The Centers for Medicare and Medicaid Services (“CMS”) recently announced the 2018 premiums for Medicare Part B (Physician Services).
In case you’re wondering what the premiums are for 2018, the best answer is “it’s complicated and it depends.” And that gets at the focus of this blog post – the complexities (and pitfalls) of the Medicare Part B premium structure.
Note: there is a separate premium for Part A (Hospitalization), but this Part A premium is only paid by individuals who did not complete least 40 quarters of Medicare-covered employment; 99 percent of those covered by Medicare have the required employment and do not pay any Part A premium. So, the remainder of this blog will focus on the Part B Premium.
The “basic” Part B premium for 2018 is $134/month and this amount is unchanged from 2017. This basic Part B premium is designed to cover 25% of the projected average per capita Part B program costs and federal general revenues pay for the remaining amount.
It Depends (Part 1): The Social Security “Hold Harmless” Provision
The rate of health care inflation is, generally, greater than the overall increases in inflation. So, for the past two years, the increase in Medicare premiums has been greater than the cost-of-living adjustment (“COLA”) under Social Security. Without special rules retirees (who have Medicare Part B premiums automatically deducted from their Social Security checks) would see their Social Security checks go down. However, rules prohibit Social Security checks from actually decreasing in this way (the “hold harmless” rule).
To fix this dilemma, CMS charges to full basic premium – the $134.00 per month for 2018 – only to Medicare beneficiaries who are not covered by the hold harmless rule. The groups who pay this full basic benefit include Medicare beneficiaries who do not receive Social Security benefits, those who enroll in Part B for the first time in 2018, and those who pay an income-related premium (to be discussed below). In total, 30 percent of Medicare beneficiaries pay the full basic premium.
What about the other 70 percent? The impact of the hold harmless rule emerged in 2016, (when the Social Security COLA was zero). The fix: Medicare Part B premiums for those protected under the “hold harmless” provision will only increase by the amount available from their Social Security COLA. So, for 2016 the Medicare Part B basic premium increased f from $104.90/month to 121.80/month (for those not protected under the hold harmless provision), but was unchanged for those covered by hold harmless.
Deferring – But Not Avoiding – Increases
The “hold harmless” rule serves only to delay the impact of the Part B premium increases – but Medicare beneficiaries must now pay the piper. As Social Security COLA increases start up again (they will be 2 percent for 2018), those covered by the hold harmless provision will see Medicare Part B premiums increase by more than the general Medicare increase – so that premiums for these individuals will now catch up to the basic rate. In effect, for the 70 percent of Medicare beneficiaries covered by the hold harmless rule, this catch-up increase will absorb most (or all) of their Social Security COLA for 2018.
This loss of Social Security COLA makes actuarial sense – over time it brings Part B premiums for these individuals back to the basic level. However, it is not clear that Social Security beneficiaries with no COLA for 2018 feel they have been “protected” by the hold harmless rules.
It Depends (Part 2): Blame IRMAA
As noted above, the basic Medicare Part B premium covers only about 25 percent of the true cost of Part B coverage and the remainder is subsidized by federal general revenues. Since 2011 individuals with higher incomes have been required to pay additional Part B premiums, based on their income. Depending on income, under IRMAA Medicare Part B premiums can go up to as much as $428.60/month. Here is a link to the full set of Medicare Part B premiums.
Increases from the basic $134/month start at annual incomes over $85,000 (individual tax return)/$170,000 (joint return). Here is where the IRMAA rates get tricky:
• Medicare Part B premiums under IRMAA are based on the modified adjusted gross income (“MAGI”) shown on your most recent tax return available to CMS. So, for 2018 premiums CMS is looking at your 2016 tax return.
• MAGI includes gains from the sale of property – including your primary residence. So, if you downsize and sell your home, you can expect a bump up in your Medicare Part B premium for the year that reflects this sale.
• MAGI also includes capital gains from the sale of investments. So, the sale of stocks that have appreciated can also bump up your Part B premiums.
• IRMAA increases are not phased in. So, in theory, a one dollar increase in MAGI can increase your Medicare Part B premiums by over $600/year for an individual and $1200 for a couple. Needless to say, this can come as a rude surprise – especially for a couple who has not really had a change in income, but simply sold a residence or some appreciated stocks.
• You can appeal an IRMAA determination for a “life changing” event that will reduce your income. However, the grounds for such an appeal are fairly narrow, such as death of a spouse, divorce or a work reduction/stoppage. (Here is the form for filing such an appeal.)
