In addition to Social Security retirement and disability programs and Supplemental Security Income (SSI), the Social Security Administration (SSA) has operated the Medicare program since it became law in 1965. Medicare coverage is, with a few exceptions, available to older Americans beginning at age 65. It generally provides three distinct coverages.
Medicare Part A covers inpatient hospital services and certain out-of-hospital therapies. It also covers hospice care. Part B is more focused on doctors’ fees and outpatient procedures.
The most significant legislative change to Medicare, the Medicare Modernization Act, was enacted in late 2003. This historic legislation added an outpatient prescription drug benefit, Medicare Part D, and changed the program in other ways.
Medicare Advantage, commonly called Medicare Part C, which operates in conjunction with Medicare, could be considered a fourth coverage. From a tax standpoint, Medicare benefits are generally treated no differently from benefits of other types of insurance. The determination of whether premiums are eligible itemized deductions is similar to that which typically applies to other health insurance.
Medicare Parts A and B are sometimes called “Original Medicare.” Original Medicare operates differently from private insurance plans like health maintenance organizations (HMOs). HMOs generally provide coverage (other than emergency care) only for services provided by doctors or hospitals in their network. Medicare generally allows the patient to visit any doctor or be treated in any hospital that accepts Medicare. Original Medicare operates under a “fee-for-service” arrangement, meaning that the doctor or hospital is paid for the services they actually provide.
Generally, an individual is automatically enrolled in Medicare Part A when that person attains age 65 and is receiving Social Security retirement benefits. Typically, the SSA mails one’s Medicare card three months before the retirement benefit recipient’s 65th birthday.
If an individual has employer-provided or other health insurance (or believes that he or she cannot afford the Medicare Part B premium) and wishes to elect out of Part B coverage, instructions included with the Medicare mailing will tell the recipient how to opt out.
Most people older than 65 don’t pay a Part A premium because they paid Medicare taxes while working. However, for an individual not covered, or if the individual or spouse worked and paid Medicare taxes for less than 10 years total, a monthly Part A premium of $437 would apply in 2019. If an individual has 30 quarters of coverage but less than 40 quarters of coverage, a reduced premium of $240 is charged for coverage under Part A.
Medicare Part A (hospital insurance) covers hospital services, including semiprivate rooms (private rooms may be covered when such accommodation is medically necessitated), meals, general nursing care, prescription and other drugs administered in conjunction with inpatient treatment, and other hospital services and supplies. This includes care provided in acute care hospitals, critical access hospitals, inpatient rehabilitation facilities, long-term care hospitals, inpatient care as part of a qualifying clinical research study, and mental healthcare.
Under Part A of Medicare, inpatient hospital care is covered if all the following conditions are satisfied:
Although Medicare Part A covers a significant portion of inpatient hospital costs, the patient still retains exposure to costs. The benefit from Medicare Part A depends on how many days the patient stays in the hospital. The good news is that most studies report the average Medicare-covered inpatient hospital stay is eight days. That said, certain patients would be in the hospital considerably longer than average.
In 2019, for the first 60 days, the patient generally pays a deductible of $1,364 and Medicare pays the rest. After that, the longer the patient stays, the greater his or her exposure. Rather than the flat-dollar deductible that satisfies the patient’s exposure during the first 60 inpatient days, the patient is then responsible for a daily copayment (copay). The patient pays $341 per day for days 61 through 90.
After inpatient day 90 and through day 150, a patient can tap into his or her store of nonrenewable lifetime reserve days. The patient must pay a copay of $682 per day until the 60 days of lifetime benefits have been used. After day 150, the patient is exposed to all the costs of inpatient care.
Now, consider the less frequent situation in which a Medicare Part A insured patient dips into lifetime reserve days.
A spell of illness or benefit period is specifically defined. The patient is required to pay the inpatient deductible for every benefit period. A Medicare insured patient’s first benefit period or spell of illness begins with the first night of a qualifying stay in a hospital.
The spell of illness ends when the patient has not received any inpatient care (in the hospital or skilled nursing facility [SNF]) for 60 days in a row. There is no limit on the number of spells of illness that would be Medicare eligible. However, studies show that the average length of a hospital stay covered by Medicare is eight days.
Keep in mind that the Medicare-insured person does not have to use the entire 60 lifetime reserve days in one spell of illness; they can be allocated among several benefit periods. Nevertheless, the individual has a total of only 60 reserve days in his or her lifetime. Once the lifetime reserve days have been used, the beneficiary will receive coverage for only 90 days when the next spell of illness occurs.
After the patient pays for the first three pints of blood donated by third parties, Medicare Part A pays 80% of any additional blood that is supplied to a hospital inpatient. In certain situations, the hospital obtains blood from a blood bank at no charge, and then, the patient is not obligated to pay for it or replace it. If the hospital must buy blood for an inpatient, that patient is required to either pay the hospital costs for the first three units of blood supplied within a calendar year or arrange for blood to be donated.
Medicare Part A also pays for stays in psychiatric hospitals, but the benefit is limited to 190 days of inpatient care during a beneficiary’s lifetime. Services may be provided either in a general hospital or a psychiatric hospital that only cares for patients suffering from mental health conditions.
In 2019, mental health inpatient stay benefits are covered as follows:
Medicare Part A helps a covered individual pay the bills for several types of medical care, such as the following:
Although Medicare provides a wide range of services, it generally would provide no benefit for the following:
Parts A and B generally provide no benefit for outpatient prescription drugs. An exception may be available for certain outpatient chemotherapies.
