In this second article on Medicare and your costs, I will explain Medicare – Part B (Supplementary Medical Insurance) and Part C (Medicare Advantage). As before, I need to start with a disclaimer that I am a private individual not affiliated with the federal Medicare program. While I worked hard to ensure the accuracy of my information, it has not been reviewed by Medicare. If there are any disagreements with official Medicare materials, those materials should be relied upon. I hope that you find the information useful.
Medicare Part B and Your Costs
In my last article, I went into detail about what is paid for by Medicare Part A and what is your portion of the cost. Since Part A pays for hospital-related care, and most people do not visit the hospital that often, only 20% of Medicare enrollees actually have Part A claims each year. So most people do not have costs, but when they do come up they can be large.
By contrast, Part B is the side of Medicare that pays for most of your other, often more routine, health care needs, such as doctors’ office visits. Over 95% of Medicare enrollees have Part B claims each year. In 2013, Medicare Part B spent $167 billion on medical care, $5,022 per enrollee.[1]
Medicare Part B pays for most medically necessary services that are not covered by Part A (generally those not provided by an inpatient facility). It will fully pay for most preventive services like screenings and shots, as well as Home Health Care (discussed in the previous article, but here it is not connected with an inpatient stay), with no cost to you.
Part B Deductible and Coinsurance: For other Part B services you have to pay a portion of the costs. These include services from doctors and other providers, outpatient care, laboratory services, and durable medical equipment. You will need to pay the first charges approved during a calendar year. This is known as the Part B deductible and is $166 in 2016. After you have paid the deductible, Medicare generally pays for 80% of the remaining allowed charges, and you pay 20% (Part B Coinsurance) with no upper limit.
If you need a blood infusion, you need to pay the full cost of the first three pints. Costs for any additional blood are subject to the same deductible and coinsurance as other Part B services.
As a simple example, suppose Jonathan has severe arthritis in his knee relating back to a sporting injury that happened while he was in college. He visits the doctor three times, with Medicare charges of $70 per visit. If these are his only Part B charges for the year to date, each of the first two visits and $26 dollars of the third visit will be his responsibility and count toward his $166 Part B Deductible. The remaining $44 from the third visit will be split with Medicare, with Jonathan paying $8.80 and Medicare paying $35.20.
At the third visit, the doctor tells him that the cartilage deterioration is bad enough that he needs a total knee replacement. So Jonathan goes to the local hospital for surgery and stays for five days. The total Part A hospital charge is $10,000, and the allowed Part B charges for surgery and recovery are $15,000. Since Jonathan was hospitalized for 60 days or less, he needs to pay $1,288 of the Part A costs as his deductible, and Medicare will pay the other $8,712. He has already satisfied his Part B Deductible during the doctor visits, so he will need to pay 20% of the Part B charges, or $3,000. Medicare will pay for the other $12,000. So for a $25,000 total knee replacement surgery, Jonathan has paid $4,288 and Medicare paid $20,712. (A Medicare Supplement policy would pay for his portion of the cost.)
Average Part B costs: While your Part B costs are more straightforward to understand than the Part A costs I described in last article, they usually account for a larger amount of your spending. An average person with Medicare will spend more than twice as much for Part B claims as for Part A claims. The large majority of Part B enrollees need to pay some Part B cost sharing during the year. Using one set of data, over 93% pay the Part B deductible[2].
As a point of reference, average enrollee out-of-pocket costs in a year for Part B services range from about $1,000 for younger enrollees in lower cost areas to about $1,750 for older enrollees in higher cost areas. However, these are average numbers. In the extreme, since there is no maximum on the amount that you will pay in a given year, your Part B costs can potentially reach into the hundreds of thousands of dollars. As an actuary, I have seen Medicare Supplement policies that have paid out these amounts for people who need ongoing treatments for diseases such as severe anemia or renal failure.
Part B Excess Charges: Nearly all doctors (96%) participate in the Medicare program[3] and will bill you based on Medicare’s allowed charges (known as assignment). But a small percentage of doctors do not accept assignment. If your doctor does not accept Medicare assignment, you may need to pay more. You may also be billed for the full amount up front and then have to apply to be reimbursed by Medicare. This is known as Part B Excess Charges. Before seeing a doctor you should find out if he accepts assignment by a) asking his office, b) visiting medicare.gov/provider or medicare.gov/supplier, or c) calling 800-MEDICARE.
If your doctor does not accept assignment, your Part B Excess Charges can be up to an extra 15% of Medicare’s allowed amount (this limit does not apply to durable medical equipment or supplies). So to continue our example with Jonathan, suppose he decides to use a non-participating doctor for his knee replacement. Instead of paying $3,000 in Part B expenses, which is 20% of the Medicare allowed charges, he may be charged an extra 15% by the doctor, or $2,250, so that his total Part B costs are $5,250. On top of that, he may be billed up front for the full $15,000 plus $2,250 and then need to apply to Medicare for reimbursement of $12,000. So, unless you have a compelling reason to use a doctor who does not accept assignment, it makes sense to find someone else who does. (Many Medicare Supplement policies will pay for these excess charges.)
