Medicare – What is it and What Does It Pay For?

In the United States, Medicare is a single-payer, national social insurance program administered by the U.S. federal government since 1966, there are currently about 30–50 private insurance companies across the United States under contract for administration. United States Medicare is funded by a payroll tax, premiums and surtaxes from beneficiaries, and general revenue. It provides health insurance for Americans aged 65 and older who have worked and paid into the system through the payroll tax. It also provides health insurance to younger people with some disability status as determined by the Social Security Administration, as well as people with end stage renal disease and amyotrophic lateral sclerosis.

On average, Medicare covers about half of the health care charges for those enrolled. The enrollees must then cover their remaining costs either with supplemental insurance, separate insurance, or out-of-pocket. Out-of-pocket costs can vary depending on the amount of health care a Medicare enrollee needs. They might include the costs of uncovered services—such as for long-term, dental, hearing, and vision care—and supplemental insurance premiums.

Medicare and Medicaid are the two government sponsored medical insurance schemes in the United States. Medicare is further divided into parts A and B - Medicare Part A covers hospital and hospice services; Part B covers outpatient services. Part D covers self-administered prescription drugs. Part C is an alternative to the other parts intended to allow experimentation with differently structured plans in an effort to reduce costs to the government and allow patients to choose plans with more benefits.

Part A: Hospital/hospice insurance

Part A covers inpatient hospital stays, including semi-private room, food, and tests. As of January 1, 2016, Medicare Part A has an inpatient hospital deductible of $1288, coinsurance per day of $322 after 61 days confinement within one "spell of illness", coinsurance for "lifetime reserve days" (essentially, days 91-150) of $644 per day, and coinsurance in an Skilled Nursing Family (following a medically necessary hospital confinement) for days 21-100 of $161 per day.

In South Carolina, the average cost per day after 20 days is $167.50 for a semi-private room, and $192.50 per day.  If you have supplemental insurance, this cost could be picked up by your private insurance up to 100 days.  After 100 days the cost per day is $225.00 for a semi-private room and $260.00 for a private room.  These costs do not include supplies or medical treatments which will be extra.

Part B: Medical insurance

Part B medical insurance helps pay for some services and products not covered by Part A, generally on an outpatient basis (but also when on an unadmitted observation status in a hospital). Part B is optional and may be deferred if the beneficiary or his/her spouse is still working and has group health coverage through that employer. There is a lifetime penalty (10% per year on the premium) imposed for not enrolling in Part B unless actively working and receiving group health coverage from that employer, or covered by programs of the Veterans Health Administration.

Part B coverage begins once a patient meets his or her deductible ($183 for 2017), then typically Medicare covers 80% of the RUC-set rate for approved services, while the remaining 20% is paid by the patient, either directly or indirectly by private group retiree or Medigap insurance.

Part B also helps with durable medical equipment (DME), including canes, walkers, lift chairs, wheelchairs, and mobility scooters for those with mobility impairments. Prosthetic devices such as artificial limbs and breast prosthesis following mastectomy, as well as one pair of eyeglasses following cataract surgery, and oxygen for home use is also covered.

Part C: Medicare Advantage plans

Public Part C Medicare Advantage health plan members typically usually also pay a monthly premium in addition to the Medicare Part B premium to cover items not covered by traditional Medicare (Parts A & B), such as the OOP limit, prescription drugs, dental care, vision care, annual physicals, coverage outside the United States, and even gym or health club memberships as well as—and probably most importantly—reduce the 20% co-pays and high deductibles associated with Original Medicare.

Part D: Prescription drug plans

Medicare Part D went into effect on January 1, 2006. Anyone with Part A or B is eligible for Part D, which covers mostly self-administered drugs. It was made possible by the passage of the Medicare Modernization Act of 2003. To receive this benefit, a person with Medicare must enroll in a stand-alone Prescription Drug Plan (PDP) or Medicare Advantage plan with integrated prescription drug coverage (MA-PD). These plans are approved and regulated by the Medicare program, but are actually designed and administered by private health insurance companies and pharmacy benefit managers. Unlike Original Medicare (Part A and B), Part D coverage is not standardized (though it is highly regulated by the Centers for Medicare and Medicaid Services). Plans choose which drugs they wish to cover (but must cover at least two drugs in 148 different categories and cover all or "substantially all" drugs in the following protected classes of drugs: anti-cancer; anti-psychotic; anti-convulsant, anti-depressants, immuno-suppressant, and HIV and AIDS drugs). The plans can also specify with CMS approval at what level (or tier) they wish to cover it, and are encouraged to use step therapy. Some drugs are excluded from coverage altogether and Part D plans that cover excluded drugs are not allowed to pass those costs on to Medicare, and plans are required to repay CMS if they are found to have billed Medicare in these cases.

No part of Medicare pays for all of a beneficiary's covered medical costs and many costs and services are not covered at all. The program contains premiums, deductibles and coinsurance, which the covered individual must pay out-of-pocket. 

Premiums

Most Medicare enrollees do not pay a monthly Part A premium, because they (or a spouse) have had 40 or more 3-month quarters in which they paid Federal Insurance Contributions Act taxes. The benefit is the same no matter how much or how little the beneficiary paid as long as the minimum number of quarters is reached. Medicare-eligible persons who do not have 40 or more quarters of Medicare-covered employment may buy into Part A for an annual adjusted monthly premium.

• $248.00 per month (as of 2012) for those with 30–39 quarters of Medicare-covered employment, or
• $451.00 per month (as of 2012) for those with fewer than 30 quarters of Medicare-covered employment and who are not otherwise eligible for premium-free Part A coverage.

Most Medicare Part B enrollees pay an insurance premium for this coverage