Harry Truman began the process of establishing a national health plan by asking Congress to enact legislation in 1945. Twenty years later, he was the first person to enroll in Medicare under the newly enacted law signed by Lyndon Johnson. The dangers of “socialized medicine” had been debated for two decades, and now the US opened the door to the first beneficiaries of Medicare, a program for people over 65 or disabled, and Medicaid, the supplemental plan for the indigent .
Medicare was designed to focus on two levels of care. Medicare Part A covers hospitals, skilled nursing, hospice, and home health care. Part A has no premium, but most who qualify will have paid for it through Medicare taxes during their working years.
Medicare Part B includes physician services, outpatient services, durable medical equipment, home health care, and other medical services. Part B requires a premium, which in 1965 was $3 a month and today is almost $100 a month.
Claims paid by Original Medicare are approximately 70% of the total submitted by a provider. The general rule of thumb today is that Medicare will approve 80% of charges submitted. Of this 80%, Medicare pays a portion of another 80%. For the Medicare member, this amount totals about 65% of the bill. The responsibility to pay the remaining 35% rests with the member. There is NO upper limit to what could be owed.
With a potential liability of several thousand dollars for a Medicare enrollee, the first Medigap or Medicare Supplement policies offered were from Bankers Life in the early 1970s. These plans covered excess charges so Medicare A and B they wouldn’t pay. The Medigap concept was widely accepted by the public, and soon hundreds of companies were offering their own versions of Medicare supplement plans.
Abuses in the marketplace among agents continually “replacing” their own coverage on the basis of having an improved or upgraded plan or unnecessarily selling multiple plans to seniors in order to earn a new commission led to the federal standardization of Medigap policies in 1992. This change made it illegal to sell multiple policies and standardized all policies offered. An example would be that if a senior were considering a Plan “F” from company A, it would be exactly the same as a Plan “F” from another company B. With this, the buyer only needed to consider price and service. they expected, but they no longer had to worry about the difference in benefits. The change ended the problem of having thousands of plan options to choose from.
Cost shifting, those extra charges not covered by Medicare increased the price of Medigap plans. Over time, Medicare reduced the amount it funded providers, doctors, hospitals, etc. This meant that the Medigap policy had to pay these new charges, resulting in higher premiums to cover these switching costs. The effect on seniors as they got older was that their plans became more expensive. Many retirees on fixed incomes felt the financial pressure and dropped their coverage. The irony was that, at a time in life when they would probably need insurance, they didn’t have it.
As a result of the Balanced Budget Act of 1997, the first alternative to a Medicare supplement plan was made available. Known as Medicare+choice plans, these offered a senior the option of receiving benefits from a private company. With the Medicare Prescription Drugs and Modernization Act of 2003, the plans became known as Medicare Advantage.
Medicare Advantage plans are not Original Medicare or Medicare Supplements. Private companies contract with the government to offer benefits that are at least equal to or greater than original Medicare. They are usually low cost or free premium. The amounts that a senior pays are the copays at the time of service. An example would be a $20 charge to see a doctor or a $150 charge for a day in the hospital. Copays vary between companies. Plans generally have a limit on the total out-of-pocket paid per year. These can be anywhere from $2,500 to $6,700, again, depending on the company offering the coverage. Many of these plans include Part D prescription drug coverage as well as medical benefits.
Medicare Advantage plans have become hugely popular, but the future of the Medicare Advantage program is in doubt. The GAO, in April 2012, released a report calling for the end of Medicare Advantage on the grounds that it is financially unsustainable for the government. Election years should provide a safe harbor for MA plans, but beyond that it’s anyone’s guess how they’ll survive. They are beloved, and as the baby boomer generation approaches retirement age, their popularity will only increase.
Retirees, who are choosing between their own care and the penchant of governments to fund government aid and subsidies around the world, would be wise to raise these concerns with their federally elected officials. The voting booth is a good place to send a message.