Married Filing Separately, SSA assumes the couple lived together at some point in the tax year. The law provides that beneficiaries in this situation are subject to higher IRMAA levels. If one or both of the members allege they lived apart throughout the entire tax year (see HI 01120.060). Under current law, the income thresholds are not indexed to increase annually until 2020, which will result in an increasing share of Part D enrollees paying the IRMAA premiums over the next several years. 88

The Standard (Model) Drug Benefit Plan The MMA directs CMS to establishes a standard (model) drug benefit that Part D plans must offer. The standard benefit is defined in terms of the benefit structure and not in terms of the drugs that must be covered. In 2015, the standard benefit requires an enrollee to make the following cost sharing payments:  







Initial Deductible: The initial deductible will be increased by $10 to $320 in 2015 (up from $310 in 2014). However, the majority of other Part D plans do not have the initial deductible and provide “first dollar” coverage. Initial Coverage Limit: The initial coverage limit will increase to $2,960 in 2014 (up from $2,850 in 2014). After the enrollee pays the deductible ($320 in 2015), he/she is in initial coverage period, during which he/she pays 25% of drug costs and the Part D plan pays 75% of the costs. Once Part D drug expenses (paid by the enrollee and by the Part D plan) total the initial coverage limit of $2,960 (for 2015), the enrollee is responsible for a certain percentage of charges based on whether the drug is generic or brand until the enrollee has reached the out-ofpocket threshold. Out-of-Pocket Threshold: The out-of-pocket threshold will be $4,700 in 2015 (up from $4,550 in 2014). The out-of-pocket threshold is the amount that the enrollee must pay on his or her own before catastrophic coverage begins. This gap between the initial coverage limit and catastrophic coverage is referred to as the “donut hole.” Coverage Gap (donut hole): The coverage gap (donut hole) begins once the enrollee reaches their Medicare Part D plan’s initial coverage limit ($2,960 in 2015) and ends when they spend a total of $4,700 in 2015. In 2015, all enrollees who reach the coverage gap, or “doughnut hole,” will pay less than the full cost of the price of their drugs, as a result of changes made by the Affordable Care Act (ACA). For 2015, manufacturer prices for brand-name drugs purchased in the gap will be discounted by 50 percent, with plans paying an additional 5 percent and enrollees paying the remaining 45 percent. Plans will pay 35 percent of the cost for generic drugs in the gap, with enrollees paying 65 percent. The 50% discount paid by the brand name drug manufacturer will still apply to getting out of the donut hole; however, the additional 5% paid by the Part D plan will not count toward the TrOOP (discussed below). Minimum Cost-Sharing in the Catastrophic Coverage Portion of the Benefit: Will increase to greater of 5% or $2.65 (up from $2.55 in 2014) for generic or preferred drug that is a multi-source drug and the greater of 5% or $6.60 (up from $6.35 in 2014) for all other drugs in 2015.

True Out-Of-Pocket (TrOOP) Costs True out-of-pocket (TrOOP) costs are the payments that count toward a person’s Medicare drug plan out-of-pocket threshold of $4,700 (for 2015). TrOOP costs determine when a person’s catastrophic coverage will begin. The drug plan keeps track of each member’s TrOOP costs. Each month that a person fills prescriptions covered by his or her plan, he/she will get an “Explanation of Benefits” (EOB) in the mail showing the TrOOP costs to date. 89

Payments Counted Towards TrOOP The following are payments that will be considered toward TrOOP costs. They are:   

The amount a person pays for covered prescriptions before his or her drug plan begins to pay (the annual deductible, if applicable) The amount a person pays for each covered prescription after his or her drug plan begins to pay (copayments or coinsurance during initial coverage period) Any payments a person makes for a covered prescription drug during his or her plan’s coverage gap, if the plan has a coverage gap Table 5.5 Standard Medicare Prescription Drug Benefit, 2015 Coverage

Enrollee Pays

Part D Plan Pays

Deductible

100% ($320)

$0

Initial Coverage Period ($2,960 in total Drug Costs)

25% of

75% of costs

Brand-name drugs Enrollee pays 45%

Brand-name drugs Plan pays 5%

50% manufacturer discount

Generic-drugs Plan pays 25%

Coverage Gap No coverage (Donut Hole) $4,700

Catastrophic Coverage Limit $7,062 in total Drug cots

Generic drugs Enrollee pays 65% Greater of 5% of remaining costs or $2.65 for a generic drug or $6.60 for a brand name drug.

95% of remaining costs Plan pays 15% and Medicare pays 80%

*Only drugs on the plan’s formulary count toward the $4,700 out-of-pocket costs the beneficiary pays before catastrophic coverage begins.

Part D and ACA The Affordable Care Act includes benefits to make Medicare prescription drug coverage (Part D) more affordable. When an enrollee is in the coverage gap (also called the “donut hole”), the enrollee will receive the following benefits from his or her Medicare prescription drug coverage:   

A discount on covered brand-name drugs when enrollees buy them at a pharmacy or orders through the mail (see Table 5.6). Some coverage for generic and brand-name drugs. Additional savings on brand-name and generic drugs during the coverage gap over the next several years until it’s closed in 2020 (see Table 5.5 and 5.6). 90

Companies that make brand-name prescription drugs must sign agreements with Medicare to participate in the Medicare Coverage Gap Discount Program. This program requires the companies to offer discounts on brand-name drugs to people who have reached the coverage gap. These discounts, along with increased coverage in the coverage gap, means that once the enrollee reaches the coverage gap in 2015, he/she will pay 45% of the plan’s cost for covered brand-name prescription drugs. The discount will come off of the price that the enrollee’s plan has set with the pharmacy for that specific drug. Although, the enrollee will only pay a certain percent of the price for the brand-name drug, the entire price (including the discount the drug company pays) will count toward the amount he/she needs to qualify for catastrophic coverage. Once the enrollee reaches catastrophic coverage, he/she will only pay a small coinsurance or copayment for the rest of the year. The enrollees EOB notice will show any discounts the drug companies paid. Example: Mrs. Anderson reaches the coverage gap. She goes to her pharmacy to fill a prescription for a covered brand-name drug. The price for the drug is $60, and there’s a $2 dispensing fee that gets added to the cost. Mrs. Anderson will pay 45% of the plan’s cost for the drug and dispensing fee ($62 x .45 = $27.90). Mrs. Anderson will pay $27.90 for her prescription, but $59.45 will be counted as outof-pocket spending and will help Mrs. Anderson get out of the coverage gap because both the amount that Mrs. Anderson pays ($29.45) plus the manufacturer discount payment ($30.00) count as out-of-pocket spending. The remaining $3.10, which is 5% of the drug cost and 55% of the dispensing fee paid by the drug plan, isn’t counted toward Mrs. Anderson’s out-of-pocket spending. Table 5.6 displays the brand-name drug discount. Table 5.6 Brand-Name Discount Plan Year

Beneficiary Cost-Sharing

Plan Cost-Sharing

Manufacturer Cost-sharing

2014 2015 2016 2017 2018 2019 2020

47.5% 45% 45% 40% 35% 30% 25%

2.5% 5% 5% 10% 15% 20% 25%

50% 50% 50% 50% 50% 50% 50%

Table 5.7 displays the generic drug discount.

