Medicare Supplement Insurance -- Part 1

Medicare supplement insurance -- What is it? Who needs it? When are you eligible for it? Where is it available? Why would you choose it? How much is it? I will answer these and many other questions about Medicare supplement insurance; but, first, we need a basic understanding of Medicare.

Understanding the basics of Medicare requires answering four questions:

1. What does Medicare alone cover?
2. More importantly, what does it not cover?
3. What solutions are available?
4. How can Medicare supplement insurance fill your insurance needs?

Original Medicare is divided into two parts. Part A is hospital insurance and covers some of the costs associated with stays in a hospital or a skilled nursing facility. When you are hospitalized between 1 and 60 days you pay a deductible and then Medicare covers most other costs. Currently, the deductible is $1,068.00; but it usually increases every year. Additionally, this is not an annual deductible like most private health plans. Thanks to Medicare's rather unusual "flexible benefit period" you could very well find yourself paying your deductible up to five times a year.

When you are hospitalized between 61 and 90 days you pay a daily copayment and then Medicare covers most other costs. Currently, this copayment is $267.00 per day or as much as $8,010.00 for the period; but it usually increases every year. When you are hospitalized between 91 and 150 days you pay an even higher daily copayment and then Medicare covers most other costs. Currently, this higher copayment is $534.00 per day or as much as $32,040.00 for the period; but it, too, usually increases every year. When you are hospitalized for 151 or more days you pay all costs for each and every day and Medicare covers nothing.

Medicare will cover some of the costs for skilled nursing care if you meet the following requirements:

1. You are hospitalized for at least 3 days.
2. You enter a Medicare-approved facility within 30 days after your discharge from the hospital.
3. You are receiving skilled nursing care, which requires that you are measurably recovering.

Assuming you meet the above three requirements, when you enter a skilled nursing facility for between 1 and 20 days Medicare covers all eligible expenses. When you enter a skilled nursing facility for between 21 and 100 days you pay a daily copayment and then Medicare covers most other costs. Currently, the copayment is $133.50 per day or as much as $10,800.00 for the period; but it usually increases every year. When you enter a skilled nursing facility for 101 or more days you pay all costs for each and every day and Medicare covers nothing.

The second part of original Medicare is Part B. Part B is medical insurance and covers some of the costs associated with physician services, outpatient care, and tests and supplies. When you incur medical expenses you pay an annual deductible, which is currently $135.00, and usually 20% of the approved charges although there are some exceptions to this arrangement. For instance, when you incur expenses for blood transfusions you pay entirely for the first 3 pints and then 20% of the approved amount for any additional pints. Finally, you pay all excess charges if your healthcare provider does not accept assignment. Approved charges, excess charges, assignment? Perhaps an example would best clarify these terms and reveal how they could affect you.

Let's say your healthcare provider billed you $10,000.00 for medical services. Medicare has its own schedule of approved charges for the medical services that it covers. After reviewing the services that you received, let's say that Medicare approves $6,000.00. For simplicity's sake, let's say you previously payed your $135.00 annual deductible; so it is not a factor here. Also, let's assume that your medical services did not include blood or other exceptions to the usual 80% / 20% arrangement.

In this example $6,000.00 is the Medicare approved amount. Medicare will pay 80% of the $6,000.00 or $4,800.00. You will pay 20% of the $6,000.00 or $1,200.00. If your healthcare provider accepts assignment, then it agrees to ignore the remaining $4,000.00 originally billed. If your healthcare provider does not accept assignment, then according to Medicare it may bill you up to 15% of the total approved charges or $6,000.00 in this example. The 15% of the $6,000.00 or $900.00 is the excess charge in this example. Naturally, Medicare does not cover excess charges; so you pay the entire amount. This would almost double your bill from $1,200.00 to $2,100.00, which makes sense when you consider that you would be paying 35% of the approved charges instead of 20% of them.

Hopefully, you now have a basic understanding of original Medicare and are more aware of what it does and does not cover. Next time we will review Medicare supplement insurance to see how it fills the gaps in original Medicare and protects you from the many costs that original Medicare does not cover. As always, feel free to post or e-mail any comments or questions that you may have.