In 1965, the US government passed legislation designed to improve access to health care for people who are elderly, disabled, or poor. Since then, the resulting Medicare and Medicaid programs have grown tremendously and given rise to thousands of supplemental commercial insurance plans. Today, a complex and often confusing system of public programs and private insurance plans, along with personal funds, pays for and determines much of the health care that older Americans receive.

In this chapter, we’ll look through the eyes of both patients and healthcare providers at how these programs influence the day-to-day care of older adults. We’ll review the various options in general, and follow the healthcare needs of Mrs. Rose Murat, an imaginary 79-year-old retired schoolteacher who lives with her husband in a small, older home. Mrs. Murat has high blood pressure, coronary artery disease, and mild heart failure. She takes several prescription medications for these conditions, with a total out-of-pocket (personal) cost of $104.16 per month.

• Outpatient Care
• Medicare
• Part A
• Part B
• What do you pay?
• Medicaid
• Medigap
• How do you get medigap coverage?
• Medicare Advantage managed care plans
• How do you join a Medicare managed care plan?
• Fee-for-Service
• Which plan should you choose?
• Inpatient Care
• Managed care
• Fee-for-Service
• Initial Rehabilitation
• Managed care
• Fee-for-Service
• Home Health Care
• Managed care
• Fee-for-Service
• PACE
• Nursing-Home Care
• Managed care
• Fee-for-Service
• Supplemental long-term care
• Hospice Care
• Managed care
• Fee-for-Service
• Changes in the Federal Financing of Health Care

Mrs. Murat has an office visit with her healthcare provider every 3 months. She asks for advice on joining a Medicare Advantage (MA) managed care plan that has been marketing a Medicare health plan in her county. She is impressed by the plan’s offer of free eyeglasses, hearing aids, and preventive check-ups, all of which she has had to pay for herself in the past. Her options include the following:

• Staying with traditional fee-for-service (FFS) Medicare as her only coverage
• Keeping FFS Medicare and applying for either Medicaid or supplemental ("medigap") coverage
• Exchanging her FFS Medicare coverage for membership in a Medicare managed care plan.

Depending on income, savings, and state of residence, older Americans may also qualify for a Medicare assistance program that pays for some combination of their Medicare premiums, deductibles, and coinsurance costs. Some older Americans may have additional health insurance options through the Department of Veterans Affairs or through their (or their spouses’) present or previous employer or union.

a Medicaid programs have the option of whether or not to pay deductibles and coinsurance costs.

b Some Medicare Advantage plans require members to pay deductibles and copayments.

c After the beneficiary or secondary insurer pays the deductible ($912).

d For the first 20 days of care in a skilled nursing facility after a hospital stay of at least 3 days.

e Patient makes copayments of $5 per outpatient prescription and 5% of cost of respite care.

f When patient is receiving Medicare-covered home care.

g 100% of allowed cost of fecal occult blood test, Pap smear interpretations, prostate-specific antigen test, influenza and pneumococcal vaccinations; 80% or allowed cost of mammograms and clinical examination of the breast and pelvis (no deductible applies); after the annual Part B deductible has been paid, 80% of allowed cost of glaucoma screening, sigmoidoscopy or colonoscopy or barium enema, digital examination of the rectum (men), measurement of bone mass, hepatitis B vaccination, and diabetic education and equipment.

h Some Medicare Advantage plans cover additional preventive services.

i Benefits and costs vary widely among medigap insurance plans, state Medicaid plans, and Medicare Advantage plans.

j Per benefit period (for the first 60 days after hospital admission).

k Annual.

Medicare is a federal insurance program run by the Centers for Medicare and Medicaid Services (CMS). Medicare pays health professionals and organizations to provide acute health care (eg, trips to the doctor or hospital for sudden illness) for Americans who are 65 years and older, disabled, or suffering from advanced kidney disease. Medicare is made up of two separate FFS plans (Part A and Part B), each of which pays set (predetermined) amounts for specific health-related services and products. More than 90% of older Americans are covered by both plans.

Health care under the Medicare program is not free. You must pay a percentage of the charges. Also, enrollment is not automatic, so you must apply for the benefits. You should apply for Medicare during the 3-month period before you turn 65 years old. Fortunately, almost anyone over age 65 can enroll in Medicare, and few are turned down.

