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The unions began to negotiate health care benefits for members sometime after World War II. Thus began the era of "someone else paying for health care", rather than the individual who was utilizing the services. An outgrowth of these negotiations was the evolution of major medical health plans to cover catastrophic care in the hospital. Finally, we evolved to the indemnity plans which included outpatient care, as well as inpatient care, with company paying 80% of the charges and the individual paying 20%.

Medicare and Medicaid were organized in 1965 with the government paying for 80% of the usual and customary charge, not the physician's charge, and the patient paying 20% plus the excess charges. Insurance took another direction for seniors and products were developed known as "MediGap policies". These were designed to pay for costs not covered by Medicare.

Meanwhile, Medicaid was designed to as a federal mandate to provide health care for the poor. Many of the elderly qualify in this category and are now eligible for health care services paid for by Medicaid.

In the throes of run-away health care costs and in response to health care reform initiatives developed by President Clinton shortly after he took office in 1992, the HMO movement began in earnest. The original idea as proposed by Paul Ellwood for managed care was to have an individual receive all of their care by a single provider managing the care within a single organization to eliminate duplication and to coordinate services. In the inception, managed care was not an effort to "manage costs"; it was simply a methodology to provide quality health care.

Today, managed care continues to provide some of the original benefits of coordinating health care, but it has become a primary tool for managing the cost of health care.

With this as a background, Medicare is the basic provider of health insurance for seniors. Following is a description of health insurance available to seniors to be aware of when purchasing health care coverage.

Medicare Part A - Coverage

**Hospital Care
**Nursing Home Care
**Hospice Care
**Home Health Care

Medicare Part A - Features

** $840 deductible per benefit period
** Diagnostic Related Groups (DRGs) to pay hospital
** 100% of nursing home care for 20 days;co-payment up to 100 days
** 100% of hospice care

MEDICARE - PART A

Medicare has two parts. Part A covers all but the first $840 of inpatient care at the hospital per benefit period of 60 days. So if an individual is admitted in Week 1 for a heart attack and is re-admitted on Week 2 for a hip fracture, they would be required to pay $840 a second time. Part A does cover labs, x-rays, and other procedures in the hospital, but it does not cover any physician costs associated with the labs and x-rays, nor does it cover your physician, surgeons, and other specialists in the hospital.

In 1983, the federal government under TEFRA, decided to cap hospitals and pay them a certain amount of money for a procedure. If the costs to the hospital were less than the amount paid by the federal government, the hospital was allowed to keep the difference. Similarly, if the costs to the hospital were more than the amount paid by the federal government, the hospital had to continue to provide care. So what you frequently hear from hospital patients is "my days have run out" and they are needing to be discharged from the hospital. Technically this violates the spirit of the law, but does happen to patients on a regular basis.

Part A also covers the first 20 days in the nursing home at 100% if you need skilled care and if you are making progress. "Making Progress" is the key. One of the problems we have recently experienced is how we measure "progress". Part A may also cover up to 100 days in the nursing home if the individual continues to need skilled care and is making progress. Medicare will not pay any more than 100 days in the nursing home for a specific diagnosis under any circumstances.

Medicare Part A will also pay for 100% of hospice care. If the individual is determined to be terminal within six months, Medicare will pay for home health services, social workers, grief counselors and others to work with the dying patient. Medicare will not pay for room and board services. These services can be delivered on an in-patient or out-patient basis. Medicare Part A will also pay for some home health services, but most services are covered under Part B.

MEDICARE - PART B - Benefits

** Physician's services
** Specialist services
** Laboratories and X-rays
** Flu Shots
** Mammograms
** Psychiatric Services
** Home Health Care
** Therapy
** Durable Medical Equipment

MEDICARE - PART B - Features

** $100 annual deductible
** 80% of approved charges for physicians charges
** 100% for home health, lab, x-ray, therapy
** 80% for durable medical equipment
** 100% for flu shots
** 100% for mammograms every year
** Diabetic self-management
** Pap Smear and pelvic exam every three years
** Care from a nurse practitioner
** Bone mass measurements if you meet Medicare requirements
** 80% for Colorecteral Screening
** Medicare assignment

MEDICARE - PART B

Now we will move to Part B of Medicare. Part B has a $100 deductible. After that, Part B pays for outpatient services, but the amount varies depending upon the type of services. These include physician's fees, specialists fees, labs, x-rays, flu shots, mammograms, home health care, therapies, durable medical equipment, psychiatric services, and other similar kinds of services. So how does Medicare Part B pay? In the case of physician's services, Medicare pays only 80% of the usual and customary charge for these services, not 80% of the physician's fee. So what happens is that the physician charges $100 for a visit. Medicare comes along and only approves $60. Medicare will be 80% or $48. This frequently causes individuals to owe money, if the physician does not accept Medicare assignment. Under Medicare assignment, the physician agrees to accept the payment of $60 as payment in full with $48 coming from Medicare and $12 from the individual or the supplement. The physician writes off the $40 or the difference between $60 and $100.

