Medicare & Medicare Supplements

Many people believe that the Medicare program will pay most of their long-term care expenses after age 65. Others think that Medicare supplement (Medigap) insurance covers most long-term care services not reimbursed by Medicare. In this section we will examine exactly what benefits Medicare and Medigap insurance provide in the area of long-term care, and we will learn why these benefits do not adequately meet long-term care needs.

Medicare Programs and Medigap Insurance

Medicare is a federal healthcare benefits program. It helps pay for medical services (such as hospital stays and physician visits) of people age 65 and older, as well as some persons under 65 who are disabled or suffer permanent kidney failure (end-stage renal disease).

A Medicare beneficiary may choose the original Medicare plan or (where available) a Medicare Advantage plan. The original Medicare plan operates on a fee-for-service basis. Medicare reimburses healthcare providers who serve beneficiaries by paying them a fee for each service rendered. Beneficiaries can go to any physician, hospital, or other provider that accepts Medicare fees as payment. Beneficiaries must pay a deductible, and they also usually pay a portion of the cost of covered services in the form of copayments and coinsurance. The original Medicare plan has two parts:

Medicare Part A primarily covers inpatient care in hospitals.
Medicare Part B primarily covers physician services, outpatient hospital care, and some other medical services not covered by Part A.

Medicare Advantage (formerly Medicare-Choice, also called Medicare Part C) is a program under which private-sector health insurance plans provide coverage to Medicare beneficiaries. It consists of managed care plans, such as health maintenance organizations (HMOs) and preferred provider organizations (PPOs), as well as private fee-for-service plans. Medicare Advantage plans provide Medicare Part A and Part B benefits as well as some additional benefits.

Finally, the Medicare Modernization Act created Medicare Part D, a new prescription drug benefit program that began operating in January 2006.

Many Medicare beneficiaries buy Medicare supplement (MedSupp) insurance. This is private health insurance that fills some of the gaps of Medicare coverage (hence it is often called Medigap insurance). Specifically, Medigap policies pay some of the deductibles, copayments, and coinsurance amounts that beneficiaries must otherwise pay themselves, and some policies also offer a few additional benefits not provided by Medicare.

These Medicare programs and Medigap insurance are discussed below with a focus on their relevance to long-term care.

Medicare Eligibility

Those at least 65 years old and eligible for retirement benefits from Social Security or the Railroad Retirement system can enroll in Medicare Part A without paying a premium. Some persons 65 and over who are covered by government employee retirement plans instead of Social Security are also eligible for Part A at no charge. Those 65 and over who do not fall into one of these categories can enroll in Medicare Part A, but they must pay a premium, ( As a general rule, those who paid into the Medicare system during their working lives through payroll deductions -- the great majority -- do not pay a premium, but those who did not must pay.) Medicare Part A coverage is also extended to persons of : any age who are disabled or suffer permanent kidney failure (end-stage renal disease) and meet certain criteria.

Anyone 65 or over can enroll in Medicare Part B, as can disabled persons eligible for Medicare Part A, but all must pay a monthly premium. Because Part B covers important healthcare services not covered by Part A, almost all those enrolled in Part A almost all those enrolled on Part A choose Part B as well. Starting in 2007, the Part B premium will for the first time be adjusted according to the income of the beneficiary. Single persons with a modified adjusted gross income (MAGI) over $80,000 and couples with a MAGI over $160,000 will pay a higher premium than other beneficiaries. This increase

Individuals enrolled in both Medicare Part A and Part B have the option of participating in a Medicare Advantage plan, and they also may enroll in Medicare Part D for an additional premium.  

 Medicare and Long-Term Care

The Medicare program was created to help pay the medical expenses of the elderly, and it primarily covers hospital and physician services. Medicare does provide very limited benefits under limited circumstances in two areas associated with long-term care-nursing home care and home healthcare. But as we will see, these benefits do not meet the need for ongoing personal care or supervisory care, which is the focus of long-term care.