Medicare Part A is the hospital insurance part of Medicare. In Part A, regional insurance companies called "intermediaries" pay hospitals, nursing homes, home-care agencies, and hospice programs for the Medicare-covered services that they provide.

Older Americans (and their spouses) who have had Medicare taxes deducted from their paychecks for at least 10 years are entitled to Part A coverage without paying premiums. Others may be able to purchase Part A coverage for a monthly fee, the amount depending on how long Medicare taxes were deducted from their paycheck (eg, $206 to $375 per month in 2005).

Medicare Part B is the part of Medicare that pays for outpatient health care, such as doctor visits and some other out-of-hospital medical expenses. In Part B, other regional insurance companies called "carriers" pay physicians, nurse practitioners, social workers, psychologists, rehabilitation therapists, home-care agencies, ambulances, outpatient facilities, laboratory and imaging facilities, and suppliers of medical equipment for the Medicare-covered health services and products that they provide.

All citizens and permanent residents of the United States become eligible for Part B coverage at age 65. Others are eligible for Part B if they are also entitled to Part A coverage. To purchase Part B coverage, eligible people must enroll in Part B and pay a monthly premium ($78.20 per month in 2005), usually by having the amount deducted from their monthly Social Security checks.

Physicians are not required to participate in the FFS Medicare program, and some choose not to. How fees are paid depends on whether or not the physician "accepts assignment" and on the type of service.

• If the physician accepts assignment, he or she accepts the Part B fee for each Medicare-covered service. The Part B fee is typically 80% of the set (predetermined) "allowed" amount. The patient (or the patient’s secondary insurance company) is responsible for paying the remaining 20% to cover the rest of the fee.
• If the physician does not accept assignment, patients are responsible for direct payment up to 15% more than 95% of the amount allowed by Medicare. The physician must still submit a request to Medicare, so that partial reimbursement (ie, 80% to 95% of the allowed amount) can be made to the patient.
• Regardless of whether the physician accepts or does not accept assignment, if the service is not covered by Medicare, then the patient is responsible for the full amount, as long as he or she had agreed to this in writing in advance.
• Some physicians who do not participate in Medicare offer their older patients the option of entering into a "private contract." Under these contracts, patients pay physicians the full amount of the fees specified by the contract and neither Medicare nor most private insurance policies will pay.

Although Medicare Part B covers some preventive services, Medicare (Part A and Part B) does not cover the following:

• periodic physical examinations, except a one-time routine physical examination within 6 months of becoming eligible for Medicare
• dental care
• hearing aids
• eyeglasses, except for one pair after cataract surgery
• routine foot care
• orthopedic shoes
• cosmetic surgery
• care in foreign countries
• long-term custodial care at home or in a nursing home

Patients pay out of pocket for the following:

• monthly premiums for Part B ($78.20)
• annual deductible for Part B ($110)
• the deductible for Part A ($912 per benefit period, which is for the first 60 days after a hospital admission)
• coinsurance payments (usually 20%) for health services and products for which Medicare or other insurance pays only a portion
• the full cost of health services and products that are not covered by either Medicare or other insurance

Late in 2003, Congress passed and President George W. Bush signed a sweeping Medicare reform bill that included an option for older adults in Medicare to purchase insurance coverage for prescription medications beginning in 2006.

Starting January 1, 2006, Medicare beneficiaries will be eligible to obtain prescription drug coverage through "stand-alone" prescription drug plans or Medicare Advantage managed care plans. Beneficiaries will pay a monthly premium of about $35 and must satisfy an annual deductible of $250. After meeting the $250 deductible, Medicare beneficiaries will pay 25% of drug costs between $251 and $2,250, and Medicare will pay the remaining 75%. Medicare beneficiaries whose drug costs exceed $2,250 will have to pay all of their expenses between $2,251 and $5,100. Once their drug expenses exceed $5,100 ($3,600 in out-of-pocket costs), beneficiaries will have to pay the greater of 5% of the cost of each drug or a $2 copayment for each generic drug plus a $5 copayment for each brand-name drug, and Medicare will pay the remaining amount.