If an older individual has limited income and resources, his or her state of residence may help pay for Part A and or Part B as well as for Medicare prescription drug coverage.
Different Medicare premiums, deductibles, and coinsurance apply to specific parts of Medicare coverage.
If someone is not automatically covered for Medicare Part A, a premium of up to $437 each month applies in 2019. Most people have premium-free Part A coverage. Individuals entitled to such coverage starting at age 65 typically include those who
Someone younger than age 65 may receive premium-free Part A coverage if he or she
In most cases, an individual who chooses to buy Part A, is also required to carry Medicare Part B (medical insurance) and pay monthly premiums for both.
Someone beginning Medicare coverage in 2019 or turning age 65 in 2019 will have a monthly premium of $135.50. However, if the insured individual’s modified adjusted gross income (AGI) two years ago is more than a certain threshold, the premium is generally higher. The SSA will contact those required to pay more based on higher incomes. The amount of premium can change each year depending on the insured’s AGI. Please refer to the following chart.
If yearly income in 2017 was | Insured pays (in 2019) | ||
File individual tax return | File joint tax return | File married and separate tax return | |
$85,000 or less | $170,000 or less | $85,000 or less | $135.50 |
more than $85,000 up to $107,000 | more than $170,000 up to $214,000 | not applicable | $189.60 |
more than $107,000 up to $133,500 | more than $214,000 up to $267,000 | not applicable | $270.90 |
more than $133,500 up to $160,000 | more than $267,000 up to $320,000 | not applicable | $352.20 |
more than $160,000 and less than $500,000 $500,000 and above |
more than $320,000 and less than $750,000 $750,000 and above |
above $85,000 and less than $415,000 $415,000 and above |
$433.40 $460.50 |
Source: SSA |
If one receives a notice to pay a higher amount for the Part B premium and he or she disagrees, one can apply for a review by submitting the Income-Related Monthly Adjustment Amount—Life-Changing Event form. However, it is clear from the preceding table that individuals and couples with AGIs that exceed certain inflation-indexed thresholds will pay more (sometimes substantially more). The amount of modified AGI for this purpose is that reported on the taxpayer’s Form 1040 two years ago.
If an individual does not sign up for Part B when first eligible, a late enrollment penalty may apply. For each 12-month period during which an eligible individual delays enrollment in Medicare Part B, 10% Part B premium penalty applies, unless the applicant had insurance from his or her or the spouse’s current job. Although an enrollee’s Part B premium amount is based on income, the penalty is calculated based on the standard Part B premium. The penalty is then added to the beneficiary’s actual premium amount for the rest of their lives.
For most Americans, the 2019 Part B deductible is $185 for the year. These amounts have been inflation-indexed for some time. This means that once a Medicare beneficiary has paid $185 for medical care covered by Medicare Part B, Medicare will begin to pay for services at 80% of their approved amount. Certain services are paid at 100% by Medicare and not subject to the Part B deductible.
In 2019, Medicare removed the caps that used to apply to physical, occupational, or speech/language therapy. Going forward, there are no caps on these therapies under current law.
Generally, people with Part D insurance pay premiums throughout the year into a Medicare drug plan. The monthly premiums operate in addition to the Part B premium.
The following chart shows 2019 estimated prescription drug plan monthly premiums based on AGI. If the insured’s AGI is more than a certain threshold, an income-related monthly adjustment amount applies in addition to the Part D insurance premium.
The Part D monthly premium varies by plan (higher income consumers may pay more).
The following chart shows the estimated prescription drug plan monthly premium based on AGI as reported on the taxpayer’s Form 1040 from two years ago. If such income is more than a certain limit, the Part D enrollee faces an income-related monthly adjustment amount in addition to the plan premium.
Filing status and yearly income in 2017 was | |||
File individual tax return | File joint tax return | File married and separate tax return | Filer pays (in 2019) |
$85,000 or less | $170,000 or less | $85,000 or less | plan premium |
more than $85,000 up to $107,000 | more than $170,000 up to $214,000 | not applicable | $12.40 + plan premium |
more than $107,000 up to $133,500 | more than $214,000 up to $267,000 | not applicable | $31.90 + plan premium |
more than $133,500 up to $160,000 | more than $267,000 up to $320,000 | not applicable | $51.40 + plan premium |
more than $160,000 and less than $500,000 $500,000 and above |
more than $320,000 and less than $750,000 $750,000 and above |
more than $85,000 and less than $415,000 $415,000 and above |
$71.90 + plan premium $77.40 + plan premium |
Source: SSA |
Late enrollment penalty: A person who doesn’t sign up for Part D when first eligible or someone who drops Part D and then gets it later may have to pay a late enrollment penalty for as long as he or she has Part D. The cost of the late enrollment penalty depends on how long the person went without creditable prescription drug coverage.
Deductibles vary substantially between Medicare drug plans. In 2019, no Medicare drug plan may have a deductible more than $415. Some Medicare drug plans do not impose a deductible.
Enrollees pay 5% of drug costs once in catastrophic coverage. However, the insured retains some financial exposure due to
Part D plan costs will vary depending on
There are independent studies available that compare the standard benefit model plan parameters as released by the Centers for Medicare and Medicaid Services.1
The following table is a comparison of the standard benefit model plan parameters for plan years 2020 back through 2007.
