Deductible and Coinsurance

Part A

Each benefit period, a beneficiary will pay:

  • a Part A deductible of $1,132 (2011) for a hospital stay of 1-60 days
  • a $283 per day co-pay (2011) for days 61-90 of a hospital stay
  • a $566 per day co-pay (2011) for days 91-150 of a hospital stay
  • all costs for each day beyond 150 days
  • coinsurance for skilled nursing is $141.50 per day (2011) for days 21 through 100
  • 3-pint blood deductible for both Part A and Part B (these separate deductibles do not overlap)

Part B

After a beneficiary meets the yearly deductible of $145.50 (2011), they will be required to pay a co-insurance of 20% of the Medicare-approved amount for all services covered by Part B. They are also required to pay an excess charge of 15% for services rendered by a Medicare provider who does not accept assignment.

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


Medicare Overview

Medicare is the nation’s largest health insurance initiative. It was originally signed into law on July 30, 1965, by President Lyndon B. Johnson, as an amendment to Social Security legislation. Individuals are eligible for Medicare if:

  • they are a U.S. citizen or have been a permanent legal resident for 5 continuous years and they are 65 years or older
  • they are under 65, disabled and have been receiving Social Security or Railroad Retirement Board disability benefits for at least 24 months
  • they have permanent kidney failure or need a kidney transplant
  • they are eligible for Social Security Disability Insurance and have Lou Gehrig's disease

Many beneficiaries qualify for both Medicare and Medicaid. In some states, for those making below a certain income Medicaid will pay Part B premium and for any drugs that are not covered by Part D. By 2031, enrollment in Medicare is expected to reach 77 million.

The original Medicare program has two parts: Part A (Hospital Insurance) and Part B (Medical Insurance). Medicare Part D provides comprehensive prescription drug coverage. Medicare Advantage plans are another way for beneficiaries to receive their Part A, B and D benefits.


Medicare Part A

Part A: Hospital Insurance

Part A covers hospital visits, including stays in a skilled nursing facility, if certain criteria are met:

  1. The hospital stay must be at least three days, not counting the discharge date.
  2. The nursing home stay must be for something diagnosed during the hospital stay.
  3. If the patient is not receiving rehabilitation, but has some other ailment that requires skilled nursing supervision, the nursing home stay would be covered.
  4. The care being rendered by the nursing home must be skilled. Part A does not pay for custodial, non-skilled, or long-term care.

The maximum length of stay that Part A will cover in a skilled nursing facility is 100 days per ailment. The first 20 days are paid in full by Medicare with the remaining 80 days requiring a co-payment (in 2011, $141.50 per day). If a beneficiary uses a portion of their Part A benefit and then goes at least 60 days without receiving facility-based skilled services, the person qualifies for a new 100-day benefit period.


Medicare Part B

Part B: Medical Insurance

Part B 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 working. There is a lifetime penalty of 10% per year imposed on the Part B premium if the beneficiary did not enroll when originally eligible and does not have creditable coverage.

Part B coverage includes:

  • physician and nursing services: x-rays, laboratory tests, influenza and pneumonia vaccinations, blood transfusions, 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.
  • limited ambulance transportation
  • durable medical equipment including canes, walkers, wheelchairs, and mobility scooters
  • prosthetic devices such as artificial limbs and breast prosthesis
  • one pair of eyeglasses following cataract surgery
  • oxygen for home use

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 the Centers for Medicare and Medicaid Services (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. 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.


Medicare Part C

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 and commonly called "Medicare Advantage" (MA) plans.

Medicare has a standard benefit package that covers medically necessary care that members can receive from nearly any hospital or doctor in the country. For people who choose to enroll in a Medicare private health plan, Medicare pays the private health plan a set amount every month for each member. Members may have to pay a monthly premium in addition to the Medicare Part B premium and generally pay a fixed amount (a copayment of $20 for example) every time they see a doctor. The copayment can be higher to see a specialist.

The private plans are required to offer a benefit “package” that is at least as good as Medicare’s and cover everything Medicare covers, but they do not have to cover every benefit in the same way. Plans that pay less than Medicare for some benefits, like skilled nursing, can balance their benefits package by offering lower copayments for doctor visits. Private plans use some of the excess payments they receive from the government for each enrollee to offer supplemental benefits. Some plans put a limit on their members’ annual out-of-pocket spending, providing some insurance against catastrophic costs over $5,000. But many plans use the excess subsidies to offer dental coverage and other services not covered by Medicare. Medicare Advantage Plans that also include Part D prescription drug benefits are known as a Medicare Advantage Prescription Drug plan (MAPD).


Medicare Part D

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 (MAPD). 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 D coverage is not standardized. Plans choose which drugs they wish to cover and at what level they wish to cover them. Medicare specifically excludes from all plans coverage for benzodiazepines, cough suppressants and barbiturates, among others. 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.

Medicaid will pay for drugs not covered by Part D, such as benzodiazepines, if beneficiaries are dual-eligible (meaning eligible for both Medicare and Medicaid).


Medicare Taxes

Medicare is partially financed by payroll taxes imposed by the Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act of 1954. In the case of employees, the tax is equal to 2.9% (1.45% from the worker and 1.45% paid by the employer) of the wages in connection with employment. Until December 31, 1993, the law provided a maximum amount of wages on which the Medicare tax could be imposed each year. Beginning January 1, 1994, the compensation limit was removed. In the case of self-employed individuals, the tax is 2.9% of net earnings, paid by the individual.


Medigap Policies

Medicare Supplement (Medigap) Policies

Some people elect to purchase a type of supplemental coverage, called a Medigap plan. These plans help fill the holes found in Original Medicare. Medigap insurance policies are standardized by CMS, but are sold and administered by private companies. Medigap policies sold after the introduction of Medicare Part D are prohibited from covering drugs.


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. Some people may qualify to have other governmental programs (such as Medicaid) pay premiums and some or all of the costs associated with Medicare.


Premiums

Most Medicare enrollees do not pay a monthly Part A premium because they (or theirs spouses) have had 40 or more quarters in which they paid FICA 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 $450 a month (2011).

All Medicare Part B enrollees pay a premium for this coverage; the base Part B premium for 2011 is $96.40 per month. However, Part B premiums are based on an income-based schema: beneficiaries with incomes exceeding $80,000 for individuals or $160,000 for married couples pay more. For 2011, these income-adjustment premiums are:

  • $85,000 or below for individuals, $170,000 or below for joint returns: $115.40
  • $85,001-$107,000 individual, $170,001-$214,000 joint: $161.50
  • $107,001-$160,000 individual, $214,001-$320,000 joint: $230.70
  • $160,001-$214,000 individual, $320,001-$428,000 joint: $299.90
  • Above $214,000 individual, above $428,000 joint: $369.10

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. Part C plans may also choose to rebate a portion of the Part B premium to the member.