Medicare beneficiaries don’t really have an opportunity to shop for a better Part B premium – if you elect to remain in traditional Medicare, your Part B premium is set by law. Of course, the cost of Part B can be a factor in a deciding whether to choose a Medicare Advantage plan over traditional Medicare. And, Medicare beneficiaries might want to check with their accountant or tax planner to see if the sale of an asset will trigger an IRMAA increase and may even want to time certain transactions to reduce the impact of IRMAA.
Perhaps the key takeaway is that any system providing health insurance for over 50 million Americans will have complicated rules – lots of complicated rules. And consumers need to be proactive in understanding how those rules apply to them and how to minimize potentially adverse consequences from those rules.
More Americans are working past 65 and continue to have employer-sponsored health insurance. However, the intersection of Medicare and employer coverage has a number of traps for the unwary and some of these traps come with real financial consequences. This makes it more important than ever that you (and your employer) understand the complex rules for starting coverage under Medicare. This blog post will identify some of the traps in these rules.
Medicare Part A and HSAs.
If you (or your spouse) has paid Medicare taxes for at least ten years, you do not pay monthly premiums for Medicare Part A (hospital) coverage. Because Part A does not require premiums, most workers start Part A at 65 even if actively employed.
• Trap 1: Once Part A starts, you are no longer eligible to contribute to a Health Savings Account (HSA). So, if that HSA deduction is important to you, then you need to make sure you do not enroll in Part A at age 65.
• Trap 2: Once you sign up to receive Social Security benefits, you are also (automatically) applying for Part A coverage. So, the only way to defer Part A coverage (and retain that HSA contribution) is to also defer commencement of your Social Security benefits.
• Trap 3: Once you do enroll in Part A and you are over age 65, your Part A enrollment is effective retroactively for 6 months. So, you should stop making HSA contributions 6 months before you start your Medicare Part A coverage.
Medicare Part B and Late Enrollment Penalties.
Medicare Part B (physicians and outpatient) coverage does require a monthly premium and so, if you have other coverage, it may be tempting to defer Part B until the other coverage stops. But a warning – if you do not enroll in Part B when you first become eligible you may be subject to a significant penalty. However, there is no penalty if you defer Part B and you have certain (but not all) other health coverage.
As an FYI, the penalty is 10% of your Medicare premium for every full 12-month period when you were eligible for Part B but didn’t enroll. For example, if you waited for three years to enroll, your penalty could be 30% of the premium, so when you enroll in Part B you would pay your Part B monthly premium, plus 30%. Here is the kicker – you pay this penalty for as long as you have Part B (in other words, for the rest of your life after you retire).
Here are some of the traps:
• Trap 4: The late enrollment penalty does not apply if you have coverage from your employer (or your spouse’s employer) and that coverage is because of current employment. So, if you have COBRA coverage or retiree health coverage, you should not delay your Part B enrollment.
• Trap 5: The late enrollment penalty does not apply if you have employer coverage only if the employer has at least 20 employees. So, you should not delay Part B enrollment if your coverage is from a smaller employer.
Working past 65 can have significant personal and financial rewards and retaining your employer health coverage after you reach age 65 can be a real benefit. However, Medicare’s rules for coordinating Medicare eligibility and employer coverage contain a number of traps for the unwary. Avoiding these traps can help make sure you fully enjoy the benefits of working after 65.
On April 16 President Obama signed The Medicare and CHIP Reauthorization Act (“MACRA”). The focus of the law is to change how physicians are reimbursed under Medicare, but MACRA contains a number of provisions that may have far-reaching consequences for all of the “stakeholders” in Medicare—especially for consumers and their physicians.
Most importantly, MACRA changes more than how much physicians are paid—it shifts how they are paid. Under MACRA, annual increases (and possible cuts) in physician reimbursements will be based on the physicians’ performance under standards to be established in the coming years. So, MACRA continues Medicare’s movement away from the 1960’s mindset of compensating physicians for volume—and represents an attempt to use economic incentives (rather than government mandates) to modify physicians’ behaviors.
As with any changes to Medicare, the impact of MACRA will be studied and debated for years to come. The prior system—which required an annual scramble to avoid dramatic reductions in physician reimbursements—was not sustainable. We now get to see whether MACRA can live up to the expectations of Congress and the needs of Medicare beneficiaries.
Here is an overview of the key provisions of MACRA:
MACRA repeals the (much reviled) formula for updating payments from Medicare to physicians. The old formula (known as the Sustainable Growth Rate, or “SGR”) linked physician payments to the overall growth of Medicare costs and required annual acts of Congress to prevent unacceptable cuts to physician payments. MACRA replaces the SGR with a formula that links increases in physician reimbursements to a new incentive system. The new system will provide financial incentives to physicians for:
o Quality of care (including clinical care, safety, coordination of care, patient and caregiver experience, and overall health and prevention);
o The resources used to provide care;
o Use of electronic health records; and
o Participation in different payment structures.
