Banyan Administrators have been providing us with beneficial information about several different aspects of the Health Care Reform and how it affects us. Over the next months and years, employers will be faced with numerous changes, many of which require regulatory clarification. Banyan will continue to keep us up to date and on target with decisions that affect our plans.  Over the next few weeks, Banyan will be providing answers to many questions regarding Medicare and how the reform will affect you. We are sure you will find the information valuable.

The following information is provided by Banyan Administrators:

Health Care Reform – Medicare

What You Need to Know Now About: Medicare

Arguably the greatest volume of reforms through the Patient Protection and Affordable Care Act (“Affordable Care Act”) signed into law on 03/23/2010 involve Medicare. Some of the provisions are direct reforms to Medicare while other provisions of the Affordable Care Act may have an indirect, but intentional, impact on the program. The following Q&A will give you an overview of the reforms to the Medicare program and how they are all intended to work together.

1.  What is the history of Medicare?

As early as 1945, President Harry S. Truman proposed a government administered national social insurance program. It was not until the Social Security Act of 1965 signed into law by President Lyndon B. Johnson that the Medicare program was created. The first senior enrolled into the Medicare program was former President Harry S. Truman. Former First Lady Bess Truman was the second senior enrolled.

The first two programs created in 1965 were Medicare Part A and Medicare Part B. Since that time, Medicare Part C (1997) and Medicare Part D (2006) have been added.

Medicare Part A is hospitalization insurance providing coverage to the Medicare enrollee for inpatient hospital stays. Medicare Part A also pays for other facility-based skilled services such as care at a skilled nursing facility, but, on a limited basis. Most Medicare enrollees do not pay a premium for Medicare Part A coverage because they (or a spouse) have paid enough into the program through payroll taxes prior to retirement. Medicare enrollees do have to meet a Medicare Part A deductible before any benefits are paid. In 2010, the Medicare Part A deductible is $1,100 for an inpatient stay up to 60 days.

Medicare Part B is medical insurance providing coverage to the Medicare enrollee for outpatient services provided by a physician. Services include physician services, nursing services, x-ray, laboratory and diagnostic tests, vaccinations, renal dialysis, outpatient hospital procedures, etc. No benefit is provided for prescription drugs unless the drug is administered by a physician. Participation in Medicare Part B is voluntary if an eligible retiree wishes to participate; the premium amount will be deducted from his social security benefit. In 2010, Medicare Part B monthly premium, on average, is $100.50. The Medicare Part Benrollee also has to meet a $155 deductible and then pay 20% coinsurance.

In 2008, there were 45 million enrollees in Medicare making it the nation’s largest single health care payer in the nation. By 2030, it is expected that enrollment will reach 78 million. In 2008, Medicare spending reached $599 billion which was 20% of the total federal government spending. At $599 billion, Medicare is only surpassed by Social Security and defense spending.

Medicare Part C, also known as “Medicare+Choice”, was created by the Balanced Budget Act of 1997. At that time, the government was attempting to cut $155 billion from the Medicare program by allowing private insurers in the health insurance industry to offer “Medicare Advantage” plans to Medicare beneficiaries. For every Medicare beneficiary who enrolled in a Medicare Advantage plan, the Medicare program pays a subsidy to the private insurer. 

Whereas traditional Medicare Parts A & B offers a standard benefit package that covers medically necessary care, the Medicare Advantage plan can provide an expanded level of coverage including prescription drugs, dental care, vision care, and even health club memberships. Medicare Advantage enrollees often have a variety of plan designs to choose from very similar to the types of employer-sponsored plans they had access to pre-retirement. The plan may have a limited provider network for the enrollee to seek care; however, if the enrollee uses an in-network doctor, he may receive a greater level of benefit than he would through traditional Medicare. Another important distinction between traditional Medicare and Medicare Advantage plans is that the latter, typically, encourages preventive care and wellness care at little to no out-of-pocket cost for the enrollee.

Of course, with the expanded level of coverage the Medicare Advantage enrollee typically will pay an additional premium for the coverage in addition to the Medicare Parts A & B premium. Still, the popularity of the Medicare Advantage plans continues to grow. In 2008, 10.3 million of all Medicare eligible seniors (22%) were enrolled in a Medicare Advantage plan. This is double the enrollment from 2003.

Medicare Part D went into effect in 2006 after the passage of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Medicare Part D is similar to the Medical Advantage plans in that they are designed and administered by private health insurance companies, however, the coverage is limited to prescription drugs. Any enrollee in traditional Medicare Parts A & B can also enroll in Medicare Part D. Unlike Medicare Parts A & B, the coverage designs of Medicare Part D plans are not standardized and private insurers can offer a variety of plan design options within certain guidelines.

Of course, there is an additional cost to enroll into Medicare Part D. If a Medicare eligible beneficiary does not enroll into Medicare Part D when first eligible and then decides to enroll in the program, they will have to pay a penalty unless they can provide a “Certificate of Creditable Coverage” documenting they had drug coverage through another source at the Medicare Part D level, or better, of coverage. Sources could include an active employer plan because either the Medicare eligible beneficiary or a spouse is still actively employed. Another source could be through an employer-sponsored group early retiree or retiree drug program.   For those employers sponsoring creditable drug coverage, they may be eligible for subsidies from the Medicare program.

2.  How is Medicare Eligibility defined?

In general terms, to be eligible for Medicare, an individual must be:

  • Age 65 or older;
  • Legal resident of the United States for, at least, 5 years; and
  • Paid Medicare taxes for a minimum of 10 years.

If the individual (or a spouse) has not paid Medicare taxes for the minimum of 10 years, they can still enroll in Medicare, but, will be charged a monthly premium.

Medicare taxes are paid through the Federal Insurance Contribution Act (FICA) of 1954. The FICA tax is, currently, 2.9% based upon the worker’s wages, salaries and other compensation in connection with employment. The employee pays 1.45% of the tax with the employer paying a matching 1.45% contribution.