Medicare Part D Benefit Parameters for Defined Standard Benefit 2006 through 2020 Comparison | |||||||||||||||
Part D Standard Benefit Design Parameters: | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009 | 2008 | 2007 | 2006 |
Deductible– After the Deductible is met, Beneficiary pays 25% of covered costs up to total prescription costs meeting the Initial Coverage Limit. | $435 | $415 | $405 | $400 | $360 | $320 | $310 | $325 | $320 | $310 | $310 | $295 | $275 | $265 | $250 |
Initial Coverage Limit– Coverage Gap (Donut Hole) begins at this point. (The Beneficiary pays 100% of their prescription costs up to the Out-of-Pocket Threshold) | $4,020 | $3,820 | $3,750 | $3,700 | $3,310 | $2,960 | $2,850 | $2,970 | $2,930 | $2,840 | $2,830 | $2,700 | $2,510 | $2,400 | $2,250 |
Out-of-Pocket Threshold– This is the Total Out-of-Pocket Costs including the Donut Hole. | $6,350 | $5,100 | $5,000 | $4,950 | $4,850 | $4,700 | $4,550 | $4,750 | $4,700 | $4,550 | $4,550 | $4,350 | $4,050 | $3,850 | $3,600 |
Total Covered Part D Drug Out-of- Pocket Spending including the Coverage Gap – Catastrophic Coverage starts after this point.
See note (1) below. |
$9,038.75 (1) | $7,653.75 (1) | $7,508.75 (1) | $7,425.00 (1) | $7,062.50 (1) | $6,680.00 (1) | $6,455.00 (1) | $6,733.75 (1) | $6,657.50 (1) | $6,447.50 (1) | $6,440.00 plus a $250 rebate |
$6,153.75 | $5,726.25 | $5,451.25 | $5,100.00 |
Total Estimated Covered Part D Drug Out-of-Pocket Spending including the Coverage Gap Discount (NONLIS) See note (2). | $9,719.38 plus a 75% brand discount | $8,139.54 plus a 75% brand discount | $8,417.60 plus a 65% brand discount | $8,071.16 plus a 60% brand discount | $7,515.22 plus a 55% brand discount | $7,061.76 plus a 55% brand discount | $6,690.77 plus a 52.50% brand discount | $6,954.52 plus a 52.50% brand discount | $6,730.39 plus a 50% brand discount | $6,483.72 plus a 50% brand discount | |||||
Catastrophic Coverage Benefit: | |||||||||||||||
Generic/Preferre d Multi-Source Drug(3) | $3.60 (3) | $3.40 (3) | $3.35 (3) | $3.30 (3) | $2.95 (3) | $2.65 (3) | $2.55 (3) | $2.65 (3) | $2.60 (3) | $2.50 (3) | $2.50 (3) | $2.40 (3) | $2.25 (3) | $2.15 (3) | $2.00 (3) |
Other Drugs (3) | $8.95 (3) | $8.50 (3) | $8.35 (3) | $8.25 (3) | $7.40 (3) | $6.60 (3) | $6.35 (3) | $6.60 (3) | $6.50 (3) | $6.30 (3) | $6.30 (3) | $6.00 (3) | $5.60 (3) | $5.35 (3) | $5.00 (3) |
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$0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 |
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$0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 |
Maximum Copayments for Non-Institutionalized Beneficiaries | |||||||||||||||
Up to or at 100% FPL: | |||||||||||||||
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$1.30 | $1.25 | $1.25 | $1.20 | $1.20 | $1.20 | $1.20 | $1.15 | $1.10 | $1.10 | $1.10 | $1.10 | $1.05 | $1.00 | $1.00 |
|
$3.90 | $3.80 | $3.70 | $3.70 | $3.60 | $3.60 | $3.60 | $3.50 | $3.30 | $3.30 | $3.30 | $3.20 | $3.10 | $3.10 | $3.00 |
|
$0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | |
Over 100% FPL: | |||||||||||||||
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$3.60 | $3.40 | $3.35 | $3.30 | $2.95 | $2.65 | $2.55 | $2.65 | $2.60 | $2.50 | $2.50 | $2.40 | $2.25 | $2.15 | $2.00 |
|
$8.95 | $8.50 | $8.35 | $8.25 | $7.40 | $6.60 | $6.35 | $6.60 | $6.50 | $6.30 | $6.30 | $6.00 | $5.60 | $5.35 | $5.00 |
|
$0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 |
Eligible for QMB/SLMB/QI, SSI or applied and income at or below 135% FPL and resources ≤ $9,230 (individuals in 2019) or ≤ $14,600 (couples, 2019) (4) | |||||||||||||||
|
$0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 |
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$3.60 | $3.40 | $3.35 | $3.30 | $2.95 | $2.65 | $2.55 | $2.65 | $2.60 | $2.50 | $2.50 | $2.40 | $2.25 | $2.15 | $2.00 |
|
$8.95 | $8.50 | $8.35 | $8.25 | $7.40 | $6.60 | $6.35 | $6.60 | $6.50 | $6.30 | $6.30 | $6.00 | $5.60 | $5.35 | $5.00 |
|
$0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 | $0.00 |
Partial Subsidy Parameters: | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | 2009 | 2008 | 2007 | 2006 |
Applied and income below 150% FPL and resources between $14,390 (individual, 2019) or $28,720 (couples, 2019) (category code 4) (4) | |||||||||||||||
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$89.00 | $85.00 | $83.00 | $82.00 | $74.00 | $66.00 | $63.00 | $66.00 | $65.00 | $63.00 | $63.00 | $60.00 | $56.00 | $53.00 | $50.00 |
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15% | 15% | 15% | 15% | 15% | 15% | 15% | 15% | 15% | 15% | 15% | 15% | 15% | 15% | 15% |
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$3.60 | $3.40 | $3.35 | $3.30 | $2.95 | $2.65 | $2.55 | $2.65 | $2.60 | $2.50 | $2.50 | $2.40 | $2.25 | $2.15 | $2.00 |
|
$8.95 | $8.50 | $8.35 | $8.25 | $7.40 | $6.60 | $6.35 | $6.60 | $6.50 | $6.30 | $6.30 | $6.00 | $5.60 | $5.35 | $5.00 |
