Medicare has four parts: Part A is Hospital Insurance. Part B is Medical Insurance. Medicare Part D covers prescription drugs. Medicare Advantage plans, also known as Medicare Part C, are another way for beneficiaries to receive their Part A, B and D benefits. All Medicare benefits are subject to medical necessity.

The original program was only Parts A and B. Part D was new in January 2006; before that, Parts A and B covered prescription drugs in only a few special cases.

[edit] Part A: Hospital Insurance

Part A covers inpatient hospital stays (at least overnight), including semiprivate room, food, tests, and doctor's fees.

Part A covers brief stays for convalescence in a skilled nursing facility if certain criteria are met:

1. A preceding hospital stay must be at least three days, three midnights, not counting the discharge date.
2. The nursing home stay must be for something diagnosed during the hospital stay or for the main cause of hospital stay.
3. If the patient is not receiving rehabilitation but has some other ailment that requires skilled nursing supervision then the nursing home stay would be covered.
4. The care being rendered by the nursing home must be skilled. Medicare part A does not pay for custodial, non-skilled, or long-term care activities, including activities of daily living (ADL) such as personal hygiene, cooking, cleaning, etc.

The maximum length of stay that Medicare Part A will cover in a skilled nursing facility per ailment is 100 days. The first 20 days would be paid for in full by Medicare with the remaining 80 days requiring a co-payment (as of 2009, $133.50 per day). Many insurance companies have a provision for skilled nursing care in the policies they sell.

If a beneficiary uses some portion of their Part A benefit and then goes at least 60 days without receiving facility-based skilled services, the 100-day clock is reset and the person qualifies for a new 100-day benefit period.

[edit] Part B: Medical Insurance

Part B medical insurance helps pay for some services and products not covered by Part A, generally on an outpatient basis. Part B is optional and may be deferred if the beneficiary or their spouse is still actively working. There is a lifetime penalty (10% per year) imposed for not enrolling in Part B unless actively working.

Part B coverage includes physician and nursing services, x-rays, laboratory and diagnostic tests, influenza and pneumonia vaccinations, blood transfusions, renal dialysis, outpatient hospital procedures, limited ambulance transportation, immunosuppressive drugs for organ transplant recipients, chemotherapy, hormonal treatments such as Lupron, and other outpatient medical treatments administered in a doctor's office. Medication administration is covered under Part B only if it is administered by the physician during an office visit.

Part B also helps with durable medical equipment (DME), including canes, walkers, wheelchairs, and mobility scooters for those with mobility impairments. Prosthetic devices such as artificial limbs and breast prosthesis following mastectomy, as well as one pair of eyeglasses following cataract surgery, and oxygen for home use is also covered.^[9]

Complex rules are used to manage the benefit, and advisories are periodically issued which describe coverage criteria. On the national level these advisories are issued by CMS, and are known as National Coverage Determinations (NCD). Local Coverage Determinations (LCD) only apply within the multi-state area managed by a specific regional Medicare Part B contractor, and Local Medical Review Policies (LMRP) were superseded by LCDs in 2003. Coverage information is also located in the CMS Internet-Only Manuals (IOM), the Code of Federal Regulations (CFR), the Social Security Act, and the Federal Register.

[edit] Part C: Medicare Advantage plans

With the passage of the Balanced Budget Act of 1997, Medicare beneficiaries were given the option to receive their Medicare benefits through private health insurance plans, instead of through the original Medicare plan (Parts A and B). These programs were known as "Medicare+Choice" or "Part C" plans. Pursuant to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, "Medicare+Choice" plans were made more attractive to Medicare beneficiaries by the addition of prescription drug coverage and became known as "Medicare Advantage" (MA) plans.

Traditional or "fee-for-service" Medicare has a standard benefit package that covers medically necessary care members can receive from nearly any hospital or doctor in the country. For people who choose to enroll in a Medicare Advantage health plan, Medicare pays the private health plan a capitated rate, or a set amount, every month for each member. Members typically also pay a monthly premium in addition to the Medicare Part B premium to cover items not covered by traditional Medicare (Parts A & B), such as prescription drugs, dental care, vision care and gym or health club memberships.^[10] In exchange for these extra benefits, enrollees may be limited in the providers they can receive services from without paying extra. Typically, the plans have a "network" of providers that patients can use. Going outside that network may require permission or extra fees.

Medicare Advantage plans are required to offer coverage that meets or exceeds the standards set by the original Medicare program, but they do not have to cover every benefit in the same way. If a plan chooses to pay less than Medicare for some benefits, like skilled nursing facility care, the savings may be passed along to consumers by offering lower copayments for doctor visits. Medicare Advantage plans use a portion of the payments they receive from the government for each enrollee to offer supplemental benefits. Some plans limit their members’ annual out-of-pocket spending on medical care, providing insurance against catastrophic costs over $5,000, for example. Many plans offer dental coverage, vision coverage and other services not covered by Medicare Parts A or B, which makes them a good value for the health care dollar, if you want to use the provider included in the plan's network or "panel" of providers.

