65 and over. However, Medicare also insures about 8 million beneficiaries who are permanently disabled (receiving Social Security Disability Insurance, or SSDI), have end stage renal disease (ESRD, a condition that requires dialysis), or ALS, regardless of their age. You may hear experts refer to beneficiaries aged 65 and older in general terms as “aged,” and those under age 65 as “disabled.”5
What Is Covered by Medicare?
Medicare benefits are divided and defined in four parts (Part A, Part B, Part C, and Part D). Each Part covers a different type of care or set of services. As we will see in subsequent chapters, not only are these Parts a way of describing coverage, but also a way of organizing the administrative data files we will use throughout this book. Understanding Medicare coverage (and limitations to that coverage) is essential to the proper utilization of Medicare claims data. For example, let’s say you were asked to study claims for blood received in a transfusion. Medicare Part A covers the blood received by a beneficiary in an inpatient hospital setting, but Medicare Part B covers the blood the same beneficiary may have received in a hospital outpatient setting. This means that the programmer may need to query more than one dataset to locate blood-related information in the claims data. As we will see, querying more than one type of claims data set is important in the identification of emergency department visits.
The specifics of Medicare coverage are subject to, and often do, change. As such, it is very helpful to be able to tap into reference materials that summarize Medicare benefits. As mentioned above, Medicare is a social insurance program and the final source of information on Medicare coverage is legal statute. However, many experts simply refer to summaries of the Medicare schedule of benefits that CMS provides to beneficiaries, including online publications such as Your Medicare Benefits6 and Medicare and You7. These publications were used as the foundation for some of the information presented below.
• Medicare Part A, also known as Hospital Insurance (HI), pays for care provided to beneficiaries in hospitals (including most inpatient care, inpatient rehabilitation facilities, and long-term care hospitals), coverage for short-term stays in skilled nursing facilities (SNFs), most post-acute care provided in home health agencies (HHAs), and hospice care services.
• Medicare Part B is also known as Supplemental Medical Insurance (SMI) because it provides coverage that is additional and supplemental to Medicare Part A coverage. Part B covers all medically necessary professional services, be they in an inpatient, outpatient, or physician office setting, including visits to the physician, outpatient care, outpatient mental health care, diagnostic and clinical laboratory testing, and some preventative services, like flu and pneumonia vaccinations. In addition, Part B coverage includes durable medical equipment (DME). The vast majority of beneficiaries with Part A coverage also purchase Part B coverage. Taken together, Medicare Parts A and B are also known as “original fee-for-service (FFS),” “original Medicare,” or “traditional Medicare” coverage.
• Medicare Part C, also known as Medicare Advantage (MA) or managed care, provides Medicare beneficiaries with the option of enrolling in a private insurance plan as opposed to participating in traditional Medicare fee-for-service coverage. Private plans include health maintenance organizations (HMOs), preferred provider organizations (PPOs), private FFS plans, Special Needs Plans, and Medicare Medical Savings Account Plans. These MA plans receive payments from Medicare (and premium payments from members) to provide benefits provided by Medicare Part A (excluding hospice), Part B, and usually Part D. MA plans are required to use extra payments to provide additional benefits, like vision coverage. The number of MA enrollees and plan options has consistently increased since 2004. Beneficiaries have to be enrolled in Part A and B in order to join an MA plan. As noted in Chapter 1, MA claims may not appear in the administrative claims files provided by CMS because they are paid by private managed care insurance plans. Therefore, it is not uncommon for investigators to exclude MA beneficiaries from evaluations similar to our example research programming project.
• Medicare Part D is voluntary prescription drug coverage. In other words, a familiar way to think about Part D is that it helps pay for prescription drugs prescribed by doctors and filled at a pharmacy.8 The program is relatively new (it was launched in 2006) and helps pay for drugs through private plans, called standalone prescription drug plans (PDPs) and MA prescription drug plans (MA-PDPs).
What Is Not Covered by Medicare?
Like other health insurance plans, Medicare does not cover every possible medical service or procedure. In addition, Medicare may require beneficiaries to make certain cost-sharing payments, like deductibles and coinsurance. Finally, although Medicare may cover the service, Medicare may not be the primary payer for services provided to beneficiaries who carry additional health insurance coverage. Below are some examples of services with limited or no coverage under Medicare. As you will see, a proper understanding of coverage (and limitations) is vital to the accurate identification of services in the administrative data.
• Some services have limitations on coverage. For example, Medicare Part A stops paying for inpatient psychiatric care in a psychiatric hospital after 190 days (this is a lifetime limit)9, and a beneficiary can only be admitted to a skilled nursing facility after being discharged within the last 30 days from an inpatient hospital stay that lasted at least three days.10
• Other services are simply not covered. For example, Medicare does not cover long-term care services (care received in a nursing home, respite care, and adult day care) at all. Also, it does not cover cosmetic surgery, some preventative services (although this is changing with the Affordable Care Act), vision and dental care, and hearing aids.
• Medicare is a secondary payer for beneficiaries that have certain additional health insurance coverage. For example, if a beneficiary has been diagnosed with black lung disease and the beneficiary is covered under the Federal Black Lung Program and Medicare, the Federal Black Lung Program will pay for services related to the beneficiary’s black lung condition. In this case, Medicare is a secondary payer, meaning that it may cover the remainder of the claim not paid by the Federal Black Lung Program but is not responsible for the primary payment of the claim.
Some limited and uncovered services, as well as cost-sharing payments, can be covered by supplemental insurance. Specifically, beneficiaries can acquire supplemental coverage from several sources: Medigap insurance policies, insurance sponsored by their employers, MA plans, and, in some cases, Medicaid. Note that it is very possible that claims are not filed with Medicare for medical services paid for by the beneficiary out-of-pocket or by coverage other than Medicare. As we will see below, this means that the user of Medicare administrative data may not be able to account for all services a Medicare beneficiary receives.
The Mechanics of Medicare
Now that we better understand some of the basics of Medicare and Medicare coverage, we can discuss how covered beneficiaries receive services and how Medicare reimburses providers of those services.
You probably have or have had commercial health insurance of your own, and in some very basic ways it does not operate much differently than Medicare. When you go to the doctor for an examination, the physician that examines you submits a bill (called a claim) to your insurance company for reimbursement. This claim is usually submitted electronically and describes the services provided by the physician (in this case, let’s say a routine visit to the doctor for a checkup, called an evaluation and management examination) and the charges for those services. More specifically, the claim describes you (e.g., name, personal identifier, age, and sex), the provider of the service (e.g., name, provider identifier, and place of service), the date or dates of service, and details that describe the services performed, like procedure and diagnosis codes. When the insurance company receives