91

Table 5.7 Generic Drug Discount

Plan Year 2014 2015 2016 2017 2018 2019 2020

Beneficiary Cost-Sharing 72% 65% 58% 51% 44% 37% 25%

Plan Cost-Sharing 28% 35% 42% 49% 56% 63% 75%

Drug Formularies and Tiers Part D plans are not required to pay for all covered Part D drugs. They establish their own formularies, or list of covered drugs for which they will make payment, as long as the formulary and benefit structure are not found by CMS to discourage enrollment by certain Medicare beneficiaries. Part D plans that follow the formulary classes and categories established by the United States Pharmacopoeia will pass the first discrimination test. Plans can change the drugs on their formulary during the course of the year with 60 day notice to affected parties. Typically, each Plan’s formulary is organized into tiers, and each tier is associated with a set co-pay amount. Most formularies have between 3 and 5 tiers. Each tier costs a different amount. Each plan can divide its tiers in different ways. Below is an example of how a plan might divide its tiers. A drug in a lower tier will cost your client less than a drug in a higher tier. The lower the tier, the lower the co-pay amount. For example:   

Tier 1 might include all of the Plan’s preferred generic drugs, and each drug within this tier might have a co-pay of $5–10 per prescription. Tier 2 might include the Plan’s preferred brand drugs with a co-pay of $20–$30, while Tier 3 may be reserved for non-preferred brand drugs, which are covered by the plan at a higher co-pay level - perhaps $40–$100. Tiers 4 and higher typically contain specialty drugs, which have the highest copays because they are generally quite expensive.

The Plan’s tiered co-pay amounts for each drug only apply during the initial period before the coverage gap. Once your client is in the coverage gap, (AKA, the Donut hole), they must pay for 100% of the prescription costs, based on prices established by the Plan. The primary differences between the formularies of different Part D plans relate to the coverage of brand-name drugs. The plan’s drug list might not include a drug your client 92

may take. However, in most cases, a similar drug that is safe and effective will be available. The plan’s drug list may change during the year because drug therapies change, new drugs are released, and new medical information becomes available. If there is a change that affects a drug a beneficiary takes, he/she must be notified by the plan with at least 60 days in advance notice. He/she may have to change the drug they are using or pay more for it. In some cases, they can continue taking the drug they were taking until the end of the year. Note: A plan isn’t required to tell the beneficiary in advance if it removes a drug from its drug list because the FDA takes the drug off the market for safety reasons, but it will let them know afterward. All Medicare drug plans must provide at least a standard level of coverage set by Medicare. However, plans offer different combinations of coverage and cost sharing. The drug lists for each plan must include a range of drugs in each prescribed category. This makes sure that people with different medical conditions can get the treatment they need. All Medicare drug plans generally must cover at least two drugs in each category of drugs, but plans can choose which specific drugs are covered in each category. Plans are required to cover almost all drugs in six classes: anti-psychotics, anti-depressants, anticonvulsants, immunosuppressants, cancer, and HIV/AIDS drugs. All Medicare drug plans have negotiated to get lower prices for the drugs they include on their lists. This means using drugs on the plan’s list will generally save your client money. Using generics instead of brand-name drugs also can save them money. Because of all these choices and rules, it is probably best for Medicare beneficiaries to seek expert help in assisting them to make the proper choice. The beneficiary should seek out financial professionals who are knowledgeable in this area, to make sure that they are choosing the proper plan and at the right cost. Note: While a majority of Part D plans have adopted some type of tiered cost sharing for their formulary since the program’s first year, there has been a trend toward the use of more cost-sharing tiers. In 2006, some plans had three tiers—generics, preferred brand drugs, and non-preferred brand drugs—and some also added a fourth tier for specialty drugs. By 2013, a five-tier benefit design, with the addition of a second generic tier to the four-tier arrangement, had become the most common, and it will be the dominant formulary design in the 2014 PDP market. Of 31 PDPs offered in at least half of all PDP regions in 2014, 24 (77 percent) have this type of formulary design. .

Excluded Drugs While CMS does not have an established formulary, Part D drug coverage excludes drugs not approved by the Food and Drug Administration (FDA), those prescribed for off-label http://en.wikipedia.org/wiki/Off-label use, drugs not available by prescription for 93

purchase in the United States, and drugs for which payments would be available under Parts A or B of Medicare. Part D coverage excludes drugs or classes of drugs, which may be excluded from Medicaid coverage. These may include:         

Drugs used for anorexia, weight loss, or weight gain Drugs used to promote fertility Drugs used for erectile dysfunction Drugs used for cosmetic purposes (hair growth, etc.) Drugs used for the symptomatic relief of cough and colds Barbiturates Benzodiazepines Prescription vitamins and mineral products, except prenatal vitamins and fluoride preparations Drugs where the manufacturer requires as a condition of sale any associated tests or monitoring services to be purchased exclusively from that manufacturer or its designee

While these drugs are excluded from basic Part D coverage, drug plans can include them as a supplemental benefit, provided they otherwise meet the definition of a Part D drug. However plans that cover excluded drugs are not allowed to pass-on those costs to Medicare, and plans are required to repay CMS if they are found to have billed Medicare in these cases.

Pharmacies Prescription drug plans must contract with pharmacies in the beneficiary’s area, but not all pharmacies contract with all plans. Make sure the pharmacies in the plan they chose are convenient for them to access. They can check a plan’s pharmacy network on the Medicare Prescription Drug Plan Finder at www.medicare.gov, or call the plan’s customer service department. Many plans also allow them to receive prescriptions through the mail, often at a lower cost. Note: In contrast to the program’s first years, a growing number of PDPs are using preferred pharmacy networks, whereby enrollees pay lower cost sharing for their prescriptions when they use preferred pharmacies (although cost-sharing differences vary considerably across the plans). This trend has gained prominence in recent years with the market entry of co-branded PDPs featuring relationships with specific pharmacy chains, such as the Humana Walmart-Preferred Rx PDP (new in 2011) and the Aetna CVS/Pharmacy PDP (new in 2012). In 2006, there were some co-branding relationships between PDPs and pharmacy chains, but in general they were not accompanied by lower cost sharing at the pharmacy chains. About 72 percent of all PDPs in 2014-2015 will have a preferred pharmacy network with lower cost-sharing levels when prescriptions are filled at preferred pharmacies. 94

Example: In the AARP Medicare Rx Saver Plus PDP, the copayment for a preferred brand drug will be $20 in a preferred pharmacy and $30 in another network pharmacy. Copayments in the new Humana Walmart Rx Plan at a preferred pharmacy will be $1 for drugs on the preferred generic tier and $4 for drugs on the non-preferred generic tier, compared to $10 and $33, respectively, at other network pharmacies.