(1) Total Covered Part D Spending at Out-of-Pocket Threshold for Non-Applicable Beneficiaries - Beneficiaries who ARE entitled to an income-related subsidy under section 1860D-14(a) (LIS) (2) Total Covered Part D Spending at Out-of-Pocket Threshold for Applicable Beneficiaries - Beneficiaries who are NOT entitled to an income-related subsidy under section 1860D-14(a) (NON-LIS) and do receive the coverage gap discount. For 2020, the weighted gap coinsurance factor is 88.0579%. This is based on the 2018 PDEs (90.18% Brands & 9.82% Generics) (3) The Catastrophic Coverage is the greater of 5% or the values shown in the chart above. In 2020, beneficiaries will be charged $3.60 for those generic or preferred multisource drugs with a retail price under $72 and 5% for those with a retail price greater than $72. For brand-name drugs, beneficiaries would pay $8.95 for those drugs with a retail price under $179 and 5% for those with a retail price over $179. (4) This amount includes the $1,500 per person burial allowance. The resource limit may be updated during contract year 2019. |
Subject to certain limitations, medical expenses have historically been deductible as an itemized deduction on the taxpayer’s Schedule A. Medical expenses are generally described as any of the costs of diagnosis and treatment of an illness or injury, including medical supplies and equipment and preventive medical care. Allowable expenses also include some unexpected expenses such as the cost of transportation medical care (even if the taxpayer uses his or her own vehicle) and the cost of altering the taxpayer’s home or installing special equipment for medical reasons.
A Medicare beneficiary can generally count the following as allowable medical expenses for purposes of claiming the Schedule A itemized deduction for medical expenses:
Costs that may not be deducted include the following:
Of course, the typical taxpayer older than age 65 may deduct only those expenses exceeding the AGI threshold. Under the Tax Cuts and Jobs Act of 2017, total medical expenses must now exceed 7.5% of AGI to be deductible for tax year 2018. For future years after 2018, medical expenses must exceed 10% of AGI to be deductible.
Recall though, that younger individuals may receive Medicare benefits if they have been receiving Social Security disability income benefits for at least 24 months, or if they suffer from end-stage renal disease (dialysis patients). In that situation, and starting in tax year 2013, a 10% floor applies through the end of 2017 and again starting in 2019 and beyond.
Continuing with our example, had David, in the preceding situation, been 44 rather than 67 and the year was 2017, he would be able to deduct only $1,000 in eligible unreimbursed medical expenses because the first $3,000 of such expenses would represent 10% of his AGI.
Of course, not every American who turns age 65 immediately stops working. Individuals who work for themselves (and others) may work much longer. Medicare recipients who have self-employment income may deduct the premiums they pay for Medicare coverage—the same as premiums for any other type of health insurance by the self-employed. All Medicare premiums (Parts A, B, C, and D) are treated as insurance constituting medical care and may be deducted. Sole proprietors must pay the Medicare premiums directly.
Self-employed individuals for the purposes the deduction for AGI include sole proprietors, partners, and more-than-2% shareholders of an S corporation. The deduction from gross income is available for medical insurance paid during the tax year for self-employed individuals, their spouses, and their dependents, including their children younger than age 27.
If a self-employed taxpayer reports a loss from self-employed activities, then that individual may not deduct otherwise eligible health insurance costs because this above-the line deduction is limited by that taxpayer’s self-employment income. In other words, the medical expense deduction cannot produce a net operating loss for a self-employed person.
Cheryl Sanchez is a married taxpayer, age 67. Her husband, Sal, is age 68 and a lifelong smoker. Sal had a very good year financially due to writing a situation comedy pilot that was picked up by a major television network. Cheryl continues to own and operate her restaurant, Chez Nacho, an unincorporated business. Because of some unexpected kitchen repairs, in 2018, Cheryl reports profits from Chez Nacho of only $8,000. Premiums for Medicare for herself and her husband first reflect the Medicare Part B monthly premium, which—based on their income of $300,000—is $352.20 per person, per month. For the two spouses, that amounts to $8,453. Additionally, they are paying $325 per month ($3,900 annually) for a Medigap F policy for Cheryl and $550 per month ($6,600 annually) for Sal who is “rated” because he is a smoker.
Total insurance costs follow:
Medicare Part B (both) | $ 8,453 |
Medigap (both) | $10,500 |
Total | $18,953 |
However, because Cheryl’s self-employment income is only $8,000, their self-employed health insurance deduction on Form 1040 is limited to that amount ($8,000). Due to the 10% floor (.1 × $300,000 = $30,000), the Sanchezes would not be able to deduct the remaining $10,953 ($18,953 − $8,000) as an itemized deduction on Schedule A.
