Medicare Basics

Medicare is different from Medicaid in that it covers mainly seniors and people with disabilities, has no income limit for eligibility, has costs for most members, does not cover all services, and is run entirely by the federal government. Medicare members have a choice of traditional coverage operated by the federal government or through a private Medicare Advantage insurer. Over half of Connecticut members have chosen a Medicare Advantage plan.

Medicare Deeper Dive

Medicare covers almost one in five Connecticut residents, just behind Medicaid’s enrollment. Medicare mainly covers seniors and people with disabilities. Only citizens and legal residents can enroll in Medicare. Unlike Medicaid, Medicare covers Americans at all income levels and is run entirely by the federal government. Also, unlike Medicaid, Medicare coverage and services are not free for most beneficiaries, averaging thousands of dollars per year per person. Medicare covers a wide range of services, but not dental, hearing, or vision care. Most people over age 65 qualify for Medicare, which is why only 0.7% of Connecticut seniors are uninsured, compared to 5% of all state residents. The federal trust fund that covers Medicare hospital coverage is scheduled to run out of money in 2031, but this date changes annually and will not end Medicare hospital payments. Over half of Connecticut Medicare members have chosen to get their care from a private managed care plan.

How is Medicare different from Medicaid?

Medicare and Medicaid are related programs but with important differences.

Who does Medicare cover?

In 2020, Medicare covered 60 million (18%) Americans and  689,572 (19%) Connecticut residents. Medicare covers Americans over age 65 and people with long-term disabilities. Only citizens and lawfully present immigrants are eligible for Medicare. Undocumented immigrants pay into the program but are barred from Medicare coverage.

Seniors make up 88% of Connecticut Medicare’s enrollment and people with disabilities are 12%. While Americans at any income level qualify for Medicare, 27% of Connecticut beneficiaries have incomes at or below 200% of the federal poverty level, compared to 32% of all Americans covered by Medicare. Beneficiaries are more likely to be white and female both in Connecticut and the nation.

What services does Medicare cover and what does it cost?

Medicare coverage is structured in separate parts that cover different services and are funded differently. Medicare does not cover dental, hearing or vision care. Inpatient and nursing home care is limited. Traditional Medicare does not require prior authorization, except in very limited circumstances.

How much do drugs cost in Medicare?

Part D was added to Medicare in 2006 to cover the costs of prescription drugs for those who don’t have coverage through a retiree plan, a Medicare Advantage Plan, or Medicaid. Part D coverage is voluntary. Enrollment in Part D plans has slowed while enrollment in Medicare Advantage Plans , which cover drugs along with medical services, has grown.

Enrollees must purchase Part D coverage through private insurance plans. In 2022 Connecticut Medicare enrollees had 24 Part D plans to choose from. Starting in 2023, the new Inflation Reduction Act will lower members’ prescription drug costs significantly.

What are Medicare Advantage plans?

Called Medicare Part C and established in 1997, Medicare Advantage plans are private insurance plans that provide services to Medicare beneficiaries. Medicare Advantage plans usually offer lower patient costs, lower premiums, and extra benefits. Half of Medicare Advantage members pay no premiums for care beyond Part D coverage. Most Medicare Advantage plans (89%) offer prescription drug coverage. Plans often include fitness, dental, vision, hearing, and over the counter medications which are not covered under traditional Medicare. Enrollment in a Medicare Advantage plan is voluntary for members; they can switch in or out of plans annually.

The average 2023 Medicare Advantage monthly premium for Connecticut members is $17.66 but some plans have no premium. Members can choose among 65 plan options. Eighteen Connecticut Medicare Advantage plans offer extra benefits such as no cost sharing for prescriptions, rewards for healthy behaviors, and help with non-medical needs such as food and social isolation for low-income members.

Almost two out of three Medicare Advantage members are very satisfied with their plan. Patients can save a good amount of money in Medicare Advantage, if they stay healthy. Premiums are lower than traditional Medicare and declining, and the plans offer extra services.

However, unlike traditional Medicare, Medicare Advantage beneficiaries generally must use providers who are in their plan’s network, while traditional Medicare enrollees can access care from any provider who accepts Medicare. All Connecticut hospitals and 99% of doctors accept traditional Medicare patients.