Part D Market Concentration In 2014, the ten largest sponsors of Part D plans accounted for more than three-fourths of all enrollees, three firms account for half of all enrollees, and UnitedHealth alone accounted for more than one in five Part D enrollees (including 22 percent of PDP enrollees and 21 percent of MA-PD plan enrollees) (See Table 5.8). This pattern of a few plan sponsors having a substantial share of Part D enrollment has held over the program’s first nine years. The ten largest Part D plan sponsors in 2014 have enrolled 29.5 million beneficiaries in either a stand-alone PDP or an MA-PD plan (see Table 5.9). Table 5.8 Distribution of Medicare Part D Enrollment, by Firm, 2014 Company

Percentage

United Group Health Humana CVS Caremark Express Scripts Aetna CIGNA WellCare Health Plans Kaiser Permanente WellPoint Envision All other firms

22% 16% 12% 7% 6% 5% 4% 3% 3% 1% 21%

Source: Kaiser Family Foundation, May 2014; http://kff.org/report-section/medicare-part-d-in-its-ninth-year-section-1-part-d-enrollment-and-plan-availability/

The share of enrollment in the ten largest plans in 2014 (79 percent) is higher than in 2006 (69 percent). In 2006, the top three firms also accounted for about half of all enrollees (see Table 5.8). Six of the top ten firms in 2014 sponsor both stand-alone PDPs and MA-PD plans. Kaiser Permanente is the only sponsor among the top ten that offers only MA-PD plans, and Wellpoint is the only other firm with more MA-PD enrollees than PDP enrollees. CVS Caremark, Express Scripts, and Envision offer only PDPs. Other than Kaiser Permanente, at least 40 percent of each of the top firms’ enrollment is in PDPs. UnitedHealth and Humana have been the two largest Part D plan sponsors from the start of the program, but their combined share of enrollment has dropped from 45 percent in 2006 to 38 percent in 2014. UnitedHealth, due in part to its successful marketing relationship with AARP, has maintained its top position for all nine years of the program 95

and has seen its enrollment grow by about 43 percent since 2006. Humana has maintained a strong Part D presence, due in part to offering the lowest PDP premiums in 2006 and retaining many of those enrollees over time despite premium increases for its older plans. While higher-than-average premium increases and a loss of LIS benchmark status in most regions contributed to a drop in Humana’s Part D enrollment between 2006 and 2010, Humana’s introduction of new PDPs in 2011 and 2014 reversed this decline, contributing to a net enrollment gain of 40 percent in Humana’s Part D plans between 2006 and 2014. Table 5.9 Top 10 Firms Offering Medicare Part D Plans Ranked by 2014 Enrollment 2014

2006

Enrollment (in millions) Name of Firm United Health Group Humana CVS Caremark Express Scripts Aetna CIGNA WellCare HP Kaiser Permanente WellPoint Envision Total Top 10 Firms

% of Total Part D in 2014

Rank

% Total Part D in 2006

Change in Total Enrollment, 2006-2014

Rank

PDP

MA-PD

Total

1 2 3 4 5 6 7

5.51 3.71 4.24 2.71 1.65 1.25 1.29

2.97 2.38 --0.71 0.44 0.34

8.12 6.09 4.24 2.71 2.36 1.70 1.63

21.8% 16.4% 11.4% 7.3% 6.3% 4.6% 4.4%

1 2 11 10 12 17 4

25.3% 19.4% 1.8% 1.8% 1.8% 0.9% 4.3%

+43% +40% +926% +552% +477% +699% +67%

8 9 10

-0.43 0.39

1.18 0.66 --

1.18 1.09 0.39

3.2% 2.9% 1.0%

6 3 N/A

3.5% 5.8% N/A

+52% -17% N/A

20.82

8.69

29.51

79.2%

Source: Kaiser Family Foundation, May 2014; http://kff.org/report-section/medicare-part-d-in-its-ninth-year-section-1-part-d-enrollment-and-plan-availability/

The most popular plans vary considerably by region. UnitedHealth has the largest PDP in a majority of regions in 2014. The firm’s AARP MedicareRx Preferred PDP is the largest PDP in 25 regions, and the SilverScript Basic PDP is the largest in 7 regions. Humana Preferred Rx PDP holds the lead in Colorado, and MedicareBlue Rx Standard PDP has the largest share of enrollment in the seven-state upper Midwest region.

Part D PDP Plan Availability in 2015 In 2015, a total of 1,001 PDPs will be offered nationwide, down by 14 percent from the 1,169 PDPs offered in 2014 and the lowest number of PDPs since Part D began in 2006. Despite the reduction in plan availability nationwide, Medicare beneficiaries in each region will have a choice of 29 stand-alone PDPs; down five from 2014 (see Table 5.10).

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Table 5.10 2014-2015 National Medicare Part D Plan Statistics and Averages per Region Statistic

2015

Change 15-14

2014

Total Number of Part D Drug Plans Average # of Part D Plans per Region # of $0 Deductible Plans Avg. # of $0 Ded. Plans per Region Percent $0 Deductible Plans # of Plans with a Premium < $25 Percent Plans with a Premium < $25 Lowest Cost PDP Plan (Premium) Highest Cost PDP Plan (Premium) Average PDP Plan Premium (Enhanced Benefit) Avg. Weighted PDP Plan Premium** # of Plans with Premium Decrease # of Plans with No Premium Change # of Plans with Premium Increase % of People with a Premium Increase Weighted Average Increase for People with a Premium Increase

1,001 29 420 12 42% 105 10% $12.60 $171.90 $53.14 $38.83 350 30 495 70%

-168 -5 -133 -4 -5% -36 -2% $0.10 $-2.80 $-0.66 $1.56 -74 4 -29 7%

1,169 34 585 16 47% 141 12% $12.50 $174.70 $53.80 $37.27 424 26 524 63%

$6.64

$0.42

$6.22

Note:*Stand-alone Medicare Prescription Drug Plans (PDP)s only. Data for MA-PD plans not included. The data for the sanctioned Aetna plans is NOT included on this page The data is calculated per region. For example. A plan which is available in CMS Region 6 which includes PA and WV is counted once, not twice. **The plan premium weighted averages are calculated by multiplying the plan premium by the number of enrollees in the plan to give more "weight" to plans with more members. http://www.q1medicare.com/PartD-2015MedicarePartD-PlanStatistics.php

Part D Monthly Premiums in 2015 The projected average monthly PDP premium for 2015 will be $38.83 (weighted by 2014 enrollment, assuming beneficiaries remain in their current plan). This is a 4 percent increase ($1.56) from the weighted average monthly premium of $37.27 in 2013, and a 50 percent increase from $25.93 in 2006, the first year of the Medicare Part D drug benefit. As a point of comparison, since 2006, the medical care consumer price index (CPI) has increased 28 percent and the CPI for all items has increased 18 percent. The average premium will decrease from $29.25 in 2014 to $29.10 in 2015 for basicbenefit PDPs and will increase from $47.90 to $51.43 for enhanced-benefit PDPs. However, enrollees in 33 PDPs where beneficiaries are reassigned due to plan consolidation will switch from a basic PDP to an enhanced PDP, and enrollees in 68 PDPs will switch from enhanced to basic. If those enrollees are excluded, enrollees in basic PDPs will have on average a 3.8 percent premium increase, while those in enhanced PDPs will have a 7.5 percent increase. Average monthly PDP premiums (weighted by enrollment in each year) have been essentially flat from 2010 to 2014, corresponding with a time during which many popular brand-name drugs gained generic competitors and when several new low-premium PDPs 97

entered the market. If even a relatively few beneficiaries are enrolled in different plans, effective in January 2015, then the average for 2015 will probably end up roughly the same as in 2014. CMS has reported that the average premium for standard Part D coverage offered by PDPs and Medicare Advantage drug plans between 2014 and 2015 is increasing by about $1; the slightly higher premium increase reported here is based on PDPs only, excluding Medicare Advantage drug plans, and also includes PDPs offering enhanced coverage, which typically have higher premiums. For PDPs offering only the basic benefit, the 2015 premium is projected to be 0.5 percent lower than in 2014 (based on current enrollment patterns), whereas premiums for enhanced PDPs are projected to rise by about 7 percent. Enrollment changes during the annual enrollment period are likely to reduce modestly the weighted average increase reported here. Underneath these overall program trends, premium changes for individual PDPs from 2014 to 2015 vary widely. A greater share of enrollees is projected to pay more per month if they stay in their current plans than the share expected to pay less or a similar amount.