If you have income less than $1,196 per month ($1,604 for couples) and resources less than $10,000 ($20,000 for couples), you will face no or little premiums, deductibles, coinsurance, or gaps in coverage. To obtain this "low income subsidy," you must file an application with the Social Security Administration.

Starting November 15, 2005, Medicare beneficiaries will be eligible to enroll in a private Medicare drug plan with benefits starting January 1, 2006. Individuals who do not select a plan will face a penalty if they enroll after May 15, 2006 unless they had coverage comparable ("creditable coverage") to the standard Medicare drug benefit. Medigap plans are not considered creditable coverage, so individuals who choose to keep a Medigap plan with drug coverage will face a penalty if they decide to enroll in a Medicare drug plan at some future date.

If Mrs. Murat were to choose a Medicare drug plan, she would pay annual premiums ($420), deductibles ($250), and coinsurance (25% of her remaining medication expenses = $250). Her total out-of-pocket medication costs would be reduced from $1250 to $920 per year (ie, from $104.16 per month to $76.67 per month), a savings of 26%.

Medicaid is a joint federal and state program that provides supplemental health insurance to people of all ages who have limited incomes and resources. The exact criteria for Medicaid eligibility and the benefits provided by Medicaid programs vary quite a bit from state to state. Most programs pay Medicare Part B premiums, and many pay Medicare deductibles and coinsurance costs. Most importantly, Medicaid pays for long-term care in nursing homes for those who qualify. Several states have begun offering fixed, per-person payments to managed-care organizations that are willing to provide Medicaid and Medicare benefits to residents who are eligible for both programs.

To be eligible for Medicaid, your income and resources must be below a specific amount that is set by the federal government. All Americans 65 years old and older can receive Medicaid if their income (including social security benefits) and resources fall below these set levels. This means that most older adults with limited incomes and resources can receive nursing-home care through Medicaid. However, a critical issue in our country’s approach to financing long-term care is Medicaid "spend-down." This means that people must first spend down their personal finances to the Medicaid income and resource levels to qualify for Medicaid during their nursing-home stay.

Medigap supplemental insurance plans fill some of the holes in the coverage provided by Medicare Part A and Part B. Private insurance companies offer 10 types of FFS medigap plans (A through J), classified according to the benefits they cover. Each plan level provides additional benefits, but for additional cost.

• Medigap A plans cover Part A copayments for long hospital stays and Part B coinsurance costs (eg, 20% of Medicare’s allowed fees for medical equipment and physicians’ services).
• Medigap B plans cover Part A and Part B coinsurance plus the Part A deductible ($912 per benefit period).
• J plans, the highest-level plans, are the most comprehensive. They cover coinsurance, deductibles, care in foreign countries, preventive services, and some of the cost of medications.

Less expensive plans that provide medigap coverage have high deductibles (F and J plans only). Other less expensive plans cover the services of only selected physicians and hospitals ("Medicare SELECT" policies). Medigap policies do not cover long-term care, dental care, eyeglasses, hearing aids, or private-duty nursing. Check with your state insurance department for Medigap premium information.

In addition, beginning January 1, 2006, companies will be allowed to offer two new Medigap policies–plans K and L. Plan K will cover 50% of Medicare Part A and Part B cost sharing (no coverage for Medicare Part B deductible), 100% of cost sharing for preventive benefits, all hospital coinsurance, and 1 year of additional hospital coverage. Plan K also provides a $4000 annual limit on total out-of-pocket expenses under Medicare Part A and Part B. Plan L is similar to plan K but covers 75% of Medicare Part A and Part B cost sharing and provides a $2000 annual limit on total out-of-pocket expenses.

Within 6 months of your initial enrollment in Medicare Part B, you can purchase any medigap policy on the market at advertised prices. You cannot be turned down or charged higher premiums during this initial "open enrollment" period. After the 6-month open enrollment period, medigap insurers can either refuse to insure you or charge you higher premiums because of past or current health problems. Some states allow Medicare beneficiaries to purchase medigap policies at any time.

Medicare Advantage (MA) plans have contracts with the Centers for Medicare and Medicaid Services (CMS) that specify that, in return for fixed, monthly, per-person payments, the plan will provide at least the standard Medicare benefits (for each older adult covered by Medicare). To attract enrollees, most MA plans also cover additional benefits and charge low or no fees. The plans save money by managing their enrollees’ use of services within their network of providers. The plans negotiate price discounts with these providers in return for sending them large numbers of patients. Each January, the plans can change their premiums, benefits, and provider networks–or discontinue their Medicare plans altogether.

