Basic access to Medicare is not means-tested, and eligibility is not affected by how much income you earn or by how many financial resources you have. You do not necessarily have to be retired to be eligible for Medicare—you can work full-time and still be on Medicare. All you have to be is a US citizen or a permanent resident who is aged 65 or over and who has worked at least ten years in a job that has paid Medicare taxes. There are no exclusions for preexisting conditions, and anyone eligible for Medicare can participate, no matter what the status of their health is.
Medicare is closely coupled with Social Security, but you do not necessarily have to be receiving Social Security benefits to be eligible for Medicare—you may have reached age 65 but might not yet have applied for Social Security benefits. Nevertheless, once you reach age 65, you are eligible for Medicare whether or not you are drawing Social Security benefits. People under 65 can sometimes receive Social Security, but they are still not eligible for Medicare until they turn 65.
People under 65 can still be eligible for Medicare, but only if they have a qualifying disability. This eligibility for Medicare benefits is tightly tied to eligibility for Social Security Disability Income benefits—in order to qualify for SSDI, one generally has to have been unable to work for at least a year because of a qualifying physical or mental disability. Social Security disability can be very difficult to obtain, and a lot of claims get turned down. If you qualify for SSDI, you automatically get Medicare after you gotten disability benefits from Social Security for two years. The imposition of this two-year waiting period before a person on SSDI can get Medicare can be a great financial hardship.
Do not confuse Medicare with Medicaid. Medicaid is a means-tested welfare program that is available only to certain low-income individuals and families who fit into an eligibility group (disability, blind, aged, limited income and resources) that is determined by federal and state law. Low income is only one criterion for eligibility—other criteria are assets and resources. Under this program, Medicaid sends payments for the medical treatment of eligible recipients directly to the service provider. Medicaid is jointly funded by federal and state money, but it is actually a state-administered program, and each state sets its own guidelines. Each state may have its own name for the program—in California it is known as Medi-Cal. Some people with Medicare are also eligible for Medicaid, and Medicaid offers them programs that can help to pay Medicare premiums and other costs, provided that they qualify. In some states, you may need to be on Medicare before you are eligible for Medicaid. Medicare is working with several states and health plans to create demonstration plans for certain people who have both Medicare and Medicaid.
Medicare is funded by three primary sources of revenue—payroll taxes, insurance premiums, and general federal revenues.
- Medicare is partially financed by payroll taxes. For employees, the tax is currently equal to 2.9% (1.45% from the worker and 1.45% paid by the employer) of the wages, salaries, and other compensation paid in connection with the employment. Unlike Social Security, there is no maximum amount of wages on which the Medicare tax can be imposed each year. For self-employed individuals, the entire 2.9% of self-employed net earnings must be paid by the self-employed individual, but half of the tax that is paid can be deducted for income tax purposes. In the year 2010, about 43% of Medicare costs were paid by payroll taxes.
- In addition, Medicare beneficiaries contribute to the funding of the program by paying premiums for certain Medicare programs—people who participate in Medicare Part B pay a monthly premium. In the year 2010, about 13% of Medicare costs were paid by subscriber premiums.
- Finally, some of the costs of Medicare are paid from general Federal revenues. It turns out that Medicare costs exceed the amount of money brought in from premiums and payroll taxes, and money must be taken from general revenues to make up the difference. In the year 2010, about 44% of Medicare costs were paid out of general revenues.
The money paid into Medicare does not simply sit there. It goes into two different trust funds. One is the Hospital Insurance (HI) fund, which helps to pay for hospital, home health, skilled nursing, and hospice care, basically Part A of Medicare. The other is the Supplemental Medical Insurance (SMI) fund which used to pay for Part B expenses as well as Part D prescription drug expenses. Medicare Part C expenses are paid out of both the HI and SMI funds.
There are now four distinct parts to Medicare, formally labeled Part A, Part B, Part C, and Part D. When Medicare was originally created back in 1965, there were only two parts—Part A that covered hospital bills and Part B that covered doctor bills and outpatient costs. Part A and Part B together are sometimes referred to as Original Medicare or Traditional Medicare. Part C and Part D came later—Part C in 1997 when private insurance carriers were brought into the program, and Part D in 2006 when prescription drug coverage was added to the program.
Original Medicare is a single-payer fee-for-service plan created back in 1965 and managed by the Federal government, specifically by the Centers for Medicare and Medicaid Services (CMS), which is a part of the Department of Health and Human Services. Patients generally don’t need to file Medicare claims—providers such as doctors and hospitals are required by law to file Medicare claims for the covered services and supplies that they provide. However, hospitals and doctors that handle Medicare patients deal mostly with private insurance companies that have been subcontracted by Medicare to handle Medicare claims at the local level.
Under Original Medicare, you can go to any doctor or supplier that accepts Medicare or is accepting new Medicare patients, or to any hospital or other facility. There are no gatekeepers, there are no networks, you don’t need to choose a primary care physician, and you can go to any doctor, supplier, hospital, or other facility that is enrolled in Medicare and is accepting new Medicare patients. You don’t need a referral to see a specialist.