It should also be noted that a very small number of providers (less than 1%) opt out entirely from the Medicare program. They will have patients sign a private contract that allows them to charge any fee they choose, and Medicare will provide no reimbursement. The practice area where this most often arises is psychiatry.
Medicare Parts A and B – Other Important Information
If you are enrolled in Medicare Parts A and B, you may visit any provider who participates in the Medicare program. Unlike with many Medicare Advantage plans, you are not limited to network doctors or need to have a primary care physician. You also do not need a referral to see a specialist for any medical condition.
You will generally not have to submit any of your medical claims to Medicare for payment, so there is minimal paperwork for you. Your medical provider will submit these to the Medicare program. Every three months, Medicare will send you a summary of your recent claims, known as an Explanation of Benefits. Claims statements are available sooner electronically by registering on MyMedicare.gov.
Services not covered by Medicare Parts A and B – Some services are not covered by Medicare Parts A and B. Most dental care, eye exams for prescribing glasses, dentures, cosmetic surgery, acupuncture, hearing aids and fittings, and most drugs (drugs are covered by Part D) are not covered. Many seniors purchase a dental, vision, or hearing insurance policy to help pay for these expenses.
Medicare will generally not pay for medical treatment received outside of the United States. This is important for you to know if you have family that lives out of town. If you visit New York or California or any other state, you can still see any Medicare provider just as you can in Maryland. But if you travel to Canada or Israel and need to see a doctor, Medicare will not pay for your visit. Some Medicare Supplement plans have a foreign travel benefit that helps pay for emergency treatment while traveling abroad.
I recently learned that, while Medicare does pay for medically necessary durable medical equipment like canes, walkers, wheelchairs and motorized scooters, it generally will not pay for a home modification, such as installing a grab bar in the bath tub. Someone I know needed to put an electric stair-lift into their home. It costs thousands of dollars, and Medicare did not cover it.
As mentioned before, Medicare will also not pay for non-medically necessary assistance in the home. These needs are known as the activities of daily living or custodial care. There are a variety of ways that people pay for custodial care, including from personal savings, with a long term care insurance policy, and by relying on income-dependent government programs.
Medicare Part C – Medicare Advantage
Medicare Part C, also known as Medicare Advantage, is an alternative to Traditional Medicare for obtaining Medicare Part A and Part B services. Private insurance companies enter into contracts with the government to provide coverage for all Part A and Part B services. As of late 2015, over 32% of Medicare enrollees are in a Medicare Advantage plan, but this varies a lot from state to state. In Maryland fewer than 10% of seniors choose Medicare Advantage, so I will cover it but not in the same detail as Parts A and B.
To enroll in a Medicare Advantage plan, you must first enroll in Medicare Part A and Part B and pay the monthly Part B premium. Although the plan covers the same benefits as Traditional Medicare, it may have different coinsurance, copays and deductibles than Medicare Parts A and B. The plan will be set up so that the average cost to the enrollee for Part A and Part B services is no more than in Traditional Medicare, but some people will pay more and others will pay less. Plans typically have a maximum out-of-pocket amount of $6,700 or less for covered services. This means that once the amount that you have paid in deductibles, coinsurance, and co-pays reaches $6,700 in a year, the plan will pay all charges for the remainder of the year.
Most Medicare Advantage plans are Health Maintenance Organizations (HMO) or Preferred Provider Organizations (PPO), and have a network of contracted doctors. You generally need to receive your services from a doctor in the network, or your costs will be higher or not covered at all. You may also need to have a primary care physician, and a referral to see a specialist. This can be an important limitation compared to Traditional Medicare for someone looking for the flexibility to see any doctor of their choice.
Some plans offer additional benefits that are not covered by Traditional Medicare. These may include dental, vision and hearing benefits, gym membership, or reduced Part B premiums. You usually need to pay an extra premium for a plan with these additional services. Most Medicare Advantage plans are also packaged with Part D drug coverage (referred to as MAPD plans), and require you to purchase your medical and drug coverage together.
A Medicare Advantage plan may be a good fit for your situation, but make sure that you understand the terms of coverage before joining. Be sure to understand if there are restrictions on which providers you can visit and how much you will need to pay. This varies from plan to plan, and may vary even among plans offered by the same company.
For more information on the pros and cons of Medicare Advantage, please refer to my article “Medicare Advantage vs Medigap – Which is Better for YOU?” that appeared in a recent edition of WWW.
Moshe Nelkin is a Medigap pricing actuary with several years of experience in competitive rate and market analysis. Having seen a number of policies that paid out hundreds of thousands of dollars in a single year, he feels passionate about the value that Medigap provides to seniors, especially seniors on fixed incomes. His insurance agency, Security and Integrity LLC, helps seniors understand their options and choose wisely. Contact him at info@securityandintegrity.com or visit SecurityandIntegrity.com. Copyright 2016 – Security and Integrity LLC
[1] Medicare Statistical Supplement
[2] Derived from Blue Cross Blue Shield of Florida, 2015 Annual Rate Filing
[3] Kaiser Family Foundation – April 2014 Issue Brief