Each November, older adults covered by Medicare Part A and Part B can join any MA plan operating in their area. The plan cannot deny coverage because of health problems, except for advanced kidney disease. Those in the MA plan must continue to pay their monthly Medicare Part B premiums, and they must obtain their health care from the network of healthcare providers offered by the plan. They can leave the plan at any time and go back to the FFS Medicare program. However, starting in 2006, the number of times that people can switch managed-care plans will become more restricted.

Under the Medicare FFS system, providers must follow the Medicare payment system, which is based on specific codes for procedures and evaluation and management services. Entries in the medical record are subject to audit and must show that the diagnostic tests, treatments, and other services performed are in line with Medicare standards.

You should consider the primary advantages and disadvantages of the different types of health insurance:

In Mrs. Murat’s situation, her primary care doctor can help her to choose the plan(s) that will best cover the health services and products that she needs considering her health and prognosis, both now and in the future. Joining the Medicare Advantage managed care plan might be her best option, if she can obtain what she is likely to need from the plan’s network of providers. In this case, the plan will cover eyeglasses, hearing aids, and preventive services, and Mrs. Murat can avoid paying the usual Medicare premiums, deductibles, and coinsurance.

Keeping the flexibility of her traditional Medicare coverage might be a better choice for Mrs. Murat if she needs health care that is not available from the managed care plan’s network, or if she is reluctant to change doctors. Traditional Medicare is more flexible and will cover her use of any provider that participates in the Medicare program. Traditional Medicare would be especially attractive to her if she also qualifies for Medicaid or buys a medigap policy.

The economic realities of different plans could possibly have an influence on the recommendations of healthcare providers. For instance, if Mrs. Murat’s current doctor is not in the managed care plan’s service network, she would have to select a new primary care provider. Even if her doctor does participate in the plan’s network, the plan can affect the way the doctor is paid for her care and how much the doctor is paid (usually less) for her care.

Regardless of the payment mechanism, a crucial question is whether the amount of payment is enough to support high-quality care. If per-person payments in a managed care plan are below the total cost of the services they are intended to cover, the healthcare provider may feel pressure to take on more patients, spending less time with each one. The plan may even reward healthcare providers with end-of-the-year bonus payments if they have limited their referrals to specialists and their admissions to hospitals. Similarly, if FFS amounts are too small, the healthcare provider may feel pressure to schedule more visits and procedures and to spend less time with each patient.

Four months later, Mrs. Murat suffers a stroke. Her husband calls 911, and the ambulance rushes her to the nearest emergency department, where the physician on duty admits her to the hospital.

If Mrs. Murat had joined the Medicare Advantage (MA) plan, the plan would pay for the following:

• the ambulance
• emergency and physician services
• the hospital, in most cases

In most cases, the plan pays the hospital a lump sum that has already been negotiated or a per-day fee to cover Mrs. Murat’s inpatient care. The amount of this lump sum is determined by the discharge diagnosis (in this case, stroke). If the admitting hospital had no contract with her plan, Mrs. Murat would probably be transferred to a hospital in the plan’s provider network as soon as she was medically stable. Depending on the plan’s benefit package, she might be responsible for copayments and deductibles for some of these services.

If Mrs. Murat had kept traditional Medicare as her only health insurance, she would have to pay for the following:

• Medicare’s required deductibles ($110 per year under Part B for the ambulance and the emergency medical care, plus $912 under Part A for the hospital admission) and coinsurance amounts (20% of Medicare’s allowed charges by physicians and the ambulance service)

If she had supplemented her Medicare coverage with Medicaid or private medigap coverage, some of these deductibles and coinsurance payments would be covered. She would be transferred to another hospital only if needed for appropriate medical care, but not for insurance reasons.

After 4 days of stabilization, evaluation, and rehabilitation, Mrs. Murat has done well enough to be discharged from the hospital. She has improved somewhat, but her left arm and left leg are weak and she still has slurred speech. She is listless and tires easily. The consulting neurologist advises her and her husband that her progress during the next few weeks will determine her potential for functional recovery. Mr. Murat asks the neurologist to recommend a rehabilitation facility for his wife.