Nursing Home Coverage

A Medicare beneficiary can receive benefits for care in a skilled nursing facility provided all of the following conditions are met:

The individual has had an inpatient hospital stay of at least three consecutive days within the last 30 days.
The individual needs skilled care. The individual may require personal or supervisory care in support of skilled care, but if he needs only personal or supervisory care, he is not eligible for benefits.
A physician has determined that there is a medical necessity for skilled care -- this means that skilled care is required for the diagnosis and treatment of a medical condition. In practice, benefits are paid to those who need care to help them recover from an acute illness or injury and regain normal functioning. Benefits are not paid to those who need care indefinitely to help them cope with a chronic impairment.
The skilled nursing facility is certified by Medicare. (Most are, but not all.)

In theory, Medicare can pay up to 100 days of nursing home benefits. But in practice this does not often happen, as few people continue to meet the medical necessity requirement for very long. Most people recover from their injury or illness within a few weeks, so that care is no longer medically necessary. Others do not fully recover and become chronically impaired. These people also cease to meet the medical necessity requirement because they no longer need skilled care for the diagnosis and treatment of a medical condition, but instead need personal care to cope with their impairment.

 In those cases in which Medicare continues to pay benefits beyond 20 days, the beneficiary must make a daily copayment ($124 in 2007). And all benefits end after 100 days.

Michael, a Medicare beneficiary, falls and breaks his hip. He goes into the hospital for surgery. After a week, his doctor determines that he no longer needs hospital care, but he does need skilled nursing care and rehabilitation to recover from the injury. Michael enters a Medicare-certified skilled nursing facility. After 30 days, his doctor decides that his further recovery does not require skilled care in a nursing home, and he goes home.  For the first 20 days Michael is in the nursing home, Medicare pays the $160 daily charge. For the next 10 days, he pays $124 a day (2007), and Medicare pays the remaining $36, so Michael is now bearing most of the expense himself After 30 days, he no longer meets the medical necessity requirement, and Medicare nursing home benefits end.

In summary, although Medicare does provide some benefits for nursing home care, these benefits do not meet long-term care needs for the following reasons:

No benefits are paid if the beneficiary needs personal or supervisory care only, not skilled care.
No benefits are paid for skilled care unless it is medically necessary.
If benefits are provided, Medicare covers all expenses only for the first 20 days, after which the beneficiary pays a large daily copayment and Medicare pays any charges exceeding this amount.
No benefits are paid beyond 100 days.

Home Healthcare Benefits

Medicare Part A pays benefits for home health care, but as with nursing home benefits, only if strict conditions are met:

The beneficiary must need home care within 14 days after a stay of at least three consecutive days in a hospital or skilled nursing facility.
  A physician must certify the medical necessity of intermittent skilled nursing care or physical, speech, or occupational therapy. (Intermittent care is defined as less than eight hours per day of care, or fewer than seven days a week of care over a period of 21 days or less.) A need for only personal or supervisory care is not sufficient.
The physician must certify that the beneficiary needs to receive care at home, and the physician must develop a plan of care.
The beneficiary must be homebound -- that is, she must be unable to leave home, or doing so must require a major effort. When she does leave home, it must be infrequently and for a short time, and it must be for urgent purpose, such as to get medical treatment or to attend religious services.
Care must be provided by a Medicare-certified home healthcare agency. (Many but not all agencies are Medicare-certified.)

If all these conditions are met, Medicare pays for intermittent skilled nursing care and therapy. In some cases other services and supplies required to support skilled care, such as home health aide services or durable medical equipment, may also be covered. Medicare pays the full approved amount for covered services, except for 20 percent coinsurance for durable medical equipment. However, there is a limit of 100 visits by home care personnel, and as with nursing home benefits, the duration of home care benefits is in practice severely limited by the medical necessity requirement. Like nursing home benefits, Medicare Part A home care benefits are designed to meet the needs of those recovering from an acute illness or injury, not those requiring long-term care to cope with a chronic impairment.

