Medicare Buy-In

The general rule is that a person in the US has to be age 65 or older or classified as disabled by Social Security in order to receive health coverage from Medicare.

Well, that’s true for now, but it may change.

Medicare “Buy-in” programs already exist that allow states to make Medicare coverage available to people age 65 and over who cannot afford the monthly premium. Now there are bills in Congress to expand the buy-in concept.

For this to make sense, let’s review the basics of Medicare and Medicare costs.

Technically, Medicare has 4 parts:

  • Part A is major medical insurance (hospitalization, in-patient surgery, etc.) to which most people earn the right through working a requisite number of quarters (40 quarters or 10 years) and having a Medicare tax deducted from earnings. If one has only 30-39 quarters of taxes paid, the monthly fee for Part A is $259. For less than 30 quarters, the monthly fee is $471.
    Part A has a $1,484 deductible, which is the consumer’s responsibility to pay. After that, Medicare covers all hospitalization costs up to day 60. After 60 days of hospitalization, there is a $371 co-insurance per day of hospitalization, which the consumer is also on the hook to pay. After 90 days, there is a 60-day “lifetime reserve” on which the consumer can draw. The co-insurance for lifetime reserve days is $742 per day. Once the lifetime reserve is exhausted, the consumer is on the hook for full costs.
    If the consumer is admitted to a hospital, then released, and spends at least 60 days out of the hospital, a second hospitalization will be treated as a “new benefit period” and the counting of days in the hospital restarts at 0. That’s true even if the second hospitalization is in the same calendar year. However, the “lifetime reserve” doesn’t reset.
  • Part B covers out-patient services including visits to doctor offices. Everyone pays a monthly premium for Part B which in 2021 is $148.50. Part B has a $203 deductible per year, and consumers are typically on the hook for 20% of medical charges.
  • Part C is to some extent a misnomer. Under Part C, private insurers can offer plans that take the place of Part A and Part B original Medicare coverage. These are “Medicare Advantage” plans. The insurer receives money from Medicare for each person subscribing to an Advantage plan, and may or may not charge the consumer an additional fee. The plans are required to provide equivalent coverage to original Medicare (equivalent does not mean identical) and may at the insurers discretion include additional features not in original Medicare. Some consumers may find value in these added features. Insurance agents receive commissions on selling these policies even if there is no fee to the consumer.
  • Part D is prescription drug coverage, and this requires the purchase of a separate private insurance plan. However, Part D coverage is included in most Part C Advantage plans.

Low income consumers may have the option to apply for a Low Income Subsidy or Medicare Savings Program. These programs can provide assistance in paying monthly fees, deductibles, and co-payments for services. There are both income and asset (liquid and investments) limitations on eligibility for this assistance. There are also special Medicare Advantage plans for persons eligible for Medicaid and for persons with certain disease conditions (e.g., end-stage renal disease) that provide extra assistance as well as coordination of care.

In some parts of the US, low income seniors have the option to participate in a PACE program. The PACE program has the option to cover services that the doctors handling the patient deem to be medically necessary. That can include services and treatment not normally covered.

Medicare reimbursement for a skilled nursing or rehabilitation facility is limited, except potentially under the PACE option. Under original Medicare, a nursing home or rehab stay has to be linked to a hospital stay, and has a copayment in 2021 or $181.50 per day for days 21 through 100. After 100 days, the patient is responsible for all costs. Some Medicare Advantage plans and some life insurance plans with “Accelerated Benefit” riders can provide coverage for nursing home charges that Medicare does not pay.

So where does the concept of “Buy-in” fit?

There are bills in the House and Senate that would allow consumers access to Medicare starting at age 50, subject to a fee. That fee might be paid by an employer or a state.

Why would you want to do that? To reduce costs. Medicare pays hospitals and drug companies less than what private insurers are able to negotiate. Since so many consumers are covered by Medicare, it has unique leverage in negotiating terms. It is respectful of that leverage. For example, Medicare eliminated two Medicare Supplement plans in 2020 in order to improve its reimbursement rates to doctors.

What’s the argument against doing that? The risk that healthy people under 65 would flock to Medicare to reduce their insurance costs, potentially driving up costs for less healthy younger consumers. That’s a little bit of a stretch in logic, and severely ill younger consumers may already be covered under Medicare.

Who would pay the fee to get 50-64 year olds covered under Medicare? It could be individuals or employers, and would probably help employers reduce overall health benefits costs.

Why is this funny? Under the radar, we are actually stepping toward Senator Bernie Sanders’s “Medicare for All.”

Finally, I’ve tried to condense a lot of pages of material into a few paragraphs. Any questions, please ping me.




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