Because the 2003 payment formulas overpay plans by 12 percent or more compared to traditional Medicare,^[11] in 2006 enrollees in Medicare Advantage Private Fee-for-Service plans were offered a net extra benefit value (the value of the additional benefits minus any additional premium) of $55.92 a month more than the traditional Medicare benefit package; enrollees in other Medicare Advantage plans were offered a net extra benefit value of $71.22 a month more.^[12] However, Medicare Advantage members receive additional coverage and medical benefits not enjoyed by traditional Medicare members, and savings generated by Medicare Advantage plans may be passed on to beneficiaries to lower their overall health care costs.^[10] Other important distinctions between Medicare Advantage and traditional Medicare are that Medicare Advantage health plans encourage preventive care and wellness and closely coordinate patient care.^[13]

Medicare Advantage Plans that also include Part D prescription drug benefits are known as a Medicare Advantage Prescription Drug plan or a MA-PD.

Enrollment in Medicare Advantage plans grew from 5.4 million in 2005 to 8.2 million in 2007. Enrollment grew by an additional 800,000 during the first four months of 2008. This represents 19% of Medicare beneficiaries. A third of beneficiaries with Part D coverage are enrolled in a Medicare Advantage plan. Medicare Advantage enrollment is higher in urban areas; the enrollment rate in urban counties is twice that in rural counties (22% vs. 10%). Almost all Medicare beneficiaries have access to at least two Medicare Advantage plans; most have access to three or more. Because of the 2003 law's overpayments, the number of organizations offering Fee-for-Service plans has increased dramatically, from 11 in 2006 to almost 50 in 2008. Eight out of ten beneficiaries (82%) now have access to six or more Private Fee-for-Service plans.^[14]

Each year many individuals disenroll from MA plans. A recent study noted that about 20 percent of enrollees report that "their most important reason for leaving was due to problems getting care."^[15] There is some evidence that disabled beneficiaries "are more likely to experience multiple problems in managed care."^[16] Some studies have reported that the older, poorer, and sicker persons have been less satisfied with the care they have received in MA plans.^[17] On the other hand, an analysis of the Agency for Healthcare Research and Quality data published by America’s Health Insurance Plans found that Medicare Advantage enrollees spent fewer days in the hospital than Fee-for-Service enrollees, were less likely to have "potentially avoidable" admissions, and had fewer re-admissions. These comparisons adjusted for age, sex and health status using the risk score used in the Medicare Advantage risk adjustment mechanism.^[18][19]

In December 2009 the Kaiser Family Foundation published a report that rated Medicare Advantage organizations on a five star scale. The ratings were based on data from CMS, the Consumer Assessment of Healthcare Providers and Systems (CAHPS), Healthcare Effectiveness Data and Information Set (HEDIS) data, and the Health Outcomes Survey (HOS). New plans did not receive ratings, because data were not available. Almost six out of ten (59%) of MA plans did receive ratings, and these plans represented 85% of the enrollment for 2009. The average rating was 3.29 stars. Twenty-three percent of enrollees were in a plan with four or more stars; 20% were in a plan with fewer than three stars.^[20]

Twenty percent of African-American and 32 percent of Hispanic Medicare Beneficiaries were enrolled in Medicare Advantage plans in 2006. Almost half (48%) of Medicare Advantage enrollees had incomes below $20,000, including 71% of minority enrollees.^[21] Others have reported that minority enrollment is not particularly above average.^[22] Another study has raised questions about the quality of care received by minorities in MA plans.^[23]

The Government Accountability Office reported that in 2006, the plans earned profits of 6.6 percent, had overhead (sales, etc.) of 10.1 percent, and provided 83.3 percent of the revenue dollar in medical benefits. These administrative costs are far higher than traditional fee-for-service Medicare.^[24]

[edit] Part D: Prescription Drug plans

Medicare Part D went into effect on January 1, 2006. Anyone with Part A or B is eligible for Part D. It was made possible by the passage of the Medicare Prescription Drug, Improvement, and Modernization Act. In order to receive this benefit, a person with Medicare must enroll in a stand-alone Prescription Drug Plan (PDP) or Medicare Advantage plan with prescription drug coverage (MA-PD). These plans are approved and regulated by the Medicare program, but are actually designed and administered by private health insurance companies. Unlike Original Medicare (Part A and B), Part D coverage is not standardized. Plans choose which drugs (or even classes of drugs) they wish to cover, at what level (or tier) they wish to cover it, and are free to choose not to cover some drugs at all. The exception to this is drugs that Medicare specifically excludes from coverage, including but not limited to benzodiazepines, cough suppressant and barbiturates.^[25][26] Plans that cover excluded drugs are not allowed to pass those costs on to Medicare, and plans are required to repay CMS if they are found to have billed Medicare in these cases.^[27]

It should be noted again for beneficiaries who are dual-eligible (Medicare and Medicaid eligible) Medicaid may pay for drugs not covered by part D of Medicare, such as benzodiazepines, and other restricted controlled substances.

