Like most United States government programs, Medicare &emdash; the program of health insurance for the elderly &emdash; is governed by an array of regulations that may seem bewildering in complexity when first reviewed, but are justified in light of the program's size, complexity and importance to America's social services network. They are the rules that govern Medicare, from defining participants' eligibility, to what services and products are covered &emdash; and to what extent &emdash; to the premiums for the different coverage parts and how they're collected, to how invoices are submitted to Medicare and paid. Medicare regulations spell out in detail what private insurance companies may and may not do in their interactions with Medicare participants and health care providers. They are carefully written by the Centers for Medicare Services (CMS) to try to anticipate every circumstance and address as many of the needs of American seniors as possible, within the limits imposed by Congressional legislation.
Started in 1964 as a program of acute health insurance for seniors, Medicare has grown to include the disabled of any age as well as those with End Stage Renal Disease (ESRD). In 2006, the program was expanded to include coverage for most prescription medications.
The Medicare regulations with which most Americans are familiar are those which set forth the main parts of the program, labeled alphabetically, “A,” “B,” “C,” and “D.” Parts A and B together are called “Original Medicare” because they're the core of the program. Part A is hospitalization insurance, essentially available cost-free to retirees, and Part B is Doctor's Insurance, available for an income-based premium to seniors who have Part A coverage.
Original Medicare operates very much like a traditional health insurance program, with deductibles and coinsurance. For example, Part A pays for all inpatient care in hospitals, skilled nursing facilities and hospices, as well as approved home health care charges, after a deductible is paid. Part A deductibles generally cover a period of time, usually sixty days, and any approved Part A charges incurred during that period will be paid in full by Medicare as long as the deductible has been paid, even if they're unrelated to the original ailment. Charges incurred after the end of the period will require a new deductible, even if they're for the original complaint.
Part B pays for outpatient care in hospitals, such as surgical procedures, and other medically necessary charges such as doctor visits. One deductible annually is required for Part B services, after which Medicare generally pays 80% of approved medical charges such as routine office visits.
Part C refers to Medicare Advantage Plans, which are sometimes called “Medicare substitute plans.” These are plans that are put together not by Medicare, but by the different insurance companies. Medicare regulations require that the services and coverage provided by Part C plans be substantively the same as, or better than, those provided by Original Medicare, as determined by a CMS evaluation. Many require that participants use specific providers, but they may also offer benefits that aren't included in original Medicare. Medicare Advantage plans have different deductibles and coinsurance amounts than original Medicare. Medicare participants who enroll in a Medicare Advantage plan must continue to pay their Part B premium, as well as a premium paid directly to the insurance company for the Medicare Advantage plan.
Part D is the Prescription Drug Plan (PDP), started in 2006. Medicare regulations permit insurance companies to design their own PDPs around a broad formula, and the plans must be approved by CMS as to suitability and breadth of coverage before they can be marketed. Medicare participants who purchase a PDP can expect a subsidy of about 25% - 50% of their prescription drug costs annually.
Most seniors on original Medicare also purchase a Medicare Supplement plan from a private insurance company to fill the gaps that Medicare doesn't pay for — the deductibles and the 20% coinsurance on part B costs. These plans, sometimes called Medigap plans, are designed by CMS itself and sold by private insurance companies. Medicare regulations are strict with respect to selling Medigap policies — an insurance company must be financially sound, for instance, and must have a track record of accurate and timely payments, with a minimum of complaints. The different plans are identified by letter, A through N, and the only difference allowed between one company's plan and another's of the same letter designation is the monthly premium cost.