Unlike traditional Medicare, Medicare Advantage plans require prior authorization for many services. Under prior authorization, enrollees must get approval from their insurer before getting a service. If prior authorization is denied, the service is unlikely to be covered. Thirteen percent of Medicare Advantage members have had a prior authorization or claim denied. Half of Medicare enrollees would spend more for a 5-day hospital stay in a Medicare Advantage plan than in traditional Medicare. Due to prior authorization and slow payments, many hospitals are dropping out of Medicare Advantage plans.

In a complicated process, Medicare Advantage plans are paid a set monthly fee by the federal government per member to cover all healthcare costs. The payment rates are reset annually. This payment model is capitation where plans are paid a set fee per member regardless of how much care members get. Historically, Medicare Advantage plans have attracted healthier members, lowering their medical costs and boosting profits. On average, Medicare Advantage plan profits are 6.5% of total spending.

Over half (56%) of Connecticut beneficiaries are in a Medicare Advantage plan (2022). Beneficiaries in Tolland county are the most likely to choose Medicare Advantage, while Fairfield county beneficiaries are least likely. The number of plans and the percent of beneficiaries choosing Medicare Advantage is growing.

What are Medigap supplemental plans?

Medigap, or Medicare Supplemental Insurance, plans are offered by private insurers to supplement traditional Medicare costs. Unlike Medicare Advantage plans, Medigap plans do not make coverage decisions, limit the providers enrollees can use, or require prior authorization. Medigap plans cover some or all of enrollee’s Medicare costs such as deductibles, copays, and coinsurance. The plans are standardized, labelled by letters A through N, making it easier to compare coverage. Connecticut Medigap premiums for 2023 range from $47.50 to $1,519 depending on coverage and eligibility.

Is Medicare good coverage?

Access to care for Medicare is similar to commercial plans. Almost all Medicare enrollees are satisfied with their coverage (94%) and have a regular source of care (96%). Medicare enrollees are somewhat less likely than privately insured Americans ages 50 to 64 to report difficulty paying medical bills or delaying/forgoing care due to cost. Cost problems hit enrollees who are in poor health harder.

Only 1% of Connecticut physicians have opt-ed out of Medicare. Despite lower payment rates than private insurance, most Connecticut physicians accept new Medicare patients (84%). However, that rate is below the US average (89%) and our surrounding states. Nine in ten (91%)  Connecticut physicians accept new commercial plan patients.

Medicare and Medicare Advantage plans perform about evenly in quality. In both programs, enrollees generally wait about a month for a doctor’s appointment.

Who runs Medicare?

Medicare is run by the federal government under the Centers for Medicare and Medicaid Services (CMS). It is essentially the same across the US. CMS, following laws passed by Congress, decides what services are covered for Medicare enrollees, the rates providers in traditional Medicare are paid for services, and what Medicare Advantage plans are paid to provide all Medicare services for enrollees.

How much does traditional Medicare pay providers?

Medicare pays hospitals per discharge based on patient diagnosis, adjusted for the severity of the patients’ condition. Physician payments in Medicare are based on the costs of providing each service to patients, adjusted for some provider expenses. Non-physician providers including nurse practitioners are usually paid 15% less. In contrast, commercial plan payment rates for providers are based on negotiation, rather than set prices. Commercial plan prices for both hospitals and physicians closely track with providers’ market power. There is no evidence that hospitals and providers negotiate higher payment rates from commercial plans to cover lower Medicare and Medicaid rates.

Prices paid by Medicare for hospital services are about half what commercial plans pay for the same services. Commercial plan payment rates also vary considerably between payers and geographic areas, while traditional Medicare rates are consistent. Commercial plans pay about 29% higher rates for physician services than Medicare does. Connecticut commercial plan payment rates for both hospitals and physicians are relatively generous compared to other states while Connecticut Medicare payment rates for physicians are similar to the rest of the US.

How is Medicare funded?

Medicare is funded by Social Security and Medicare payroll taxes taken from paychecks, through premiums that enrollees pay, and by the federal budget. Undocumented immigrant workers pay into the program but are prohibited from coverage under Medicare.