As for labs, x-rays, home health care and therapies, the provider agrees to accept the payment from Medicare as payment in full. The provider negotiates a rate with Medicare. As for mammograms and flu shots, the cost is paid in full. For durable medical equipment, Medicare pays 80% of the approved charge and the patient is responsible for the balance. Oxygen is also a capitated benefit at this time, meaning if an oxygen company agrees to provide services, they take a lump sum of money each month and they agree to provide the necessary oxygen services to the patient. A co-payment may be charged. There are four ways to pay for services which are not covered by Medicare. These include Medicaid, supplemental insurance and health maintenance organizations. First we will cover Medicaid.

MEDICAID - how do people qualify?

1. Old Age Pension

Income < $589/month
Assets < $2000

2. Qualified Medicare Benefits

Income between $589 and $748
Assets < $4000

3. Home and Community Based Services

Income <$1656/month
Assets >$2000

4. Nursing Home Care

Income <$4424/month
Assets <$2000

Medicaid is a state run program with approximately 50% of the funds coming from the state and 50% coming from the federal government. Medicaid is what we used to call "welfare". Individuals qualify for Medicaid in four different ways:

1. Their income is less than $589 per month and they have less than $2000 in assets, excluding their house and car. These people are age 60 and over and are on a program called Old Age Pension.

2. Their income is between $589 and $748, have less than $4000. These people qualify under the Qualified Medicare Benefit program.

3. Their income is between $748 and $1656 and they need home and community based services. These are services which are provided to individuals who are sick enough to be in a nursing home, but with support can stay in their own home. Again, the house and car are exempt and the individual can not have more than $2000 and $3000 for a couple.

4. The last way individuals qualify for Medicaid is if they make more than $1656 and less than $4424 and have to be in a nursing home. Again, the individual may have $2000 in resources. The car and house are exempt only if their is a community spouse.

Medicaid pays for a lot of things in addition to health care. In situations where individuals need health care, Medicare pays as described above and Medicaid pays the balance for such things as Part A and B deductibles, co-pays, and premiums that would normally be the responsibility of the individual. In addition, to these basic services, Medicaid also pays for prescription drugs and limited dental care.

Rarely, if ever, is there a denial for Medicaid services if the individual has a valid card and is currently receiving benefits.

Recently, a number of individuals who are receiving Old Age Pension and who are not receiving Medicare benefits have been switched to a Medicaid managed care HMO. Individuals who are in these Medicaid managed care HMOs are required to select a primary care physician who manages their care. These individuals are also charged co-pays and denied services if they seek care which is not emergency and not pre-authorized by the primary care physician. Individuals who receive Medicare and Medicaid can not be forced to join a Medicaid health maintenance organization.

MEDICARE SUPPLEMENTS

** 10 standardized plans A - J
** Must cover 20% not covered by Medicare
** Excess charges
** Medical Underwriting
** Premiums are age rated
** Guaranteed renewable
** Medical necessity
** Free choice of providers
** Prescription drug coverage only in H, I, J
** Providers must file with Medicare, but not the supplement

The next type of financing to supplement Medicare is Medicare supplements or sometimes referred to as MediGap insurance. A Medicare supplement is designed to provide insurance coverage for those charges which Medicare does not cover. For new enrolles, Medicare supplements are now standardized.

Ten standardized plans, A through J are available. Plan A, which is offered by every company, covers the 20% co-pay which the individual is responsible for when Medicare pays 80% of the usual and customary charge. The other plans add additional benefits. Plan F is probably the most affordable for the coverage. It covers the "excess charges". In our example earlier, if the physician charged $100 and Medicare approved $60, Medicare would pay $48. The Medicare supplement has to pay the $12. Plan F would also pay the $40. Plans H, I and J cost more because they also pay for up to half of the prescription drug benefits.

Company A which offers coverage must offer the exact same benefits as Company B. The main difference between the two policies is cost to the consumer. Costs run usually from about $45/month for Plan A to as high as $150/month or more for Plan J. Plan F usually runs about $85 to $95 per month.