Medicare Part A provides benefits for up to 100 days of inpatient care provided in an SNF. This is not custodial-type nursing home care that occurs when an elderly person becomes unable to complete daily living activities such as walking or eating independently. Medicare will provide no benefit for nursing home care unless such care is medically necessitated, physician ordered, and likely to improve the patient’s condition. Once progress ceases, the patient is then no longer eligible for skilled services and therefore no longer eligible for Medicare skilled nursing benefits.
If a patient has been admitted to an SNF and is receiving Medicare-covered skilled nursing care, that person’s prescriptions generally will be covered under Medicare Part A.
Medicare provides benefits for skilled care in a facility if both of the following conditions are satisfied:
To satisfy this requirement, the patient must have been admitted to the hospital as an inpatient before entering a Medicare-approved facility. Patients who are merely being “kept for observation” do not satisfy the three-day hospitalization requirement. Rehabilitative care will be provided for the same condition for which the patient was hospitalized.
As a practical matter, there is seldom a meaningful gap between hospital discharge and SNF admission. Typically, seniors who need rehabilitative services and treatment go directly from hospital discharge to the SNF.
Estelle Edwards, age 79, had been very active. She enjoys playing tennis and traveling. Estelle, who lives alone, was a patient at an SNF for 100 days to help her recover from knee replacement surgery. She was discharged from the SNF after 100 days because she had run out of days in her benefit period.
Her SNF per diem was $452. For the first 20 days, Medicare would pay the entire cost for a total of $9,040. For the subsequent 80 days, Estelle would have to pay a copay of $170.50 for a total of $13,640. However, Medicare would pick up the extra $281.50 per day from day 20 up to day 100 for a total of $22,520.
Six weeks later Estelle fell and broke her right hip and was again admitted to the hospital where she required emergency surgery and will need rehabilitation. It is unlikely that Medicare would cover the SNF care she would need after she was discharged from the second hospital stay.
As discussed, Medicare covers up to 100 days of care at an SNF during each benefit period (days 1–20 in a benefit period are covered in full by Medicare; days 21–100 are covered with $170.50 per day in 2019). Estelle’s benefit period started the day she entered the hospital the first time—for the knee replacement— and ends when she has not received Medicare-covered inpatient care at a hospital or SNF for 60 consecutive days. Clearly, Estelle has not been out of a hospital or SNF for 60 days in between her injuries, and thus does not qualify for a new benefit period. Because she has already spent 100 days in an SNF during this (original) benefit period, Medicare will provide no coverage for additional days in an SNF.
Estelle must pay the full cost of any additional days that she spends in the SNF unless she has another form of insurance to help pay those costs. If she cannot afford to pay the costs, Estelle should consider contacting her state’s Medicaid program and learn whether she qualifies for assistance.
If a patient was an inpatient in a hospital for three days or had been admitted to an SNF after a hospital stay, Medicare Part A covers the beneficiary’s first 100 days of home healthcare. Medicare Part B covers additional days.
Regardless of whether the care is covered under Medicare Part A or Part B, Medicare pays the full cost. In other words, no deductible or copayment applies for home healthcare visits.
If a patient is eligible for the Part A home health benefit, Medicare covers the following types of care:
When a patient’s other needs for Medicare home health end, he or she may still be able to obtain occupational therapy under the Medicare home health benefit.
At the start of home healthcare and when the patient’s condition changes, the agency providing the home healthcare must conduct an in-person assessment to determine which kinds of services the patient will require. The home health agency is then required to develop a plan of care that indicates the type and amount of services that the Medicare beneficiary will need. The patient’s physician must sign the plan of care soon after it starts and recertify that plan at least every 60 days. The plan of care and certification operates for a 60-day window. If the patient still needs more care going forward, the plan of care and certification can be renewed for as many 60-day periods as needed as long as the patient’s doctor signs them. A face-to-face meeting is not required for recertification.
Unfortunately, after being discharged from the hospital, Ruth Weller, age 85, is housebound. Ruth had enjoyed a reasonably active life before her hospitalization and had been a volunteer reader at her local library. After pulmonary surgery, she developed adult-onset diabetes, which required blood testing and insulin injections throughout the day. Ruth needs help managing her medications, and it is hoped that occupational therapy will improve her ability to walk and move in general. Ruth and her (adult) children had several meetings with the hospital’s social services staff before she was discharged, and a home healthcare agency, Healing Hands, Inc. was engaged.
Within a day or so of Ruth’s discharge, Flo Nightingale, an RN, was dispatched by Healing Hands, Inc. and visited Ruth in her home. Flo took her vital signs and asked Ruth many questions. She tried to assist Ruth in walking for a few steps. Flo determined that although Ruth is able to eat independently, preparing meals will be difficult for her. Flo then developed a home care plan for Ruth. Services she recommended included occupational therapy (walking), skilled nursing care (medications—especially mastering the self-injections), and a walker to help Ruth become steadier as she moves about. Flo also recommends Ruth meet with a social worker to explore affordable ways to find assistance with meal preparations or deliveries. Ruth’s doctor approves Flo’s plan. No more than 60 days later, Ruth will be reassessed to determine whether the current plan of care should continue, be altered, or be discontinued.
It is important for the patient’s doctor to agree with the plan of care and is satisfied that the plan contains all the care that is appropriate for the patient. The plan of care is often contained in the same form as the home health certification that the patient’s doctor must sign to indicate the need for Medicare home care. As part of the Medicare certification for home healthcare, the doctor must confirm that the patient had a face-to-face meeting with him or her, or, more typically, with a representative of the home healthcare agency providing the services. Although it typically occurs sooner, the assessment meeting must occur within 90 days of starting to receive home healthcare (in certain circumstances within 30 days after actual administration of home healthcare). The physician must certify to Medicare that the face-to-face meeting confirmed the patient is homebound and qualifies for intermittent skilled care.