Benefit Designs In 2015, for the first time since the program started in 2006, all Part D PDPs will offer an alternative benefit design to the defined standard benefit, which has a $320 deductible in 2015 and 25 percent coinsurance for all covered drugs. Some plans modify or eliminate the deductible, and all PDPs use some type of varying cost-sharing tiers for covered generic and brand-name drugs. A majority of PDPs (58 percent) will charge a deductible in 2015, up modestly from 53 percent in 2014. Most PDPs with a deductible (44 percent) will charge the standard $320 amount. Among PDPs that charge a deductible, the share with a deductible below the standard amount has increased from 2014 (4 percent to 14 percent), but remains a relatively small share of plans. The coverage gap, or “doughnut hole,” is gradually becoming a less salient feature of the Part D benefit design, as a result of changes made by the ACA, and will be fully eliminated as of 2020, when beneficiaries will only be responsible for 25 percent of their total drug costs in the gap. Since 2011, any beneficiary with drug costs high enough to reach the gap has paid less than the full cost of the price of their drugs. In 2015, manufacturer prices for brand-name drugs purchased in the gap will be discounted by 50 percent, with plans paying an additional 5 percent of the cost and enrollees paying the remaining 45 percent. Plans will pay 35 percent of the cost for generic drugs in the gap, with enrollees paying 65 percent. In 2015, the coverage gap begins after an enrollee incurs $2,960 in total drug spending and ends after an enrollee has spent a total of $4,700 out of pocket (or $7,062 in total drug costs under the standard benefit). At that point, catastrophic coverage begins, where enrollees generally pay only 5 percent of drug costs (see Table 5.5).

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Most Part D plans will offer no gap coverage in 2015 beyond what is required by the ACA under the standard benefit. With all Part D enrollees now getting coverage for a share of their costs in the gap, the value of additional gap coverage offered by plans will become lower each year until 2020, when the gap is fully closed. In 2015, about 74 percent of all PDPs will offer no additional gap coverage. This is a small decrease from 2014, when 76 percent of PDPs offered no additional gap coverage—meaning a slightly larger share of plans will offer some gap coverage beyond what the ACA requires in 2015 than in 2014. For 2015, CMS has changed the way it reports gap coverage, no longer making distinctions between plans based on the share of formulary drugs covered in the gap or on whether both brand and generic drugs are included. In 2014, about one-fourth of PDPs with some additional coverage in the gap included fewer than 10 percent of formulary drugs in that coverage.

Other Notable Trends For 2015 According to the Kaiser Foundation, they identify three other notable trends that characterize the Part D program for 2015: 





Nearly all PDPs (87 percent) use pharmacy networks with preferred (lower) cost sharing offered in selected network pharmacies. In these networks, enrollees pay lower cost sharing for their prescriptions when they use a pharmacy that offers preferred cost sharing. This share is up from 72 percent of PDPs using pharmacy networks with preferred cost sharing in 2014, and a significant increase from just a few years ago when only a small share of plans used this type of preferred pricing (7 percent in 2011). Among the national and near-national PDPs with this type of preferred cost sharing, the AARP MedicareRx Saver Plus PDP charges a $20 copayment for a preferred brand drug in a pharmacy that offers preferred cost sharing and $45 in another network pharmacy that does not offer preferred cost sharing, while the Humana Walmart Rx PDP charges a $1 copayment for preferred generic drugs and $4 for non-preferred generics at a pharmacy with preferred cost sharing, compared to $10 and $33, respectively, at other network pharmacies where preferred cost sharing is not offered. The use of formulary tiers has been common since the program’s beginning in 2006, but for the first time in 2015, all PDPs will use tiered cost sharing. Most PDPs will use five tiers (two for generic drugs, two for brand-name drugs, and one for higher-cost specialty drugs). By 2013, this five-tier benefit design had become common, and in 2014, three-fourths of all PDPs used this design. Based on preliminary analysis of national and near-national PDPs, nearly 90 percent of these PDPs are using the five-tier design in 2015. In fact, there are no remaining PDPs using the Part D standard benefit as defined in law (25 percent coinsurance for all drugs). Over the years, there has been a trend toward the use of coinsurance in place of flat copayments for some formulary tiers. About two-thirds of national and nearnational PDPs are using coinsurance for their non-preferred brand tiers in 2015; about one-fourth do so for their preferred brand tiers. One implication is that coinsurance for drugs in the non-preferred brand tier are higher than that for specialty-tier drugs by as much as 25 percentage points. 99

Medicare Plan Finder Medicare has made available an interactive online tool called the Medicare Plan Finder (www.medicare.gov/find-a-plan) that allows for comparison of coverage and costs for all plans in a geographic area. The tool allows the beneficiary to enter a list of medications along with pharmacy preferences. It can show them their total annual costs for each plan along with a detailed breakdown of the plans’ monthly premiums, deductibles, and prices for each drug during each phase of the benefit design. Plans are required to update this site with current prices and formulary information every other week throughout the year.

Part D Enrollment There are specific times when an enrollee can sign up for Medicare prescription drug coverage (Part D), or make changes to coverage they already have: 

When an enrollee first becomes eligible for Medicare or when he/she turns 65, during their Initial Enrollment Period (see Table 5.11).  During certain open enrollment periods that happen every year (see Table 5.12).  Under certain circumstances that qualify the enrollee for a Special Enrollment Period (SEP). (See Table 5.13). Note: A late penalty 1% of the national average premium for each month not enrolled for life (Exception for late enrollment due to having a prescription drug coverage that is as good as Medicare’s. Table 5.11 Part D Initial Enrollment Period If this describes you…

You can…

At this time…

You’re newly eligible for Medicare because you turn 65.

Sign up for a Medicare Prescription Drug Plan.

During the 7-month period that starts 3 months before the month you turn 65, includes the month you turn 65, and ends 3 months after the month you turn 65.

You’re newly eligible for Medicare because you’re disabled (under 65).

Sign up for a Medicare Prescription Drug Plan.

During the 7-month period that starts 3 months before your 25th month of disability and ends 3 months after your 25th month of disability.



During the 7-month period that starts 3 months before the month you turn 65, includes the month you turn 65, and ends 3 months after the month you turn 65.

Note: This doesn’t apply if you have ESRD. You’re already eligible for Medicare because of a disability, and you turn 65

Sign up for a Medicare Prescription Drug Plan.  Switch from your current Medicare Prescription Drug Plan to another plan.  Drop a Medicare Prescription Drug Plan completely.

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You DON’T HAVE Medicare Part A coverage, and you enroll in Medicare Part B during the Part B General Enrollment Period (January 1– March 31).

You can sign up for a Medicare Prescription Drug Plan.

Between April 1–June 30. Coverage will start July 1.

