Medicare is a federal program that provides health insurance to the elderly and the disabled. 42 U.S.C. sections 1395 et seq. It is funded through the Social Security Trust Fund and is administered by the Centers for Medicare & Medicaid Services (CMMS), formerly known as the Health Care Financing Administration (HCFA). However, Medicare is not like other federal programs that have large organizational hierarchies. Instead, the federal government enters into contracts with private insurance companies for the processing of Medicare claims made by qualified patients.
The concept of federal health insurance was first proposed in the United States during the late 1940s by President Harry S. Truman. However, the proposal languished in Congress for parts of the next two decades. President Lyndon B. Johnson revived the proposal during his administration, and it came to fruition in 1965, when Congress passed the Health Insurance for the Aged Act (Medicare Act), Pub. L. No. 89-97, 79 Stat. 343 (1965). As originally enacted, Medicare provided health insurance only to the elderly. In 1972 Congress expanded coverage to include disabled persons.
A patient’s eligibility for Medicare does not depend on his or her income. Patients generally qualify for Medicare coverage if they are 65 years or older and (1) qualify for Social Security or Railroad Retirement benefits; (2) have received Social Security or Railroad Retirement disability benefits for at least 24 months; (3) or suffer from end-stage renal disease. Individuals who have not worked long enough to receive Social Security benefits may still enroll in Medicare by paying a monthly premium. Individuals who are too poor to pay the monthly premium may apply for Medicaid, a state and federal health insurance program for low income persons.
Health care providers may participate in Medicare and receive Medicare payments if they satisfy state and federal licensing requirements and comply with any standards set by CMMS. A health care provider must also enter into an agreement with the Secretary of Health and Human Services. The agreement designates the amounts the provider will charge Medicare patients and the manner in which it will provide medical services. Hospitals, skilled nursing facilities, home health agencies, clinics, rehabilitation agencies, public health agencies, comprehensive outpatient rehabilitation facilities, hospices, critical access hospital, and community mental health centers (CMHCs) may all generally seek to participate in Medicare under a provider agreement. However, clinics, rehabilitation agencies, and public health agencies may enter into provider agreements only for services involving outpatient physical therapy and speech pathology. CMHCs may only enter into provider agreements to furnish certain hospitalization services.
Medicare is divided into three programs, a hospital insurance program, a supplementary insurance program, and a Medicare+Choice program. The hospital insurance plan is funded through a 2.9 percent Social Security payroll tax. The money is placed in a trust fund and invested in U.S. Treasury securities. The hospital insurance plan covers reasonable and medically necessary treatment in a hospital or skilled nursing home, meals, regular nursing care services, and the cost of necessary special care.
The hospital insurance plan offers coverage for inpatient hospital services based on “benefit periods.” An episode of illness is termed a benefit period and starts when the patient enters the hospital or nursing home facility and ends sixty days after the patient has been discharged. A new benefit period starts with the next hospital stay, and there is no limit to the number of benefit periods a person can have. Medicare will pay the cost of hospitalization for up to 90 days. The patient must pay a one-time deductible for the first sixty days of a benefit period and an additional daily fee called a co-payment for hospital care provided during the following thirty days. Apart from these payments, Medicare covers the full cost of inpatient hospital care.
Medicare’s supplementary medical insurance program is primarily financed by the federal government out of general tax revenues. The balance of the program is funded by those enrolled in it. Persons enrolled in Medicare pay a regular monthly premium and a small annual deductible for any medical costs incurred above the amount of the deductible during a given year.
Once the deductible and premiums have been paid, the supplementary medical insurance program covers 80 percent of any bills incurred for physician’s services, including surgery, laboratory and diagnostic tests, consultations, and home, office, and institutional calls, but it excludes services that constitute inpatient hospital care under the hospital insurance plan. Chiropractic services are covered by the program if the chiropractor meets specified regulatory requirements relating to education. 42 C.F.R. section 410.22(a). However, the supplementary medical insurance program does not cover routine physical checkups, eyeglasses, hearing aids, dentures, or orthopedic shoes. Nor does it cover the cost of drugs or medicines that can be self-administered.