Physicians will be graded on a “curve”—those physicians who score better on the new incentive system will receive higher annual increases (and those who score worse will receive lower—or even “negative” increases) and data under this new system will be publicly available.
Specific measures will be developed over the next few years.
To help finance MACRA, the law also changes the formula for determining the amount of premium (for Medicare Parts B and D) paid by higher income individuals. The most significant increase affects the premium paid by Medicare beneficiaries with annual income over $160,000.
MACRA prohibits Medicare Supplement plans from covering the deductible amount (currently $147) under Medicare Part B, which affects Supplement Plans C and F. This prohibition goes into effect in 2020 and affects only policies sold to individuals turning 65 on or after January 1, 2020.
MACRA prohibits government auditors from applying the “two-midnight rule” until after September 30, 2015. Under this rule, hospital admissions that did not span two-midnights were subject to extra scrutiny by government auditors. This rule has raised concerned that patients are (inappropriately) labeled as under “observation.” See our April 8 blog post for a description of the two-midnight rule—and the problems associated with it.
MACRA also extends the Children’s Health Insurance Program (“CHIP”) for two years. CHIP provides funds to states for health insurance for families with low income (but who do not qualify for Medicare). The CHIP extension has nothing to do with Medicare, but was a part of the political horse-trading that was needed to obtain bipartisan support for MACRA.
There is an ongoing controversy between hospitals and government regulators (The Centers for Medicare and Medicaid Services, or “CMS”)—with Medicare beneficiaries caught in the middle. Although the issue seems technical and bureaucratic, it raises some significant issues for those covered by Medicare.
What is Going On?
Hospitals can label a stay as an “admission” to the hospital—or as a stay for “observation.” In recent years the use of observation status has skyrocketed; as noted by the Kaiser News Network, the use of observation status rose 88% between 2006 and 2012 and the number of observation stays lasting more than 48 hours increased five-fold in the same period.
This use of observation status can add to the cost Medicare—and to the amounts paid by Medicare beneficiaries. Here is what is going on—and why it matters:
- Medicare reimburses hospitals differently for services provided on an in-patient basis and services provided on an outpatient basis. In-patient care generates significantly higher fees for hospitals. For comparable diagnoses an inpatient admission costs Medicare $3,160 more than treatment on an outpatient basis. As a result, government auditors have focused on short hospital stays where the diagnosis does not clearly justify hospitalization. Hospitals do not like this focus; the process of having claims questioned – or even disallowed –can be costly and is something hospitals seek to avoid.
- CMS uses hospital readmission as one of its measures of quality of care—and a hospital with excessive readmissions can be lose up to 2% of total Medicare reimbursements. Needless to say, this is real money. This gives hospitals yet anther incentive to treat certain situations as “observations” and not admissions.
In response to these factors hospitals have been holding patients for “observation”—a medical form of limbo, where a patient may spend one (or more) nights in a hospital, but is not admitted on an in-patient basis. Over the past few years the increased use of “observation” status has been a source of frustration to Medicare beneficiaries.
Why does this matter?
Medicare is a series of silos—one silo (Part A) covers hospitalization, while other silos cover outpatient care (Part B) and prescription drugs (Part D). Confusingly, there are many differences between these coverages that affect people caught in observation status
- Part A has a deductible ($1,260 per “benefit period”), but does not have a copayment. By contrast, Part B has a modest annual deductible ($147/year) but a 20% copayment (with no out-of-pocket maximum). So, the decision to keep someone in the hospital under observation status can result in a copay liability of 20% of the hospital bill—adding to the beneficiary’s costs that are not protected by an out-of-pocket maximum.
- Part A also covers prescription drugs administered during a hospitalization. Part B (generally) does not cover prescription drugs and prescription drugs are covered (under Part D) only if an individual purchases prescription drug coverage from a private insurance company. So, observation status can also trigger higher costs for any prescription drugs administered in the hospital.
- Medicare Part A covers skilled nursing care (with no deductible or copayment for the first 20 days of care) only after an inpatient hospital stay of 3 consecutive days or more, measured from the day the hospital admits you as an inpatient. This 3-day period does not include any period of observational status or the day of discharge from the hospital.
So, you can see how observation status can easily develop into an acute case of financial shock.
