Everyone who is eligible for Medicare Part A also is eligible to participate in the Medicare supplementary medical health insurance [Part B] program. It is little known, but those who did not work long enough to be covered by Part A but are otherwise eligible may purchase Part B coverage even if they do not purchase Part A. Part B is purely voluntary. However, virtually everyone purchases coverage. Indeed, over 94% of Medicare beneficiaries take Part B coverage [Boards of Trustees 2006].
This should be no surprise; the coverage is heavily subsidized. The monthly standard premium paid by beneficiaries was $93.50 in 2007. By law, this amount is designed to cover 25% of the costs of the Part B program; the remaining 75% is paid from federal general tax revenues. In addition, those with incomes below 135 % of the federal poverty line and with limited assets are eligible for further subsidies that cover some or all of the premium.
As a result of the Medicare Modernization Act, beginning in 2007, higher-income beneficiaries were charged higher premiums. At the end of a three-year transition period, those with higher incomes will pay 35, 50, 65, or 80% of the full cost of Part B, depending on their income. In 2007, those beneficiaries filing individual tax returns with taxable income between $80,000 and $100,000 [and those with joint returns with incomes between $160,000 and $200,000] paid premiums of $105.80 per month. The CMS anticipates that approximately 4% of Medicare beneficiaries will have to pay the higher premiums [Centers for Medicare and Medicaid Services 2006a].
The major components of Part B coverage are physician services, durable medical equipment, outpatient hospital services, laboratory services, and some preventive services, among others [see Box 21-3]. Most Part B services require payment of an annual deductible. This deductible was originally set at $50 in 1966 and was raised periodically until set at $100 in 1991. This was raised to $110 in 2005 and has been indexed to inflation since then. In 2007, the deductible was $131. In addition, beneficiaries pay a 20% cohealth insurance rate on most covered Part B services.
$131 annual deductible [in 2007]
20% cohealth insurance rate applicable to Medicare reasonable fees
*Limitations and the deductible and cohealth insurance may apply.
Medicare Part C provides coverage through Medicare-approved managed care plans. Over the years, this program as been referred to as Medicare HMOs and Medicare+Choice and currently is known as Medicare Advantage. In 1999, approximately 17.3% of Medicare beneficiaries were enrolled in one of the Medicare Part C plans, the high-water mark for the program. Enrollment declined to a low of 12.6% in 2003 and has rebounded since. According to Gold , in December 2005, 14% of beneficiaries were in Medicare Advantage plans. Gold attributed much of the increase in enrollment to expanded payment levels under the Medicare Modernization Act of 2003 [MMA].
The current Medicare Advantage program allows Medicare beneficiaries to enroll in participating health maintenance organizations [HMOs], preferred provider organizations [PPOs], and private fee-for-service [PFFS] plans. The latter are non-network capitated plans. Medicare pays the PFFS a fee per enrolled Medicare beneficiary per month; the beneficiary can receive care from any provider willing to accept the PFFS fee schedule. The Medicare Payment Advisory Commission reported that all Medicare beneficiaries had a Medicare Advantage plan available to them in 2006.
Under the MMA, Medicare Advantage plans submit bids to Medicare on the price they will accept for Medicare Part A and Part B services, for supplemental benefits [if any], and for Medicare Part D drug benefits. These bids are compared to benchmark prices that the CMS has established in each county. If the bid is above the benchmark, Medicare beneficiaries enrolling in the plan pay a monthly premium.
If the bid is below the benchmark, Medicare keeps 25% of the difference, and the remaining 75% is rebated to the plan. The plan, in turn, must disperse these savings to the enrolled beneficiaries in the form of reduced Part A and Part B cost sharing, reduced Part B or Part D premium sharing, or enhanced benefits.
Medicare Payment Advisory Commission reported that 95% of plan bids were below the benchmark and, the plans were most likely to use most of their rebates to reduce Part A and Part B cost sharing and to expand benefits. Plans are also free to enhance benefits beyond the amount of the rebate. Thus, even if a plan's bid is below the benchmark, it may still enhance benefits such that beneficiaries pay an additional monthly premium.
Since the beginning of the Medicare program, Medicare has paid 80% of the reasonable cost of covered physician services. The Part B cohealth insurance feature requires the beneficiary to pay the other 20%. The reasonable cost is determined by the Medicare fee schedule. However, what happens when physicians charge more than what Medicare considers a reasonable amount?
In this case, physicians have two choices: They can "accept assignment," meaning that Medicare pays them directly for its share of the reasonable amount. Physicians then bill the patient for the other 20% and forgo any additional payment. Alternatively, physicians can "reject assignment."
In this case, Medicare pays the patient for the amount it owes. Physicians then "balance-bill" the patient for the entire amount the amount Medicare would pay, the cohealth insurance share, and any additional charges. As such, physicians face a tradeoff: the assurance of getting paid 80% of the allowed amount paid directly by Medicare or some probability of getting paid more, less, or nothing by the patient.
In the past, physicians could choose at every occasion of service whether they would or would not accept assignment. Economics suggests that they would be much more likely to accept assignment for patients who were unable or unlikely to pay their bills and reject assignment for those patients who could or would pay their bills. In 1986, only approximately 60 % of Medicare payments to physicians were made under assignment [Colby et al. 1995]. Beginning in 1984, however, Congress began making balance-billing less attractive to providers.
Physicians were eventually required to accept or reject assignment on all or none of their Medicare patients, and the amount they could change over and above the Medicare fee schedule was limited to 9.25%. In 1999, 97.5% of physician claims were on an assignment basis [Iglehart 2002]. Today, it is extremely rare for a Medicare beneficiary to be balance-billed.
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