Medicare does not cover everything, and it does not pay the total cost for most services and supplies that are covered. Like most private insurance plans, Medicare has deductibles under which you have to pay for the entire cost of the service until you have paid a certain amount. Even after you have met the deductible and Medicare starts paying, there are coinsurance and copayments, under which you have to pay a part of the total cost of the service. The difference between coinsurance and a copayment is that coinsurance is usually a pre-established percentage (for example 20 percent) of the total cost that the patient is asked to pay out of their own pocket, whereas a copayment is usually a set amount rather than a percentage–for example, you might be asked to pay a set fee of $10 for each doctor’s visit. Many people purchase a supplemental private insurance policy (known as Medigap) that helps to pay for some of the deductibles, coinsurance and copayment costs that Medicare does not cover. In addition, Original Medicare does not cover prescription drug costs, but you can purchase a Part D drug plan to cover these costs.
You may have heard of the term “assignment”. When a doctor or a provider says that they accept “assignment”, they agree not to bill you for any more than the Medicare deductible and the coinsurance. They agree to charge you only the Medicare deductible or coinsurance amount, and to wait for Medicare to pay its share. They accept the Medicare-approved amount as full payment for covered services. Nearly all hospitals, skilled nursing and other post-acute care facilities, and over 90 percent of doctors accept assignment by Medicare. Even though most doctors, providers, and suppliers accept assignment, you should always check to be sure. You can save money if you choose doctors or providers who accept assignment.
Some healthcare providers have not agreed to accept assignment for all Medicare-covered services, but they can still choose to accept assignment for individual services. These providers are called “non-participating,” which is sort of a confusing term, since they still participate in Medicare.
There are some providers who participate in Medicare but who do not accept assignment for any services. For providers who do not accept assignment, the patient would be liable for the difference between the amount charged and the amount paid by Medicare. Medicare will still pay, but the amount that is paid will be only the pre-established “reasonable charge”, and the patient is liable for the amount that was charged that was above the Medicare fee schedule amount.
Even if your doctor or provider doesn’t accept assignment, they must still submit a claim to Medicare when they provide you with Medicare-covered services. If they don’t submit the claim, you should contact the company that handles bills for Medicare in your state and file a complaint. You might have to pay the entire charge at the time of service, but the provider is required to submit a claim for any Medicare-covered services that they provide to you, but there are certain situations in which you might have to submit your own claim to Medicare.
However, under federal law there is a set limit as to the amount a physician who participates in Medicare may charge over the Medicare fee schedule amount for that particular service. A physician may balance bill only 115 percent of the Medicare fee schedule amount. For example, suppose your doctor does not accept assignment and wants to charge you $100 for a service where the Medicare fee schedule is only $70. The doctor can bill you only 115 percent of the fee schedule amount, or $80.50. Medicare will pay 80 percent of the $70, which is $56, leaving you to pay the remaining $24.50.
Not all doctors or healthcare providers participate in Medicare. They have either decided not to provide services through Medicare or they have been excluded from Medicare for some reason. In some cities, doctors who have gotten frustrated by what they say are low Medicare reimbursements, excessive paperwork, and onerous rules are limiting the number of Medicare patients that they take. Sometimes they have even refused to accept any new Medicare patients at all. Doctors who have opted out of Medicare can charge whatever they want, but they cannot bill Medicare for reimbursement nor may their patients submit claims to Medicare. If your medical provider does not participate in Medicare, Medicare will not pay anything toward the cost of your treatment. In addition, Medigap supplementary insurance policies will not provide any coverage when basic Medicare doesn’t, so the entire bill becomes the patient’s responsibility. However, your doctor must tell you if he or she has been excluded from Medicare, and they must tell you if Medicare would pay for the service if you got it from another doctor who accepts Medicare.
Those providers who have opted out of Medicare will often ask you to sign a private contract, which is a written agreement between you and the doctor about how much the charge will be for the requested service. If you do sign such a contract, Medicare will not pay anything for the services you get from this doctor, and you will have to pay the entire cost out of your own pocket, even if it is a Medicare-covered service. However, you can’t be asked to sign a private contract in an emergency situation or when you need urgent care. You don’t have to sign a private contract, and you can always choose to go to another provider who does participate in Medicare.
However, the vast majority of doctors nationally still participate in Medicare, but there are pockets where we are seeing more and more doctors opt out of Medicare. This points out a problem with Medicare—how to provide more benefits to more people, pay enough to keep healthcare providers satisfied, and yet keep spending in check.
If you are on Original Medicare, you will get a Medicare Summary Notice (MSN) every three months that lists all the services you received that were billed to Medicare, and tells you if and how much Medicare paid for these services. You have the right to file an appeal if there is something on the MSN that you disagree with (for example, a service that you got which was billed to Medicare but Medicare did not pay). The appeal is sent to the company that handles bills for Medicare that is listed on the MSN. You will generally get a decision form the Medicare contractor within 60 days after they get your request, and if Medicare will cover the item or the service, it will be listed on your next MSN.
You might also want to check over your MSN to make sure that Medicare was not billed for services that you did not receive. If you see this on your MSN, this might be the result of a simple error, or this might be evidence that Medicare fraud is taking place. Medicare fraud costs Medicare a lot of money every year. You should first check with your provider to see if a mistake was made. If you have contacted your provider and you suspect that fraud has taken place, you should contact Medicare directly and report it.
There has been some confusion about how the Affordable Care Act (popularly known as “Obamacare”) affects Medicare. Part of the Affordable Care Act is the establishment of something known as the Health Insurance Marketplace, which is a new way for individuals and employees of small businesses who don’t have access to employer-based insurance to get high-quality health insurance at affordable rates, free from restrictions based on preexisting medical conditions. Medicare is not part of this system. Medicare participants are ineligible to purchase any sort of medical insurance from the Health Insurance Marketplace, and there is absolutely no reason why they would ever want to.