Table 5.12 Part D Separate Enrollment Periods Enrollment Period

What the Enrollee Can Do  

October 15–December 7 Medicare Open Enrollment Period (Changes will take effect on January 1.)



Join a Medicare Prescription Drug Plan. Switch from one Medicare Prescription Drug Plan to another Medicare Prescription Drug Plan. Drop your Medicare prescription drug coverage completely. 

If you switch to Original Medicare during this period, you will have until February 14 to also join a Medicare Prescription Drug Plan to add drug coverage. Your prescription drug coverage will begin the first day of the month after the plan gets your enrollment form. Note: During this period, you can’t do the following:  Switch from one Medicare Prescription Drug Plan to another.  Join, switch, or drop a MSA Plan. 

January 1–February 14

Under special circumstances, a beneficiary may be eligible for a Special Enrollment Period (SEP) to change their Medicare drug plan outside of the usual enrollment or disenrollment periods (discussed above). If the beneficiary gets a SEP, their new coverage will usually start the first of the month after they sign up for or disenroll from a Medicare drug plan. Table 5.13 below describes these dates and the elections a beneficiary may choose. Table 5.13 Part D Special Enrollment Periods Changes where you live

If this describes you

You can

At this time

Switch to a Medicare Prescription Drug Plan.

If you tell your plan before you move, your chance to switch plans begins the month before the month you move and continues for 2 full months after you move.

You move to a new address that isn’t in your plan’s service area.

You move to a new address that’s still in your plan’s service area, but you have new plan options in your new location.

If you tell your plan after you move, your chance to switch plans begins the month you tell your plan, plus 2 more full months.

101

You move back to the United States after living outside the country.

You just moved into, currently live in, or just moved out of an institution (such as a skilled nursing facility or long-term care hospital).

Join a Medicare Prescription Drug Plan.



Join a Medicare Prescription Drug Plan. Switch from your current plan to another Medicare Prescription Drug Plan. Drop your Medicare prescription drug coverage.

Your chance to join, switch, or drop coverage lasts as long as you live in the institution and for 2 full months after the month you move out of the institution.

Join a Medicare Prescription Drug Plan.

Your chance to join lasts for 2 full months after the month you’re released from jail.





You’re released from jail.

Your chance to join lasts for 2 full months after the month you move back to the U.S.

Changes that Cause You to Lose Your Current Coverage If this describes you You’re no longer eligible for Medicaid.

Then you can Join Medicare Prescription Drug Plan.  Switch from your current plan to Medicare Prescription Drug Plan.  Drop your Medicare prescription drug coverage. 

At this time Your chance to change lasts for 2 full months after the month you find out you’re no longer eligible for Medicaid.

You leave coverage from your employer or union (including COBRA coverage). You involuntarily lose other drug coverage that is as good as Medicare drug coverage (creditable coverage), or your other coverage changes and is no longer creditable.

Join a Medicare Prescription Drug Plan.

You have drug coverage through a Medicare Cost Plan and you leave the plan.

Join a Medicare Prescription Drug Plan.

You drop your coverage in a Program of All-Inclusive Care for the Elderly (PACE) plan.

Join a Medicare Prescription Drug Plan.

Your chance to join lasts for 2 full months after the month your coverage ends. Your chance to join lasts for 2 full months after the month you lose your creditable coverage or are notified of the loss of creditable coverage, whichever is later. Your chance to join lasts for 2 full months after the month you drop your Medicare Cost Plan. Your chance to join lasts for 2 full months after the month you drop your PACE plan.

Join a Medicare Prescription Drug Plan.

You have a chance to get other coverage If this describes you You have a chance to enroll in other coverage offered by your employer or union. You have or are enrolling in other drug coverage as good as Medicare prescription drug coverage (such as TRICARE or VA coverage). You enroll in a Program of All-

Then you can Drop Medicare Prescription Drug Plan to enroll in the private plan offered by your employer or union. Drop your Medicare Prescription Drug Plan.

At this time Whenever your employer or union allows you to make changes in your plan.

Drop your Medicare

Anytime.

102

Anytime.

Inclusive Care for the Elderly (PACE) plan. You live in the service area of one or more Medicare Prescription Drug Plans with an overall quality rating of 5 stars.

Prescription Drug Plan. Join a Medicare Prescription Drug Plan with an overall quality rating of 5 stars.

One time during the year for which the plan you are joining has the overall quality rating of 5 stars.

Changes in your contract with Medicare If this describes you Medicare takes an official action (called a “sanction”) because of a problem with the plan that affects you. Your plan’s contract ends (terminates) during the contract year. Your Medicare Advantage Plan, Medicare Prescription Drug Plan, or Medicare Cost Plan’s contract with Medicare isn’t renewed for the next contract year.

Then you can Switch from your Medicare Prescription Drug Plan to another plan.

At this time Your chance to switch is determined by Medicare on a case-by-case basis.

Switch from your Medicare Prescription Drug Plan to another plan. Join another Medicare Prescription Drug Plan.

Your chance to switch starts 2 months before and ends 1 full month after the contract ends. Between October 15 and the last day in February

Changes due to other special situations You’re eligible for both Medicare and Medicaid. You qualify for Extra Help paying for Medicare prescription drug coverage. You’re enrolled in a State Pharmaceutical Assistance Program (SPAP) or lose SPAP eligibility. You have a severe or disabling condition, and there is a Medicare Chronic Care Special Needs Plan (SNP) available that serves people with your condition. You’re enrolled in a Special Needs Plan (SNP) and no longer have a condition that qualifies as a special need that the plan serves. You joined a plan, or chose not to join a plan, due to an error by a Federal employee.

Join, switch, or drop Medicare prescription drug coverage. Join, switch, or drop Medicare prescription drug coverage. Join either a Medicare Prescription Drug Plan or a Medicare Advantage Plan with prescription drug coverage. Join a Medicare Chronic Care SNP.

Anytime

Switch from your SNP to a Medicare Prescription Drug Plan.

You can choose a new plan starting from the time you lose your special needs status, up to 3 months after your SNP’s grace period ends. Your chance to change coverage lasts for 2 full months after the month you get a notice of the error from Medicare.







Join a Medicare Advantage Plan with drug coverage or a Medicare Prescription Drug Plan. Switch from your current plan to another Medicare Prescription Drug Plan. Drop your Medicare prescription drug coverage. 

103

Anytime. Once during the calendar year.

You can join anytime, but once you join, your chance to make changes using this SEP ends.

For more detailed information about signing up for Medicare prescription drug coverage (Part D), including instructions on how to join, visit: www.medicare.gov. You can also call 1-800-MEDICARE (1-800-633-4227). TTY users should call 1-877-486-2048. You can also get an enrollee’s personalized information at: www.medicare.gov Visit www.medicare.gov to get detailed information about your Medicare eligibility and enrollment options with the following tools:  

Medicare Eligibility Tool: Provides Medicare eligibility status information. Select “New to Medicare?” and then “Find Out if You’re Eligible.” Medicare Plan Finder: Provides personalized information about available Medicare Prescription Drug Plans, Medicare Advantage Plans, other Medicare health plans, and Medicare Supplement Insurance (Medigap) policies. Visit www.medicare.gov/find-a-plan.