Medicare Part B provides the same home healthcare benefits as Part A and requires that the same conditions be met, with two exceptions:

To receive Part B benefits, a person need not have had a prior stay in a hospital or a skilled nursing facility.
Part B benefits are not limited to 100 visits. However, they are limited by medical necessity, and the physician may be required to periodically recertify that care is medically necessary.

Essentially, Medicare Part B provides benefits to those who:  

have not recently been in a hospital or nursing home but otherwise meet all the requirements for home healthcare under Part A;
have reached the l00-visit limit of Part A, but still meet all the Part A requirements, including medical necessity; or
meet all Part A requirements including a prior stay in a hospital or nursing home, but are not enrolled in Part A, only Part B.

There is no set limit to the number of visits that Medicare Part B can cover, but once again, because of the medical necessity requirement, people seldom continue to qualify for benefits for very long. Consequently Part B coverage also fails to meet the needs of those requiring long-term care.

In summary, Medicare does provide home healthcare benefits, but because personal or supervisory care is not covered unless skilled care is also needed, and because few people qualify for benefits and even fewer qualify for more than a short time, these benefits do not meet long-term care needs.

Why Medicare Does Not Meet Long-Term Care Needs

Some people, learning that Medicare pays some benefits for nursing home care and home healthcare, jump to the mistaken conclusion that Medicare meets at least some long-term care needs. As we have seen, this is simply not so. Let us review why.

The large majority of long-term care patients need assistance with ADLs (personal care) or supervision because of a cognitive impairment, not skilled nursing care or therapy. But Medicare does not pay benefits if only personal or supervisory care is needed.
Even skilled care is covered only if it is medically necessary that is, if it is needed to help the beneficiary recover from an injury or illness. Because of this requirement, few people qualify for benefits for more than a short time.
When Medicare does pay nursing home benefits, it covers the full cost for only 20 days, after which the beneficiary must make a large daily co-payment. And all nursing home benefits cease after 100 days.
When Medicare provides home healthcare benefits, because of the medical necessity requirement they are seldom paid for long.

Medigap, Medicare Advantage, and Long-Term Care

Many Medicare beneficiaries buy private Medigap insurance. As explained above, Medigap policies pay some of the deductibles, copayments, and coinsurance amounts required by Medicare, and some policies provide a few additional benefits. Medigap policies may include two benefits for services associated with long-term care.

Some Medigap plans provide at-home recovery benefits. These help pay for personal care in the insured's home while he is recovering from an illness or injury and receiving Medicare benefits for skilled care at home. Benefits may also continue for a limited time after skilled care is no longer needed. But for two reasons these benefits contribute little to meeting the need for ongoing personal care. First, the insured must initially meet the stringent conditions for Medicare home health care benefits -- in other words, skilled care must be medically necessary for the insured's recovery from an acute injury or illness. Second, benefits are limited to a total of eight weeks and $1,600 a year.  
  Most Medigap plans cover the daily copayment that Medicare charges after the 20th day of nursing home care. But this benefit also has a limited impact, since it too applies only to those who are recovering from an injury or illness and meet Medicare's medical necessity requirement. Moreover, since people seldom continue to meet this requirement much beyond 20 days, this benefit is not often paid for very long.

Clearly, neither of these benefits goes very far in meeting the needs of those requiring long-term care for an extended period.

 Some Medicare beneficiaries participate in a Medicare Advantage plan. Medicare Advantage plans provide the standard Medicare Part A and Part B benefit packages, and they also offer some additional benefits that fill some of the gaps of Medicare coverage, like Medigap policies. However, also like Medigap policies, Medicare Advantage plans do not provide any substantial coverage in the area of long-term care.  

Medicare Part D

Prescription drugs are often a significant expense of those receiving long-term care. Traditionally, the Medicare program did not cover the cost of outpatient prescription drugs. However, the Medicare Modernization Act established a prescription drug benefit program, Medicare Part D, which became available January 1, 2006. Medicare beneficiaries choose whether they wish to participate in Part D, and those who do pay an additional monthly premium.  