If she had joined the Medicare Advantage plan, Mrs. Murat’s insurance would cover rehabilitation for her immediately after her discharge from the hospital. Probably, this would be at a nursing home in the plan’s provider network rather than at a specialty rehabilitation facility. Some nursing homes place patients with such recent problems in special transitional (ie, postacute) care units and provide rehabilitation therapy (eg, physical, occupational, and speech), as well as social and nursing services. However, most nursing homes do not have such units and offer only custodial care supplemented by rehabilitative services as needed. The plan would also cover the physician’s services during this period, but the Murats may be responsible for a deductible and copayments.

Medicare Part A would pay for the first 20 days of rehabilitation, either in a rehabilitation facility or in a transitional care unit of a nursing home, as long as Mrs. Murat was well enough to participate in rehabilitative therapy. In either case, Mrs. Murat’s functional status would be evaluated on admission, and rehabilitation professionals would establish a plan for her care. They would also certify her as needing 1 of 26 levels of intensity of care, according to the resource utilization group system (RUGS). Her RUGS category would determine the daily rate that Medicare Part A would pay the facility for the first 2 weeks of Mrs. Murat’s care, as long as she was showing progress in rehabilitation.

After 2 weeks, Mrs. Murat’s status would be reevaluated, her plan of care updated, and her RUGS category adjusted. This reevaluation would also adjust the payments that Medicare makes to the facility for the next 2 weeks. Under this prospective payment system, the facility would be responsible for Mrs. Murat’s nursing, rehabilitative, and social services. The facility would also be responsible for the costs of her medications, laboratory tests, and any visits to an emergency department that did not result in admission to the hospital.

Medicare Part B would pay 80% of the allowed charges for the postacute medical care provided by Mrs. Murat’s physician, based on pre-established nursing-home rates. Any postacute care related to an inpatient surgical procedure would be the responsibility of the surgeon, who would receive a "global fee" to cover the surgery and all postoperative surgical care. The Murats would be responsible for the annual deductible of Medicare Part B ($110) and then 20% coinsurance payments for physician care. Their out-of-pocket expenses would be reduced or eliminated by any Medicare supplements in effect, such as Medicaid, medigap, or long-term- care coverage.

During the first 10 days of rehabilitation, Mrs. Murat regains her ability to speak, and her left arm becomes stronger. During the next 8 days, however, she doesn’t make much more progress. After 18 days, she is still unable to walk, cook, bathe, or dress herself without help. Her lack of continued progress toward being able to function independently will probably make her ineligible for coverage of additional rehabilitation in either the Medicare Advantage managed care plan or the FFS Medicare program. The Murats will have to purchase any services for future physical or occupational therapy on their own.

To obtain long-term care, the Murats will need to choose between a home health agency and a custodial nursing home. If Mrs. Murat returns home, neither the Medicare Advantage managed care plan nor the FFS Medicare program will be likely to pay for a home health aide, unless she is homebound and requires the services of a registered nurse or rehabilitation therapist. Local community agencies, however, may be able to offer some help.

If Mrs. Murat were homebound and dependent on skilled professional services, her managed care plan probably would pay a home health agency a fixed fee to provide her with the services and equipment she needs. The plan would also provide Mrs. Murat with the services of a primary care physician.

If Mrs. Murat were homebound and dependent on skilled professional services, traditional Medicare Part A would pay any Medicare-certified home health agency a fixed fee to provide her with the services and equipment she needs. Medicare Part B would pay her primary care physician 80% of the allowed charges for house calls, office visits, and care-plan oversight services. In addition, Medicare Part B will pay her physician for home health certifications and recertifications. The Murats would be responsible for the Part B annual deductible ($110) and the 20% coinsurance payments, unless they had supplemental coverage through Medicaid, a medigap policy, or a long-term care policy.