There have been a number of different proposals to change how Medicare treats observations and short-term admissions. More on that in our next blog. However, what is lost in this controversy is the underlying problem—Medicare is a 50-year old design, reflecting the “base plus major medical” design found in the 1950s. This approach simply does not reflect medical advances that allow for shorter—or no—hospitalizations and for use of alternative settings for the delivery of care.
The controversy over observation status versus hospital admissions is not the illness; it is the symptom. Medicine has moved on since 1965; so should Medicare.
What is Medicare Advantage (Medicare Plan C)? What do consumers need to know to make informed choices about Medicare Advantage plans?
When turning 65, new Medicare beneficiaries are faced with a dizzying array of choices. First, their eligibility for Plan A (hospital) is established. Second, they make the decision to accept Plan B (doctors). At this point in the decision process, there are a host of complex Medicare insurance choices that will have a financial impact on the consumer. These important choices will determine the consumer’s access to and delivery of health care. For all new beneficiaries, the next decision is which of two pathways to follow: stay with Original Medicare, or shop for a Medicare Advantage plan.
What is Medicare Advantage? According to the Center for Medicare and Medicaid Services (CMS), a Medicare Advantage plan is a type of Medicare health plan offered by a private company that contracts with Medicare to provide consumers with all Part A and Part B benefits. Medicare Advantage plans include Health Maintenance Organizations (HMO), Preferred Provider Organizations (PPO), Private Fee-for-Service Plans (PFFS), Special Needs Plans (SNP), and Medicare Medical Savings Account Plans (MSA). If the consumer is enrolled in a Medicare Advantage plan, Medicare services are covered through the plan and are not paid for under Original Medicare. Most Medicare Advantage plans offer prescription drug coverage.
According to Medicare.gov, there are four basic characteristics of Medicare Advantage plans that the savvy consumer will want to understand. These include:
Annual enrollment and benefits
You can only join a plan at certain times during the year. In most cases, you are enrolled in a plan for a year. Plans can add benefits such as vision, dental and gym memberships, and can change these benefits from year to year.
Know your network
If you go to a doctor, other health care provider, facility, or supplier that does not belong to the plan’s network, your services may not be covered, or your costs could be higher. In most cases, this applies to Medicare Advantage HMOs and PPOs.
Understand that providers can change
Providers can join or leave a plan’s provider network anytime during the year. Your plan can also change the providers in the network anytime during the year. If this happens, you may need to choose a new provider.
Plans can stop participating in Medicare
If the plan decides to stop participating in Medicare, you will have to join another Medicare health plan or return to Original Medicare.
Once these basic characteristics of Medicare Advantage are understood, for the consumer the key factor is how to make a meaningful comparison between different plan options in terms of cost and services provided. Costs vary between different plans. For example, Medicare Advantage plans have a yearly limit on out-of-pocket costs for all medical services. Once the consumer reaches this limit, he or she will play nothing for covered services. This limit may be different between Medicare Advantage plans and can change each year. As Medicare.gov points out, the beneficiary should consider this when choosing a plan.
How can the beneficiary digest such a large amount of Medicare Advantage information that is part of the alphabet soup of Medicare? The promise of online healthcare exchanges is that they can provide tools for a meaningful comparison of Medicare Advantage plans. Further, they can help the consumer understand the costs and trade-offs between Medicare Advantage plans and choices along the other pathway, which includes Original Medicare and additional products such as Medicare Supplement and prescription drug coverage (Medicare Plan D).
Online tools have the capacity to take an enormous amount of complex information and make it available to the consumer in an easy language they can understand. Only then can the new Medicare beneficiary digest the alphabet soup that is Medicare and make a truly empowered decision about their insurance choices.
About the Author
Ellen Glassman, Ph.D. is a founder of Retiree Health Choices. She is a licensed life and health insurance broker with expertise in business development, design and marketing.
The narrowing digital divide between older adults and other healthcare consumers is key to understanding how retirees access healthcare information online.
The digital divide is defined as unequal access to, or knowledge of information and communication technologies. For example, the Pew Internet and American Life Project describes older healthcare consumers who have never used the Internet and have no access to online information as,”truly disconnected.”
Anecdotal evidence suggests that older people are sometimes resistant to digital innovations. However, a 2009 CDC expert panel report found that many older adults are eager and willing to learn about new technologies. The digital divide for this group is narrowing for a number of reasons. A range of devices from laptops, e-readers, smart phones and tablets are increasing access and connectivity. At the same time, new technologies are providing means for older adults with physical limitations to move ahead, while also narrowing the knowledge of information gap.