The face-to-face encounter can also be accomplished through telehealth. In certain areas, Medicare will accept telecommunications (such as video conferencing).
Hospice care is for people with a terminal illness who are expected to live six months or less. Coverage includes medication for relief of pain, and control of other symptoms; medical, nursing, and social services; and grief counseling.
More than 5,000 hospices participate in the Medicare program in the United States. From the first program that opened in 1974, hospice programs continue to grow and are located in all 50 states. The services must be provided by a Medicare-approved hospice. Hospice care is palliative care. This care is administered to make the dying patient physically and emotionally comfortable by managing pain and other symptoms. It is not intended to be curative. Such hospice programs also provide grief counseling to the patient and to the family.
Most hospice care is provided in the terminally ill patient’s home, but inpatient care in a hospice facility, hospital, and nursing facility care can also be covered. However, Medicare will not cover any benefit for room and board for a terminally ill patient living at home or in a long-term care facility. The amount and types of care offered depends on the patient’s condition. Medicare also will cover inpatient respite care, which is care that enables a patient’s usual caregiver (typically a family member) to rest. Although the standard hospice benefit period is six months, Medicare will continue to cover a patient’s hospice care as long as the hospice physician or the medical director of the hospice facility recertifies the patient to be terminally ill.
Although there is no user cost for hospice services, the patient must pay a copayment of $5 for each outpatient prescription as well as 5% of the Medicare-approved amount for inpatient respite care. (This is not a fixed dollar amount, but rather what Medicare considers “reasonable” for hospice care in the region.)
For example, if Medicare pays $400 per day for inpatient respite care, the patient will pay $20 per day. Each time that a patient receives respite care, Medicare covers up to five days. There is no limit to the number of times that a person can receive respite care. Total copays for respite care should be no more than the inpatient hospital deductible amount for the year in which hospice care is elected—$1,364 in 2019.
In conjunction with hospice care under Medicare Part A, the following benefits are generally covered:
Ultimately, a Medicare-covered patient must decide as to whether to have his or her condition managed toward a possible cure in a hospital setting or to receive palliative care in a hospital setting; Medicare will cover either, but not both types of care simultaneously.
Medicare Part B insurance covers costs associated with medically necessary services such as doctors’ visits, outpatient care, home health services, and more. Part B also provides benefits for certain preventive services. Most Americans participate in Medicare Part B insurance.
Additionally, Medicare Part B provides benefits for the following:
Medicare Part B covers two types of physical exams: one when the beneficiary first enrolls in Medicare and one each year after that. The SSA labels these as the initial “Welcome to Medicare” physical exam and the yearly wellness exam.
The 2010 Affordable Care Act created the once-a-year wellness visit as a new benefit, paying doctors to perform it and making it free to patients. Within six months of first providing the benefit in 2011, Medicare had paid for nearly 1 million “Welcome to Medicare” exams.
The annual wellness visit (AWV) takes place with one’s primary care provider, is covered once every 12 months after the first year of Medicare coverage, and has no deductibles, coinsurance, or copayments.
The AWV includes the provider taking the enrollee’s medical history, completing a health risk assessment, evaluating the patient’s physical condition, and screening for cognitive impairment, including depression. It also includes a personalized prevention plan in which the doctor develops a strategy, along with the patient, to manage that person’s health, including planning for the preventive services and screenings that an older person is likely to require within the next 5–10 years. The plan helps the beneficiary take advantage of Medicare’s preventive services, many with no cost-sharing.
The Medicare Part B insured has significant cost exposure. First, the Part B deductible applies. Then the patient must share in costs exceeding that amount. The patient (unless eligible for a needs-based subsidy) must typically pay 20% of the Medicare-approved amount of the service. The 20% exposure for doctors’ fees can add up significantly. An individual may save by using doctors or providers who accept a Medicare assignment.
Medicare Part C is commonly called Medicare Advantage. Medicare Advantage programs are private plans run through Medicare that, by law, must be at least “equivalent” to regular Part A and Part B coverage. These programs are private Medicare-approved health plans for those individuals eligible for Medicare. When an individual enrolls in a Medicare Advantage Plan, he or she is still in Medicare. There are many variations in coverages and costs among Part C plans. Any given one may cover less of one cost and more of another than Parts A and B benefits do. Factors that affect the monthly premium depend on the insured’s state of residence and the private insurer selected, as well as whether the Medicare Advantage coverage is provided through an HMO or PPO. These plans may help lower the costs of receiving medical services or provide extra benefits for an additional monthly fee.
Medicare Advantage plans typically operate through a network of clinics, doctors, and hospitals. As with HMOs and (in a sense) PPOs, the patient must seek treatment from providers within that network. Most plans include prescription medication coverage. However, if an enrollee already has prescription drug coverage, a Medicare Advantage plan that does not include prescription drug coverage would be a better choice.
Although most Medicare Advantage plans offer full coverage within the network, they also cover emergency treatment while out of town. There are several different options to choose from within the Medicare Advantage plan. These can include the HMO plan, PPO plan, private fee-for-service plan, as well as a special needs plan.
The special needs Medicare Advantage plan covers those with special health needs as well as specific chronic health-related issues. If an individual chooses the special needs plan, it must include Parts A, B, and D. When comparing Medicare Advantage plans, it is wise to consider deductible and drug copays as well as plan premiums.