Medicare computes its 80 percent responsibility based on the medical expenses and charges it deems reasonable for each kind of service provided to the patient pursuant to the supplementary insurance plan. Under the reasonable charge system, Medicare reimburses the lowest of the actual charge in question, the physician’s customary charge for the service, or the applicable prevailing charge for the service. A physician’s customary charge is based on the physician’s actual charges for the same service during a twelve-month historical data collection period. When the charges vary during the historical period, the charges are then arrayed, weighted by frequency, and a customary charge is established at a level equal to the median of the charges. The prevailing charge is determined by a similar methodology, applied to all charges in the charge location by all physicians, with the prevailing charge fixed at an amount that would cover the full customary charges of the physicians whose billings accounted for at least 75 percent of the charges in the array.
The Medicare+Choice program is essentially a privatized medical savings plan that is funded partly by beneficiary premiums and partly by government contributions. The premiums and contributions are maintained by the Medicare+Choice MSA Trust Fund. As of January 1, 1999, beneficiaries are offered the following private health care delivery options under the program: Medicare health maintenance organizations (HMOs), medical savings accounts (MSAs), preferred provider organizations (PPOs), private fee-for-services (PFFS), and provider sponsored organizations (PSOs). However, individuals are only eligible to elect a Medicare+Choice plan offered by a Medicare+Choice organization (MCO) if the plan serves the geographic area in which the individual resides.
Beneficiaries who reside in an area served by a Medicare+Choice plan may opt out of either the health insurance or supplementary insurance plans and elect to enroll in Medicare+Choice, except those with end-stage renal disease. Beneficiaries may only enroll during November of each year, and plan elections become effective in January of the following year. Beneficiaries who do not elect any option will automatically be enrolled in traditional fee-for-service Medicare. If a beneficiary does not make an election for a particular year and is already enrolled in a Medicare+Choice plan from the previous year, he or she will automatically be re-enrolled in that plan. Beneficiaries can also change plans if their plan contract terminates or if they move from their plan’s service area. 42 U.S.C.A. section 1395w-21(e)(3).
The Secretary of Health and Human Services has established a process through which elections under the Medicare+Choice program are made and changed. Individuals seeking to elect a Medicare+Choice plan must complete and sign an election form, provide the information required for enrollment, and agree to abide by the rules of the plan. Within 30 days from receipt of the election form, MCOs transmit the information necessary for CMMS to add the beneficiary to its records as an enrollee of the MCO. A beneficiary’s enrollment may not be terminated unless the beneficiary engages in disruptive behavior, provides fraudulent information on the election form, permits abuse of the enrollment card, or fails to timely pay premiums. Monthly premiums for Medicare+Choice plans are calculated based on the rules set forth in 42 U.S.C.A. section 1395w-24(b)(1)(A).
A Medicare+Choice plan offered by an MCO satisfies the basic requirements for benefits and services if the plan provides payment in an amount that is equal to at least the total dollar amount of payment for such items and services as would otherwise be authorized under the health insurance or supplementary insurance plans. The Medicare+Choice plan must also comply with (1) CMMS’s national coverage decisions; and (2) written coverage decisions of local carriers and intermediaries for jurisdictions handling claims in the geographic area for which services are covered under the plan.
Payments provided under the health insurance plan, supplementary insurance plan, or the Medicare+Choice plan can be sent directly to the health care provider or to the patient. Regardless of the method of payment, the patient must receive notice that the provider has filed a medical insurance claim. The notice should detail the medical services provided, identify the expenses that are covered and approved by Medicare, and itemize any expenses that have been credited toward the annual deductible and any expenses Medicare has already paid in full. Patients or providers who are dissatisfied with a decision made regarding a Medicare claim may ask CMMS or the insurance carrier to reconsider the decision, depending on the nature of the claim. Following reconsideration, either party may request a formal hearing before an administrative law judge, though no formal hearing will be granted for claims made under supplementary medical insurance plans unless the claim is for at least $100. Once the administrative law review process has been completed, aggrieved parties may appeal to federal district court. Supplementary medical insurance claims must total at least $1,000, however, before a federal district court will hear the appeal.