Extra Help Program The Federal government has a program called Extra Help (also, known as Low Income Subsidy-LIS) which provides an extensive program for people needing financial assistance with the Medicare Part D program. According to CMS, in 2014 there were about 11 million Part D enrollees receiving extra help through the LIS program. The Extra Help is estimated to be worth about $4,000 per year.

Background Individuals eligible for Extra Help receive a full or partial subsidy up to the benchmark premium for a base plan. To get Extra Help, Medicare beneficiaries must enroll in a Medicare-approved prescription drug plan. The beneficiary also will be covered during the coverage gap and will not have to pay a late-enrollment penalty. Some Medicare beneficiaries are automatically eligible for Extra Help and do not need to apply. These beneficiaries are “deemed eligible” as long as they:    

Are entitled to Medicare Part A, Medicare Part B, or both; and Receive Supplemental Security Income (SSI), including 1619 (b); Receive full Medicaid; or Are Qualified Medicare Beneficiaries (QMB), Specified Low Income Medicare Beneficiaries (SLMB), or Qualifying Individuals (QI).

Medicare beneficiaries who do not meet the deemed eligible criteria still may be eligible for the subsidy (also known as Extra Help) based on their resources, income, and household size. These beneficiaries must file an application for Extra Help to see if they qualify.

104

According to CMS, in 2015, 283 plans will be available for enrollment of LIS recipients for $0 premiums, a 24% decrease in zero-premium (“benchmark”) plans from 2014 and the lowest number of such plans since the programs start in 2006.

Eligibility Criteria Individuals must meet the following criteria to receive a full or partial subsidy. They must:     

Be entitled or enrolled in Medicare Part A or Medicare Part B; Reside in one the 50 States or the District of Columbia; Have an annual income (including the income of their spouse if married and living together) of less than 150% of the Federal Poverty Level (FPL) based on household size; Have resources (including the income of their spouse if married and living together) within the limits established by statute; and File a low-income subsidy (Extra Help) application or be deemed eligible.

Medicare beneficiaries do not need to be enrolled in a Prescription Drug Plan (PDP) or Medicare Advantage Plan with Drug Coverage (MA-PD) to file for Extra Help; they can file for Extra Help first. However, Extra Help assistance does not start until the beneficiary is enrolled in a plan. The Centers for Medicare & Medicaid Services (CMS) automatically will enroll beneficiaries who are approved for Extra Help and have not selected a plan. If the beneficiary does not like the plan selected, he or she can select another plan or refuse enrollment.

Resource Limits To get Extra Help in 2015, an individual must have resources limited to $13,440 for a single individual (or $26,860 for a married couple living together). Of that amount, $1,500 per person is allowed for burial expenses. Social Security counts the individual’s resources, including those of a spouse if they are living together, based on what they have at the start of the month. It is important to remember that the subsidy coverage varies depending on the Medicare beneficiaries’ resources and income. Resource limits can change each year. These changes can be found at www.socialsecurity.gov/extrahelp. Resources include the value of the things beneficiaries own. Some examples are:       

Real estate (other than the beneficiary’s primary residence); Bank accounts, including checking, savings and certificates of deposit; Stocks; Bonds, including U.S. Savings Bonds; Mutual funds; Individual Retirement Accounts (IRAs); or Cash at home or anywhere else.

105

If the applicant for Extra Help has a joint account, it will be presumed that all of the funds in the account belong to the applicant unless the other account holder also is applying for Extra Help. The following are not counted?

           

The primary residence; Personal possessions; Vehicle(s); Things that could not easily be converted to cash, such as jewelry or home furnishings; Property needed for self-support, such as rental property or land used to grow produce for home consumption; Non-business property essential to self-support; Life insurance policies; Burial plots or spaces; Interest earned on money set aside for burial expenses; Certain distributions received by an Alaska Native from an Alaska Native Regional and Village Corporation; Land held in trust by the United States for an individual Indian or Tribe; and Funds held in trust by the Secretary of the Interior for an Indian Tribe and distributed per capita to members of the Tribe.

Also, certain other funds Medicare beneficiaries may have are not counted for nine months, such as:     

Retroactive Social Security or Supplemental Security Income (SSI) payments; Housing assistance; Tax advances and refunds related to earned income tax credits and child tax credits; Compensation received for being a victim of a crime; and Relocation assistance from a State or local government.

Income Limits For the plan year 2015, if an individual’s income is below $17,505 per year for a single person (or $23,595 for a married couple living together or even more if he/she has dependent children or grandchildren living with them). The following items are NOT included in income: 

Housing assistance,



Medical treatment and drugs,



Food stamp assistance, etc.

For instance, if an individual or couple has income less than 135% of the FPL (and resources are below the specified limit for an individual or couple), they may be eligible 106

for 100% premium subsidy. Income limits are subject to change annually based on Federal Poverty Levels (FPLs). (See Table 5.14). Table 5.14 Extra Help Subsidy Countable Income is

Premium subsidy

Up to 135% of FPL

100%

More than 135% FPL, but not more than 140%

75%

More than 140% FPL, but not more than 145%

50%

More than 145% FPL, but less than 150%

25%

150% FPL or more

None

Note: There is a limit for low-income premium subsidies to the greater of the lowest plan premium Or the CMS-set “benchmark” amount in the person’s area. Therefore, a person with income below 135% of the FPL may still be responsible for paying a portion of the plan’s premium if he or she enrolls in a plan whose premium exceeds the area benchmark. Refer all questions regarding premiums to the PDP or MA-PD provider.

The following are not counted:

        

Supplemental Nutrition Assistance Program (SNAP); Housing assistance; Home energy assistance; Medical treatment and drugs; Disaster assistance; Earned income tax credit payments; Assistance from others to pay for household expenses; Victim’s compensation payments; and Scholarships and education grants.

Household Size Household size includes beneficiaries, their spouses (if they are living together), and any relatives who live with them and depend on them for at least one-half of their financial support. For the Extra Help application, a relative is anyone related to the beneficiary by blood, marriage, or adoption. The size of a beneficiary’s household affects the income amount we use to determine eligibility for Extra Help with drug plan costs. We use the FPL guidelines (see Table 5.15) to make this determination. After we know the household size, we use the appropriate income level on the chart in Appendix A when we make the determination of eligibility for Extra Help. These tables may change annually. Updated tables can be found at www.aspe.hhs.gov/poverty. 107

Table 5.15 2014-2015 Federal Poverty Levels (FPL) Full Low Income Subsidy Income Replacements (100% of FPL) Persons in Family 1 2 3 4 5 6 7 8 For each additional Person, add

48 Contiguous States & D.C

Alaska

Hawaii

$14,580

$13,420

$19,660

$18,090

$19,790.00

$24,740

$22,760

$23,850.00

$29,820

$27,430

$27,910.00

$34,900

$32,100

$31,970.00

$39,980

$36,770

$36,030.00

$45,060

$41,440

$40,090.00

$50,140

$46,110

$4,060.00

$5,080

$4,670

$11,670 $15,730.00

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Chapter 5 Review Questions 1. Which Act enacted by Congress created Medicare Part D? ( ) A. The Balanced Budget Act 1997 ( ) B. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 ( ) C. Deficit Reduction Act Social Security Administration 2005 ( ) D. Social Security Act of 1965 2. Who is responsible to administer the Medicare Part D program? ( ) A. Centers for Medicare and Medicaid (CMS) ( ) B. Department of the Elderly and Consumer Affairs ( ) C. Social Security Administration ( ) D. Department of Health and Human Services 3. What is the Medicare Part D out-of-pocket threshold amount for 2015? ( ( ( (

) A. ) B. ) C. ) D.