Baby Boomers aging onto Medicare are narrowing this divide further. Boomers embrace multiple technologies at work, in their leisure time, at home and while shopping online. Whether streaming videos on Netflix or shopping on Amazon, the Boomer world is digital. This digital world increasingly reaches far into different communities and across socioeconomic strata.
Many Boomers are being asked to become informed healthcare consumers. This world, too, is increasingly digital, from the doctor’s office, to the insurance company, to health insurance exchanges such as HealthCare.gov. Navigating this world takes patience, knowledge and familiarity with technology. As the 2013 rollout of HealthCare.gov has shown, we are just beginning to understand how healthcare consumers of all ages will engage with health related information online.
Older adults and Boomers aging into retirement inhabit a consumer centric world where demand is high for meaningful information to guide purchase decisions. Within this space, consumer demand for clear healthcare information online is growing. All older healthcare consumers, whether new or existing retirees, must be informed in appropriate ways.
This is a pressing matter, as healthcare literacy in the United States is generally low. A 2009 CDC expert panel report showed that skills required to use the healthcare system exceed the skills of adults who graduated from high school. The current information available about Medicare, whether on or offline, is substantial. For many adults, Medicare information is also complex and confusing. Compounding this problem, the U.S. Census Bureau Statistics indicates that the number of Americans age 65 or older will double by the year 2030 to over 70 million. The Kaiser Family Foundation predicts 30 million people will enroll in Medicare over the next eighteen years. As a tsunami of enrollment hits Medicare, online technologies will become prevalent in this market.
Healthcare exchange technologies for Medicare are in their infancy. Given the large numbers of computer savvy Boomers aging onto Medicare, the next generation of healthcare exchange technologies must rise to the challenge of becoming true online decision tools. Decision tools offer meaningful interpretations of healthcare information, and will replace current online tools that present static reams of data online. As the digital divide narrows for healthcare consumers, exchange technologies will have to meet the growing demands of a changing consumer centric culture.
About the Author
Ellen Glassman, Ph.D. is a founder of Retiree Health Choices. She is a licensed life and health insurance broker with expertise in business development, design and marketing.
In the world of “entitlement” programs, the youngest Boomers just turning 50-years-old this year believe that social security will not be available for them nor will Medicare as we know it. While it would be nice to have research to support this, suffice it to say, survey 50-somethings and they’ll confirm this statement!
Many Boomers rarely have the opportunity to work for the same employer long enough to accrue some benefits into retirement. In addition, the current employee benefit model, highlighted by pensions and retiree health insurance, is in flux. Allen Steinberg, JD and chief legal officer of Retiree Health Choices, detailed the pension pendulum in this blog post recently.
The rocky rollout of the Affordable Healthcare Act under the banner of Healthcare.gov has influenced everyone in the country regardless of gender, political, religious, ethnic, or other persuasion. Right now it is a calamity for the country; yet, it is also an opportunity for organizations to recognize the need for clarity.
Many consumers, particularly boomers, are well informed and educated about an array of products and services, insurance plans and options. However, the transition to Medicare remains a gap – consumers are not aware of the complexity until they have to deal with it. Read the rest of this entry »
As the consumer healthcare market shifts, more scrutiny is being placed on cost of consumption of services. In a recent New York Times article Nov. 8, 2013, Good Deals on Pills? It’s Anyone’s Guess, Elisabeth Rosenthal reviews cost chaos with drugs.
For example, two popular medications for asthma and allergies, Advair and Rhinocort AQ, used by tens of thousands of Americans are no longer going to be covered by many benefit plans served by Medco/Express Scripts.
Shocked consumers will need to pay $300 and $150 respectively monthly for the brands they’re accustomed to, or find generics. In many cases, no approved generics are available.
Consumer Healthcare Cost Burden Shifting
In the past, consumers of healthcare have not been cognizant of the high cost of health care services or drugs. They presented an insurance card and rarely cared about the actual bill paid by the employer’s benefit plan.
This tradition is over, and the sticker shock over unsubsidized cost of medical and pharmaceutical prices is causing much anxiety.
A new burden is being placed on the consumer, and along with it, confusion. Read the rest of this entry »
Everyone eligible for Medicare (usually 65-years-old) automatically gets Part A and needs to sign up for Part B.
Because Parts A and B don’t cover everything, people can elect to buy supplemental coverage, often called Medicare Supplement insurance.
All of the Medicare Supplement plans, also called Medigap, are standardized in almost every state; yet, there are many options to consider when purchasing additional Medicare insurance from private insurers. Read the rest of this entry »
Retirees have an opportunity to consider Medicare plans and ensure they have selected the best plan for their needs.
An online consumer website is offering people a way to review and compare Medicare Supplement plans. Read the rest of this entry »