[edit] Out-of-pocket costs

Neither Part A nor Part B pays for all of a covered person's medical costs. The program contains premiums, deductibles and coinsurance, which the covered individual must pay out-of-pocket. A study published by the Kaiser Family Foundation in 2008 found the Fee-for-Service Medicare benefit package was less generous than either the typical large employer PPO plan or the Federal Employees Health Benefits Program Standard Option.^[28] Some people may qualify to have other governmental programs (such as Medicaid) pay premiums and some or all of the costs associated with Medicare.

[edit] Premiums

Most Medicare enrollees do not pay a monthly Part A premium, because they (or a spouse) have had 40 or more 3-month quarters in which they paid Federal Insurance Contributions Act taxes. Medicare-eligible persons who do not have 40 or more quarters of Medicare-covered employment may purchase Part A for a monthly premium of:

• $254.00 per month (2010) for those with 30-39 quarters of Medicare-covered employment, or
• $461.00 per month (in 2010) for those with less than 30 quarters of Medicare-covered employment and who are not otherwise eligible for premium-free Part A coverage.^[29].

All Medicare Part B enrollees pay an insurance premium for this coverage; the standard Part B premium for 2009 is $96.40 per month. A new income-based premium schema has been in effect since 2007, wherein Part B premiums are higher for beneficiaries with incomes exceeding $85,000 for individuals or $170,000 for married couples. Depending on the extent to which beneficiary earnings exceed the base income, these higher Part B premiums are $134.90, $192.70, $250.50, or $308.30 for 2009, with the highest premium paid by individuals earning more than $213,000, or married couples earning more than $426,000.^[30] In September 2008, CMS announced that Part B premiums would be unchanged ($96.40 per month) in 2009 for 95 percent of Medicare beneficiaries. This would be only the sixth year without a premium increase since Medicare was established in 1965.^[31][32]

Medicare Part B premiums are commonly deducted automatically from beneficiaries' monthly Social Security checks.

Part C and D plans may or may not charge premiums, at the programs' discretion. Part C plans may also choose to rebate a portion of the Part B premium to the member.

[edit] Deductible and coinsurance

Part A — For each benefit period, a beneficiary will pay:

• A Part A deductible of $1,068 (in 2009) for a hospital stay of 1–60 days.
• A $267 per day co-pay (in 2009) for days 61-90 of a hospital stay.
• A $534 per day co-pay (in 2009) for days 91-150 of a hospital stay, as part of their limited Lifetime Reserve Days.
• All costs for each day beyond 150 days^[33]

• Coinsurance for a Skilled Nursing Facility is $133.50 per day (in 2009) for days 21 through 100 for each benefit period.

• A blood deductible of the first 3 pints of blood needed in a calendar year, unless replaced. There is a 3 pint blood deductible for both Part A and Part B, and these separate deductibles do not overlap.

Part B — After a beneficiary meets the yearly deductible of $155.00 (in 2010), they will be required to pay a co-insurance of 20% of the Medicare-approved amount for all services covered by Part B with the exception of most lab services which are covered at 100%. They are also required to pay an excess charge of 15% for services rendered by non-participating Medicare providers.

The deductibles and coinsurance charges for Part C and D plans vary from plan to plan.

[edit] Medicare supplement (Medigap) policies

Some people elect to purchase a type of supplemental coverage, called a Medigap plan, to help fill in the holes in Original Medicare (Part A and B). These Medigap insurance policies are standardized by CMS, but are sold and administered by private companies. Some Medigap policies sold before 2006 may include coverage for prescription drugs. Medigap policies sold after the introduction of Medicare Part D on January 1, 2006 are prohibited from covering drugs. Medicare regulations prohibit a Medicare beneficiary from having both a Medicare Advantage Plan and a Medigap Policy. Medigap Policies may only be purchased by beneficiaries that are receiving benefits from Original Medicare (Part A & Part B).

Some have suggested that by reducing the cost-sharing requirements in the Medicare program, Medigap policies increase the use of health care by Medicare beneficiaries and thus increase Medicare spending. One recent study suggests that this concern may have been overstated due to methodological problems in prior research