One must have eligibility for both Parts A and B to enroll in a Medicare Advantage plan. An individual can generally join if he or she
Additionally, the individual must not have a Medigap insurance policy.
Generally, a Medicare Part C enrollee will be able to change plans only once a year during the annual election period. The annual election period, also called the open enrollment period, is October 15– December 7.
Any individual who is covered by Medicare (under either Part A or Part B) is entitled to drug coverage (known as Part D) regardless of income. No physical exams are required. The applicant cannot be denied for health reasons or because that person already requires several prescriptions.
A Medicare-insured person must enroll in one of the private insurance plans that Medicare has approved to provide it. Coverage is available through
Under the standard benefit (the minimum set by law), over the course of a calendar year, the Medicare Part D-insured individual will pay the following:
Retired nurse Edith Eldredge has reached the donut hole, or coverage gap, in her Medicare Part D plan. At her neighborhood pharmacy, the cost to fill one name-brand prescription medicine is $60 per month, plus a $2 dispensing fee. Edith will pay 25% of the cost for the drug and the dispensing fee or $15.50 ($62 × 25 = $15.50).
Although Edith pays $15.50, she is actually credited for $60.50 toward filling her coverage gap because the amount of the discount (required under the 2010 Affordable Care Act) as well as what Edith actually pays out of pocket count toward the donut hole. The remaining $1.50, which represents 75% of the $2 dispensing fee, is not counted toward her coverage gap.
Edith also has a generic prescription (and is still in the coverage gap). The price of the generic drug per month is $20, plus the $2 dispensing fee. After the 63% coverage is applied to the $22, Edith will pay $8.14 out of pocket for the generic prescription. The $8.14 brings her closer by that amount to closing her coverage gap.
With her two prescriptions, Edith is closing her coverage gap by $68.64 per month, and if she takes many different medications (as many elderly Americans do), she may close the donut hole entirely.
It is beneficial to enroll in Medicare Part D as quickly as possible after enrolling in Parts A or B (generally both) because an applicant will be penalized with an extra 1% of the national average premium for each month of delay without creditable coverage. The penalty (and average premium) increases each year in which the Medicare enrollee has no Part D coverage.
Several situations will help a Medicare Part D enrollee avoid the late penalty.
Other circumstances include release from prison (63-day enrollment window) and return from living abroad (three-month enrollment window.)
Medicare supplemental insurance (Medigap), sold by private companies, can help pay some of the healthcare costs that original Medicare does not cover, for example, copayments, coinsurance, and deductibles. As many of our prior examples have demonstrated, these gaps can present substantial exposure to a Medicare-insured individual (typically, a retiree).
Certain Medigap policies also offer coverage for services that original Medicare does not cover, for example, medical care when a Medicare beneficiary is traveling outside the United States. If an individual is enrolled under original Medicare and then acquires coverage under a Medigap policy, Medicare will pay its share of the Medicare-approved amount for covered healthcare costs. Then the Medigap policy pays what it covers over and above the Medicare benefits.
An individual must pay the private insurance company a monthly premium for Medigap policy in addition to the monthly Part B premium that goes to Medicare.
Medigap policies sold after January 1, 2006, may not include prescription drug coverage. Those seeking prescription drug coverage should enroll in Medicare Part D. (An exception applies for individuals still carrying an H, I, or J Medicare supplemental policy that dates from before 2006.) It is illegal for an insurance producer to sell a Medigap policy to anyone who currently maintains a Medicare Medical Savings Account Plan.
Insurance producers must sell older Americans a standard plan and only one policy. Currently, there are several standard Medigap policies from which to choose. Medigap A is the most basic core policy. As one moves higher in the alphabet, the plans add more coverage. For example, Medigap E will offer one or more benefits not included in Medigap D, but will lack a benefit provided in Medicare F, and so on.
Because of mandated standardization, there is little difference in plans offered among different insurers. However, residents of Massachusetts, Minnesota, or Wisconsin should check with their state insurance departments if considering an insurance company that issues policies in those states because Medigap policies in those states offer coverage different from the models followed by the 47 other states.
For residents of these three states, Medigap policies are standardized in a different way. These residents have guaranteed issue rights to buy a Medigap policy, but the policies are different.
All Medigap policies are required to include coverage for certain core benefits, such as copays for Part B services and extended stays in the hospital.
Under rules that took effect in 2010, the following table illustrates how the different standard forms of Medigap policies offered coverage.
The chart that follows shows basic information about the different benefits Medigap policies cover.