Other things to consider when purchasing a Medicare supplement are underwriting guidelines -- does the company make you take a physical before they insure you or do you answer medical questions. Most companies have some kind of policy on pre-existing conditions. According to the law if you are enrolling for the first time for Medicare Part B services, you have a six month window in which you do not have to meet underwriting criteria. However, after you have passed the six month window and change companies, you may be subject to a waiting period for pre-existing conditions. This can only happen once in a person's lifetime.

Another feature to review is renewability. Some companies offer a guaranteed issue, meaning if you pay your premiums, they can not cancel your policy. Other companies reserve the right to cancel your policy if they feel your claim history is not consistent with their company goals.

Another thing to review when purchasing a Medicare supplement is how policies rate their premiums. Many policies increase their premiums either annually depending on age or in classes such as one premium for 65 - 69 year olds, an increased premium for 70 to 74 year olds, and so forth.

Physicians and hospitals are required by law to submit their bills to Medicare, but they are not required to bill the Medicare supplement.

Medical necessity is determined by the primary care physician. There is limited review of the treatment plan by anyone in the insurance company or the community.

The individual has the ability to seek care from any physician, specialist, lab, nursing home, or other provider that is desired as long as they are located in the United States. The individual can seek that care at their own discretion without the approval by the insurance company. Procedures which may be termed experimental or investigational may be covered by Medicare.

Unless the individual has prescription drug coverage through some other source, most Medicare supplements do not have this benefit. The individual is free to purchase any type of medications which they choose.

Mental health visits are on a parity with other types of visits with Medicare paying 50% of the costs.

HEALTH MAINTENANCE ORGANIZATIONS FEATURES
or Medicare Part C

** Staff Model vs IPA model
** Payment of physicians -- salary vs contract
** Capitation vs risk
** Closed panel of physicians
** Pre-authorization and referrals do not guarantee payment
** Prescription drug benefits
** More restrictive definition of medical necessity

The next type of financing is an Health Maintenance Organization. An HMO is both a provider of care, as well as a financier of health care. Health care is delivered through a series of negotiated contracts between the HMO and the hospitals, physicians, specialists, pharmacies, nursing homes, home health agencies, laboratories, and therapy providers.

There are two types of HMOs -- the staff model in which all of the physicians are usually on salary and work for the company and some or all of the other providers such as hospitals, home health and so forth are on contract, and there is the Independent Practice model in which the HMO only contracts with a number of physicians and other providers to provide services.

In the staff model, primary care physicians are paid a salary and usually share in the profits of the company at the end of the fiscal year. In the Independent Practice Model, primary care physicians negotiate a rate of say $25 per patient with the HMO. The physicians are paid in one of two ways -- either through capitation in which the primary care physician receives a flat fee for each patient he or she agrees to serve each month and the primary care physician is responsible for covering the costs of care; or the primary care physician is paid on a fee for service basis in which the physician is only paid when he or she sees a patient.

In the Independent Practice Model, primary care physician may also receive a share of the profits of the HMO, the hospital and/or the pharmacy depending on the arrangement between the primary care physician and the HMO.

HMOs usually have a closed panel of physicians. This means that individuals can only go to those physicians who have agreed to accept the fees negotiated with the HMO. Referrals to specialists are limited as well to those individuals who are on the panel. Individuals can only seek care which is referred by the primary care physician. However, referrals and pre-authorizations do not guarantee that the HMO will determine the procedure or visit was medically necessary and pay the fee.

Some HMOs offer prescription drug benefits. The prescription drug benefit is usually calculated on the price the HMO negotiates with the pharmacy, not the co-payment made by the individual. Pharmacies contract with the HMO to provide a certain list of drugs, which is called a formulary. To keep costs lower, pharmacists may use therapeutic substitutions in which they substitute one medication which is similar in nature to the one prescribed by the physician, but cheaper. Another option is for the HMO to utilize generic drugs which are cheaper, giving the pharmacist a larger profit margin. Some of the newest drugs with fewer side effects may not be on the formulary. Mental health care is usually restricted by the number of visits per year to inpatient and outpatient facilities. There is usually little discrimination between type of diagnosis and number of visits.

There is a tendency to treat mental illness with medications, rather than counseling and therapy. Some areas in which costs may be reduced include:

1. Procedures which are termed investigational and/or experimental and are usually not covered by the HMO;

2. Using restrictive definitions of medical necessity; reviewing procedures prior to authorization;

3. Referral to specialists after review by the HMO.