$2,960 $4,550 $6,350 $4,700

4. According to the 2014 Medicare Trustees Report, how many individuals enrolled in the Part D program by year end of 2013? ( ( ( (

) A. ) B. ) C. ) D.

55.0 million 10.6 million 37.0 million 58.6 million

5. According to CMS, in 2014 there were about how many Part D enrollees receiving Extra Help through the LIS program? ( ( ( (

) A. ) B. ) C. ) D.

27 million 33 million 14 million 11 million

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CHAPTER 6

MEDICARE SUPPLEMENTAL INSURANCE POLICIES Overview Medicare Supplemental Insurance policies, which are sold by private insurance companies, are a vitally important product for seniors and other beneficiaries who choose Medicare’s original fee-for-service (FFS) program. Year after year, beneficiary out-ofpocket costs for Medicare’s FFS coverage increases. To assist in paying for these gaps in coverage—deductibles, co-payments and co-insurance amounts, beneficiaries purchase a Medicare Supplemental Insurance policy, also known as “Medigap” policies. In this chapter, we will examine the background and legislative intent of Medicare (Medigap) Supplement policies, the various types of Medigap policies, their features, benefits, costs and enrollment periods.

Learning Objectives Upon completion of this chapter, you will be able to:    

Review the background and legislative intent of Medigap policies; List the various categories of Medigap policies; Identify the 10 standardized benefit packages; and Assist your clients in selecting a Medigap policy.

Background Medigap is a key source of supplemental coverage for Medicare beneficiaries. Seniors purchase Medigap coverage to protect themselves from high out-of-pocket costs not covered by Medicare, to budget for medical expenses, and to avoid the confusion and inconvenience of handling complex bills from health care providers. Nine out of ten Medicare beneficiaries have coverage that provides benefits in addition to Medicare, protecting them from these substantial costs. Major sources of coverage that provide benefits beyond Medicare fee-for-service coverage include the following:    

Individually-purchased insurance policies (“Medigap” plans), Medicare health plans, Employer-sponsored plans, and Medicaid. 111

As Figue F 6.1 sho ows, Medigaap plans are an a importantt source of ssupplementaal coverage for 19 1 percent off non-instituttionalized Medicare M benneficiaries (22010). Figure F 6.1 Types off Coverage for f Non-ins titutionalizeed M Medicare Beneficiaries B s (2010)

Meddigap 7% 17

17%

Meddicaid Empployer‐Based

% 12%

26%

Meddicare Advantaage Othher Public Proggrams

28%

Meddicare Only

Sourcee: Low-income & Rural R Beneficiariees with Medigap Coverage C 2010 (AH HIP Study 2010, citing data from thee Medicare Currennt Beneficiary Survey Access A to Care filees 2010 (CMS).

M insu urance planss are sold by y the private insurance coompanies, buut these planns The Medigap are sttrict and fixeed by the gov vernment; so o the compannies cannot m make any chhange in these. The privatee companiess only act as an intermeddiary by selliing these Meedigap policies to the common people. Accordin ng to AHIP, as of Decem mber 2013, tthere were over 10.6 million n Medicare beneficiaries b who have ppurchased a M Medigap pollicy, up from m oximately 10 0.2 million in n December 2012 (see T Table 6.2). appro Table T 6.2 Numb ber of Indiviiduals with Standard aand Pre--standard Medigap M Pla ans, as Repoorted to the NAIC, 20133 Poolicies 10,1103,202 50 1,527 10,6604,729

Standarrd Medigap Plans Pre-Stand dard Medigaap Plans All Medigap M Plaans

Peercent 995% 5% 100%

Source: AHIP analyssis of the National Association of Innsurance Commissiioners’ (NAIC) dicare Supplement Insurance Experieence Exhibit, for thhe Year Ended Deecember 31, 2013 Med

file:///C C:/Users/ED_Ho ome2/Download ds/CPR_714_17_ _Trends%20in% %20Medigap%200Coverage%20annd%20Enrollmeen t_13.pd df

Somee Medigap plans may incclude benefits for services that Mediicare doesn’t pay for (seee Tablee 6.2), such as a emergenccy medical co osts incurredd while a benneficiary maay be traveling outside the U.S. or excess e charg ges when theey see a provvider who dooes not accep pt Medicare assignment. A Medigap p policy is guuaranteed too be renewabble as long ass the beeneficiary paays the prem mium. It cann not be canceelled becausee of their heaalth conditioon or forr any reason other than non-payment n t of the prem mium. 112

Table 6.10 and 6.11, found at the end of this chapter, provides detailed information on the benefits and cost sharing features of 2010 Standardized Medigap plans and the Pre-2010 Standardized Medigap Plans required by the 2008 Medicare Improvements for Patients and Providers Act (MIPPA).

Medigap Legislation As a result of scandals in the marketing and quality of supplemental insurance policies, Congressional hearings in the 1970s led to the passage of the first two key sets of federal regulations. In the 1980s the Social Security Disability Amendments, also referred to as the “Baucus Amendments,” were enacted. The Amendments provided voluntary certification for Medigap policies that met minimum benefit and medical loss ratio standards, limited the duration of pre-existing condition exclusions, and required specific information to be disclosed to prospective purchasers. Although nearly all states adopted the Baucus Amendments, problems remained, the largest one of which was the variation across benefits offered by Medigap insurers that made “apples-to-apples” comparison across plans difficult. Moreover, some researchers determined that the benefits included in some Medigap policies provided little value, such as coverage for skilled nursing facility stays in excess for 100 days. The Omnibus Budget Reconciliation Act of 1990 (OBRA-90) included the second key set of federal regulations for Medigap, which are still largely in effect today. The law directed the National Association of Insurance Commissioners (NAIC) to establish a standardized set of plans; Medigap policies had to conform exactly to particular lists of benefits. Unlike the voluntary Baucus Amendments, this standardization was mandatory for all but three states (Massachusetts, Minnesota, and Wisconsin) that already had some form of standardization in effect. The NAIC specified ten Medigap policy types, labeled A through J, which have been modified and modernized over time. Companies are not required to sell all plan types, but the ones they do not sell must conform to the standardization rules. All companies that sell Medigap policies must sell plan type A, and may choose to sell other plan types as well. In addition to directing the NAIC to create standardized plans, OBRA-90 included a number of other requirements:  

 

Guaranteed plan renewability (with few exceptions); Medical loss ratio requirements of at least 65 percent for individual policies and 75 percent for group policies; that is, insurance companies selling Medigap plans are required to spend at least 65 percent of their premium income from individual policies, or 75 percent of premium income from group policies, on health care claims and quality improvements, leaving the remaining share of premiums for administration, marketing, and profit. These requirements have remained unchanged since 1990. Penalties on agents and insurers who knowingly sell duplicate coverage; Limits on agent commissions during the first year of coverage to discourage the “churning” of policies; 113

 

Institution of a six-month open enrollment period after a beneficiary’s initial eligibility for Medicare, for beneficiaries age 65 and older; and Limits the exclusion period for pre-existing conditions to six months.