In some areas, a healthcare organization may have contracted with the federal government and the state Medicaid agency to create a Program for All-inclusive Care of the Elderly (PACE). In this case, the PACE provides community-based long-term care for people who are eligible for both Medicare and Medicaid and whose disabilities qualified them for custodial care in a nursing home (see also Community-Based Care). If Mrs. Murat were eligible for Medicaid and she enrolled in PACE, she would go to a healthcare center several days each week and receive comprehensive outpatient, inpatient, acute-, and long-term care from a team of healthcare providers. This team would be composed of a physician, a nurse, a social worker, rehabilitation therapists, and other members of the PACE staff.

Three months after Mrs. Murat returns home, Mr. Murat (now 84 years old) suffers a heart attack and is no longer able to care for his wife at home. Their daughter collects information on various nursing homes in the area, comparing the nurse-to-resident ratios, rates of pressure ulcers, and rates of behavior problems among patients in the different local facilities. She also studies the results of recent quality-of-care inspections at these facilities. She selects a high-quality nursing home in her neighborhood, and arranges for her mother to be admitted, at least until Mr. Murat recovers.

If Mrs. Murat had joined the Medicare Advantage managed care plan, one of the plan’s physicians would provide her primary care in the nursing home. However, unless she was covered by Medicaid or a long-term-care policy, she and her husband would be responsible for per-day charges for room, board, and other basic services at the nursing home. After "spending down" their savings at this rate, the Murat’s income and resources might become limited enough to qualify for Medicaid coverage, if they had not qualified previously. If the Murats own their house, some states would put a lien on it to recover some of its payments to the nursing home when the house was eventually sold.

The FFS Medicare program would pay 80% of the allowed charges submitted by Mrs. Murat’s physician for visits to the nursing home. The Murats would be responsible for the annual Medicare Part B deductible ($110) and the 20% coinsurance payments. Medicare would not cover any of the per-day charges at the nursing home.

Long-term care insurance policies have become widely available and have been purchased by more than 5 million Americans. Still, these policies are paying for less than 5% of all nursing-home care in the United States. The limited growth in long-term care insurance is due to its high cost as well as to consumer uncertainty about individual need. Many people are unsure that they will ever need long-term care or that long-term care insurance will actually cover the costs of long-term care in the future. Many middle-aged Americans believe that they will retain good health and independence into old age, and appear to be relying on a combination of good fortune, social insurance (ie, Medicaid), and their personal assets to see them through their later years.

After 6 months in the nursing home, Mrs. Murat suffers a massive stroke that leaves her stable, but in a vegetative state and unable to swallow even thin liquids. Her husband reports that she had always said she would not want to go on living in such a condition if there were little hope of recovery, and that she would not want to be fed through a tube. Her physician says that she is likely to live for several weeks- with oral feeding. With the understanding that she will receive palliative care without life-prolonging treatments, her husband decides to enroll her in a hospice program (see also Palliative Care).

Enrolling Mrs. Murat in hospice would require the traditional FFS Medicare program (Part A) to pay a Medicare-certified hospice program a daily fee that would cover all care for Mrs. Murat’s end-of-life care, including home care, medications, equipment, respite care, counseling, and social services. Medicare would pay this even if she had joined (and remained in) the Medicare Advantage managed care program.

If Mrs. Murat had remained in the FFS Medicare program, Part B would pay her primary-care physician 80% of the allowed charges for home or office visits and care-plan oversight services. Mr. Murat would be responsible for the 20% coinsurance and for small copayments for outpatient prescription medications and respite care.

The complex and evolving combinations of coverage and programs create difficult choices for older Americans and strong incentives for healthcare providers. The Medicare program continues to be revised by Congress. The Balanced Budget Act of 1997 was intended to limit future growth in the cost of the Medicare program, improve the quality of the health care it provides, and expand the number and variety of managed care plans from which older adults covered by Medicare could choose. The act authorized the five types of Medicare Advantage managed care plans, including Medicare Health Maintenance Organizations, preferred provider organizations, private FFS plans, and medical savings accounts.

The subsequent Balanced Budget Revision Act of 1999 was intended to correct some problems introduced by the 1997 Act, reversing some of its provisions and budget cuts. Additional revisions were made by the Medicare Modernization Act of 2003, which included coverage for prescription drugs provided by private entities and increased payments to managed care plans to encourage them to provide or continue to provide coverage for Medicare beneficiaries.

This Chapter was reviewed by:
Andrew Koski
Homecare Association of New York State (HCA), Inc.