Medigap Benefits | Medigap Plans | |||||||||
A | B | C | D | F* | G | K | L | M | N | |
Part A coinsurance and hospital costs up to an additional 365 days after Medicare benefits are used up | Yes | Yes | Yes | Yes | Yes | Yes | Yes | Yes | Yes | Yes |
Part B coinsurance or copayment | Yes | Yes | Yes | Yes | Yes | Yes | 50% | 75% | Yes | Yes*** |
Blood (first 3 pints) | Yes | Yes | Yes | Yes | Yes | Yes | 50% | 75% | Yes | Yes |
Part A hospice care | Yes | Yes | Yes | Yes | Yes | Yes | 50% | 75% | Yes | Yes |
coinsurance or copayment | ||||||||||
Skilled nursing facility care coinsurance | No | No | Yes | Yes | Yes | Yes | 50% | 75% | Yes | Yes |
Part A deductible | No | Yes | Yes | Yes | Yes | Yes | 50% | 75% | 50% | Yes |
Part B deductible | No | No | Yes | No | Yes | No | No | No | No | No |
Part B excess charge | No | No | No | No | Yes | Yes | No | No | No | No |
Foreign travel exchange (up to plan limits) | No | No | 80% | 80% | 80% | 80% | No | No | 80% | 80% |
Out-of-pocket limit** | N/A | N/A | N/A | N/A | N/A | N/A | $5,560 | $$2,780 | N/A | N/A |
* Plan F also offers a high-deductible plan. If you choose this option, this means you must pay for Medicare-covered costs up to the deductible amount of $2,300 before your Medigap plan pays anything. ** After you meet your out-of-pocket yearly limit and your yearly Part B deductible, the Medigap plan pays 100% of covered services for the rest of the calendar year. *** Plan N pays 100% of the Part B coinsurance, except for a copayment of up to $20 for some office visits and up to a $50 copayment for emergency room visits that don't result in inpatient admission. Starting January 1, 2020, Medigap plans sold to new people with Medicare won’t be allowed to cover the Part B deductible. Because of this, Plans C and F will no longer be available to people new to Medicare starting on January 1, 2020. If you already have either of these 2 plans (or the high deductible version of Plan F) or are covered by one of these plans before January 1, 2020, you’ll be able to keep your plan. If you were eligible for Medicare before January 1, 2020, but not yet enrolled, you may be able to buy one of these plans. |
No insurance policy will cover everything that is not covered by Medicare. Medicare excludes certain types of medical expenses—so do many Medicare supplement, Medicare select, Medicare cost policies, and Medicare Advantage plans.
Services typically excluded under these policies include the following:
If a senior citizen age 65 or older purchases a Medigap policy within six months of enrolling in Part B, full federal guarantees and protections are provided. This means that a Medigap insurer cannot reject an applicant or charge a higher premium because of current or past health problems. Further, the policy must cover preexisting medical conditions.
However, in certain situations, an insurer may delay coverage of treatment for a preexisting condition for a period, typically six months, after purchase. Some state laws give additional consumer protections relative to preexisting conditions.
There are several other situations in which a Medigap insurance applicant is entitled to these protections—such as losing employer health coverage, COBRA, or retiree benefits that function as secondary coverage after Medicare. These protections also generally apply for individuals enrolled in a Medicare Advantage plan that closes down or if the Advantage plan insured out of its service area. In these circumstances, the period for buying a Medigap policy with full guarantees is about two months.
For persons younger than 65 who have Medicare entitlement due to disability, these federal guarantees do not apply, although many states mandate similar protections.
All states require a 30-day “free look” period. After someone buys Medicare supplemental insurance (Medigap), he or she has 30 days from the date when the policy is delivered to review it. If the buyer decides to decline the policy within this period, the company must refund all the premiums.
The federal government mandates that standardized Medigap policies must be “guaranteed renewable” even if the insured’s health worsens. Guaranteed renewable means that the insurance company may not cancel someone’s Medigap coverage as long as he or she pays the premium in a timely manner. However, the insurance company generally retains the right (which it is likely to exercise) to raise premiums for its people with Medigap insurance.
A Medigap policy covers only one person. Therefore, spouses must buy separate policies. However, premium discounts may be available if a couple buys two policies from the same insurance carrier. A Medigap policy differs from a Medicare Advantage Plan. Medigap policy essentially supplements one’s original Medicare benefits. A person who obtains Medicare coverage through a Medicare Part C— Medicare Advantage plan cannot own a Medigap insurance policy.
This section provided a detailed explanation of the coverages and costs associated with Medicare insurance. Although Medicare Part A is hospital insurance, it also provides benefits for hospice care and physician-ordered rehabilitative care in an SNF. Part A also provides up to 100 home health visits with Part B covering any additional calls. The main emphasis on Part B coverage is physicians’ fees and outpatient services. Medicare Part B also provides an annual wellness visit and certain types of preventive care such as screenings and an annual flu shot.
Medicare Part C describes Medicare Advantage plans, which generally operate as PPOs and HMOs generally providing their services through network doctors and hospitals. Many, but not all, Medicare Advantage plans provide prescription drug coverage. Medicare Part D is a prescription drug program that dovetails private insurance policies with Medicare coordination. Medicare Supplemental Insurance, commonly called Medigap insurance is commercially issued insurance that operates to pay patient costs for which Medicare does not pay benefits.
Benefits from health insurance programs are generally not taxable. Premiums for Medicare insurance and for Medigap insurance are deductible in the same manner that applies to other types of medical insurance premiums—as a Schedule A itemized deduction, subject to an AGI floor for most taxpayers, and as an above-the-line deduction for self-employed taxpayers, partners, and S corporation owners with greater than 2% equity.
Note, however, that the Tax Cuts and Jobs Act of 2017 repealed the overall limitation on itemized deductions through 2025.
Miscellaneous itemized deductions: All miscellaneous itemized deductions subject to the 2% floor under prior law are repealed through 2025 by the act.
Medical expenses: The act reduced the threshold for deduction of medical expenses to 7.5% of adjusted gross income for 2017 and 2018.
Note: The 2020 defined standard Medicare Part D plan parameters shown online are only “proposed” at this time and have not been finalized by CMS. See the following article that summarizes the proposed changes to 2020 Medicare Part D plans: https://Q1News.com/742.html
Additional information is available from www.medicare.gov and CMS.gov.