In 1995, the Act to Amend the Omnibus Budget Reconciliation Act of 1990 authorized “SELECT” plans to be offered as a Medigap plan option; SELECT plans were initially introduced in OBRA-90 as a demonstration. SELECT plans have a preferred provider networks, and beneficiaries receiving care from providers outside of the plans’ networks may have additional costs. Two years later, in 1997, the Balanced Budget Act (BBA) authorized high deductible Medigap plans as options for Plan F and Plan J. These high deductible plans offer the same benefits as Plans F and J but require the beneficiary to pay for Medicare-covered costs up to a deductible $2,180 in 2015 (up from $2,140 in 2014) before the Medigap plan begins to pay for covered benefits. Note: Plan J plans with high deductibles cannot be sold after June 1, 2010. Plans sold before June 1, 2010 are grandfathered. As a result of the expansion of Medicare benefits to cover prescription drugs beginning in 2006, The Medicare Modernization Act of 2003 (MMA) required the elimination of prescription drug benefits from any Plan H, I, or J policy issued on or after January 1, 2006. While new Medigap policies may not be issued with prescription drug benefits on or after January 1, 2006, policyholders may continue to renew Medigap policies that contain drug benefits if they choose not to enroll in the Medicare prescription drug (Part D) program. The MMA also authorized the establishment of two new standard Plans, K and L, beginning in 2006. Both new plans have the same hospitalization benefits as the original standard plans. They differ from Plans A through J primarily in that they provide less coverage for physician and other Part B services. Both K and L plans each included patient cost-sharing for most services but also contained limits on annual out-of-pocket costs. The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA), which was based on recommendations developed by the National Association of Insurance Commissioners (NAIC), in consultation with consumer advocates, industry representatives, and other interested parties, set out to overhaul and modernize Medigap coverage. Medigap carriers had to make the new (2010) standardized plans available effective June 1, 2010. Each of the new 2010 plans incorporates the following benefit changes: .  Elimination of the at-home recovery benefit in favor of a new hospital benefit (described below);  Addition of a new core hospice benefit that covers the cost-sharing under Medicare FFS (fee for service - Parts A and B) for palliative drugs and inpatient respite care; and  Removal of the preventive care benefit in recognition of the increased Medicare FFS coverage under Part B. MIPPA also called for the introduction of two new Medigap policies (Plan M and N) with increased beneficiary cost-sharing features and the elimination of several 114

standardized plan options (Plans E, H, I, J, and J with high deductible) that became duplicative or unnecessary.  

Plan M includes increased consumer cost-sharing responsibilities with 50 percent co-insurance for the Medicare Part A deductible and no coverage of the Part B deductible. Plan N increases consumer cost-sharing responsibilities by: o Not offering coverage for the Part B deductible, and o Imposing as much as $20 for a copay for doctor visits and up to a $50 copay for emergency room visits that do not result in an inpatient admission.

Trends in Medigap Coverage Most Medigap plans cover beneficiaries’ Part A deductible and Part B co-insurance. Two plans—standardized Plans C and F—currently offer full coverage for the Part B deductible (however, Plan F can also be sold as a high-deductible plan). These two plans also cover Part B co-insurance and copayment amounts, as do most but not all standardized plans. Plans K and L do not cover the Medicare Part B deductible and cover a portion of beneficiaries’ Part B co-insurance. However, there is a limit—$4,940 in 2015 (up from $4,800 in 2014) for Plan K and $2,470 (up from $2,400 in 2014) for Plan L in 2015—on beneficiaries’ annual out-of-pocket costs for Medicare eligible expenses. New Plans M and N entered the market in June of 2010. Plan M covers half of the Part A deductible and does not cover the Part B deductible. Plan N covers all of the Part A deductible and does not cover the Part B deductible. Plan N also includes cost-sharing amounts of up to $20 for certain physician visits and up to $50 for certain emergency department visits. Medicare SELECT plans are identical to standardized Medigap plans but require policyholders to use provider networks to receive the full insurance benefits. For this reason, Medicare SELECT plans generally cost less than other Medigap plans.

Companies Offering Coverage, 2013 At year end (2013), 10 percent of companies offering standardized Medigap policies covered individuals in 41 or more states or territories; 16 percent or companies covered individuals in 26 to 40 states or territories; 10 percent covered individuals in 11 to 25 states or territories; and 17 percent of companies covered individuals with standardized Medigap in 2 to 10 states or territories. Forty-eight percent of all Medigap companies had standardized policies in force in a single state or territory (see Table 6.3)

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Table 6.3 Distribution of Medigap Companies with Standardized Medigap Policies in Force, by Market Size, December 2013 Number of States or Territories

Percent of Companies

41 or more 26 - 40 11 - 25 2 - 10 1

10% 16% 10% 17% 48%

Source: AHIP Center for Policy and Research analysis of the NAIC Medicare Supplement Insurance Experience Exhibit, for the Year Ended December 31, 2013. Notes: Data in this table depicting the number of states are based on companies with standardized Medigap policies in force; data do not include companies with only pre-standardized policies in force. The data for standardized policies include Medicare SELECT plans, and those issued in three states (MA, MN, and WI) that received waivers from the standardized product provisions of OBRA 1990. The number of companies with standardized Medigap policies in force reporting to the NAIC for 2013 was 259. The U.S. territories are American Samoa, Guam, Northern Mariana Islands, Puerto Rico, Virgin Islands. Percentages may not sum to 100 due to rounding.

At year end December 31, 2013, there were 96 companies (down from 100 carriers in 2012) with Medicare SELECT policies in force, and 783,309 (down from 800,780 beneficiaries in 2012) enrollees having a Medicare SELECT policy. Companies with Medicare SELECT policies in force are located across the country in 43 states. There were no Medicare SELECT policies in force in the U.S. territories on December 31, 2013. Table 6.4 displays the percentage of reporting companies with standardized Medigap policies in force on December 31, 2013 by each plan type. The percentages of companies with Plans K and L, which were authorized beginning in 2006, are 15 percent and 16 percent, respectively. In June 2010, Plans M and N were authorized for sale. Nine percent of companies had policies in force for Plan M and 45 percent of companies had policies in force in Plan N. Table 6.4 Distribution of Enrollment by Standardized Plan Type, December 2013 Plan Type

% of Companies

A B C D E F G H I J K L M N Waiver State Plans

84% 61% 76% 44% 29% 83% 50% 24% 24% 27% 15% 16% 9% 45% 28%

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Source: AHIP Center for Policy and Research analysis of the NAIC Medicare Supplement Insurance Experience Exhibit, for the Year Ended December 31, 2013. Notes: The data for standardized policies include Medicare SELECT plans, and those issued in three states (MA, MN and WI) that received waivers from the standardized product provisions of OBRA 1990. The number of companies with standardized Medigap policies in force for 2013 was 259. All plans offering new coverage must offer Plan A. Plans E, H, I and J are no longer sold but some policyholders have retained their coverage for these plans.

Among individuals with Medigap standardized plans, Plan F continues to have the highest number of enrollees, covering 55 percent of policyholders in 2013; Plan C had the second highest share, with 11 percent of the market (see Table 6.5) Table 6.5 Distribution of Enrollment by Standardized Plan Type, December 2013 Plan Type

% of Companies

A B C D E F G H I J K L M N Waiver State Plans

2% 4% 11% 2% 1% 55% 6% 1% 1% 6% 1%