Part D benefits are most commonly provided by private prescription drug plans (PDPs). A Medicare beneficiary enrolls in the PDP of her choice, receives benefits from that PDP's, and pays her premium directly to the PDP. Some Medicare Advantage plans also provide Part D benefits.

Medicare beneficiaries generally have many PDPs to choose from, and PDPs vary in the benefit packages they offer. But all plans must provide a minimal level of benefits -- specifically, Medicare has established a standard Part D benefit, and while a PDP may offer a benefit structure that differs from this standard, it must be at least actuarially equivalent to the standard. Medicare also specifies certain drugs that all PDPs must cover.

The Medicare Part D standard benefit is adjusted annually for inflation; for 2007 it is as follows:

The beneficiary pays the first $265 of covered drug costs each year. (That is, there is a $265 annual deductible.)
After the deductible is satisfied, the beneficiary pays 25 percent coinsurance, and the PDP pays the remaining 75 percent of covered drug costs. This cost-sharing arrangement continues until the initial coverage limit is reached -- that is, until the combined costs paid by the beneficiary and the PDP during the year total $2,400.
After the initial coverage limit is exceeded, the beneficiary pays 100 percent of costs until she has paid $3,850 out of pocket (at which point the combined costs paid by the beneficiary and the PDP total $5,451.25). This phase is referred to as the Part D coverage gap (sometimes called the "doughnut hole" by detractors of the plan). However, although no benefits are paid during this period, the beneficiary generally does pay less for her drugs than she otherwise would, as she usually benefits from pharmacy discounts negotiated by her PDP.
After covered drug costs for a year reach $5,451.25, catastrophic coverage is triggered, and the PDP pays nearly all costs. The beneficiary pays either 5 percent coinsurance or a copayment ($5.35 for brand-name drugs, $2.15 for generics), whichever is greater, and the PDP pays the balance. This arrangement continues until the end of the year.
At the beginning of each year, this system begins again -- the beneficiary must again satisfy the annual deductible, after which she pays 25 percent coinsurance until the initial coverage limit has been reached, and so on as described above.

The Medicare Part D Standard Benefit
for 2007 adjusted annually for inflation

Total Prescription Cost:

Beneficiary pays:

PDP pays:
$0 - $265
First $265
all costs (deductible)
$265 - $2400
Next $2,135
25% coinsurance
75% of costs
$2,400 - $5451.25
Next $3,051.25
all costs (coverage gap)
over $5,451.25
5% coinsurance or fixed price* whichever is greater
the balance
* $5.35 for brand name or $2.15 for generics

For example, Kate is a Medicare beneficiary enrolled in a PDP She takes several prescription drugs, all of which are covered by the PDP Their cost totals $10 a day. How much of this does the PDP cover, and how much does Kate have to pay herself?

Kate must pay the first $265 of costs to satisfy the deductible. Then she pays 25 percent coinsurance -- that is, she pays $2.50 of the daily cost and the PDP pays $7.50. But after about seven months, Kate has paid $798.75 (the $265 deductible plus $533.75 in coinsurance), and the PDP has paid $1,601.25, for a total of $2,400, the initial coverage limit. After this limit is reached, Kate must pay the full cost of her prescriptions for the remainder of the year (although she benefits from discounts negotiated by her PDP).

Spencer is also a Medicare beneficiary enrolled in a PDP All his prescription drugs are covered by the PDP's, but they cost $20 a day. Spencer pays the $265 deductible, then 25 percent coinsurance ($5 a day), and later, after costs total $2,400, he pays all costs. But after about eight-and-a-half months, total costs reach the $5,451.25 threshold. From now until the end of the year, Spencer pays only the coinsurance or copayment amounts reported above, and the PDP covers the rest.  

As mentioned, PDPs offer a wide variety of benefit packages, and many of these packages are superior to the standard benefit. Some PDPs require no deductible or a smaller deductible, and some charge copayments for most drugs instead of the 25 percent coinsurance. Many PDPs cover drugs not required by Medicare. Of course, premiums vary by PDP and plan option, according to the benefits provided.