Medicare spending has grown significantly over the years to $689 billion in 2021. Between 2000 and 2021, Medicare costs averaged 6.2% annual growth.

Medicare Advantage plans’ payments from the federal government have grown sharply in recent years and are expected to increase into the future. Part of that increase is due to growing enrollment. But Medicare costs per enrollee are higher and have been rising much faster in Medicare Advantage than in traditional Medicare. Federal payments to Medicare Advantage plans have risen since passage of the Affordable Care Act. It is estimated that if Medicare Advantage per member costs rose at the same rate as traditional Medicare, the program would save $183 billion between 2021 and 2029.

Is Medicare going to run out of money? What happens then?

For decades, experts have warned of a massive, unsustainable jump in Medicare spending. But it hasn’t happened. Per person costs have stabilized but experts are not sure why. Part of the answer may be that older Americans appear to in better health.

Medicare’s Hospital Insurance Trust Fund pays for Medicare Part A costs such as inpatient hospital, skilled nursing facility, some home healthcare, and hospice bills. Payroll taxes  from current workers fund the Trust Fund that covers hospital costs for current Medicare enrollees, who are mostly retired from employment.

There is considerable concern that the Trust Fund will eventually be out of balance. In 2023, the Medicare trustees estimate that the Trust Fund will be depleted in 2031. The Fund’s depletion date has rebounded in the past. In 2005, the expected depletion date was 2020. But several trends have led the Fund back into deficit.

As the nation’s population ages, more Americans are relying on Medicare for coverage. At the same time, the number of active workers paying into the Trust Fund through their paychecks is declining. Healthcare prices are rising faster than the wages of workers paying into the funds, which amplifies the deficit. Policymakers have consistently increased provider payment rates. Added costs of Medicare Advantage plans are also driving up total Medicare costs. The costs of COVID fell heavily on Medicare but are not expected to have a long-term impact on the program’s finances..

If the Trust Fund is allowed to empty, Medicare hospital bills would be paid but only up to the level of payroll taxes coming into the fund. It’s important to note that Congress has never allowed the Trust Fund to become depleted.

It’s also important to note that payments for Parts B and D – outpatient and drug coverage – are funded by premiums and federal taxes, so they are not dependent on the Hospital Trust Fund. Premiums and federal tax funding for Parts B and D are set each year to cover the costs of the program.

Where does the money go?

Medicare spending per enrollee has grown significantly over time. In 2000, the average enrollee cost Medicare $5,844. By 2021, that cost had grown to $15,309 and is expected to reach $25,383 by 2031.

Medicare spending covers a variety of services. In 2021, the largest and fastest growing share (41%) was spent on Medicare Advantage plan premiums, followed by inpatient and outpatient hospital care (23%) and retail drugs through Part D (12%).

How does care work for people on both Medicare and Medicaid?

In 2019, just over one in four (180,493) Connecticut Medicare enrollees had household incomes that also qualified for Medicaid, termed Medicare-Medicaid enrollees or dual eligibles. Connecticut’s rate at 27% of total Medicare enrollment was higher than the US rate of 18%.

 Medicaid pays some or all of the Medicare premiums and cost sharing for dually eligible members, depending on income. For lower income members, Connecticut  covers all Medicaid services including dental, vision, home and community-based services, mental health, and prescription drugs. Total costs of care are considerably higher for dual eligibles than for other enrollees. In 2019, Medicare spent $59.2 billion on dually eligible enrollees’ care while state Medicaid programs spent $63.0 billion. Higher costs are driven by long-term services and supports spending. In 2019 total per member costs for dually eligible Americans was 3.8-fold higher for those needing institutional long-term care.

Trends

• Enrollment is expected to continue to rise as the average age of the US population increases.
• It is expected that Medicare Advantage will soon cover more enrollees than traditional Medicare. Federal policymakers are considering policies to reduce payments to equalize payments between the two programs.
• Congress needs to address the deficit in the Hospital Trust Fund. US Senate Democrats have proposed increasing taxes on wealthy Americans to shore up the Trust Fund.

Updated October 31, 2023