Medicare Parts A, B, C, and D: Medicare “Money Ball”

Author’s note: I recently was faced with my sister’s health issues and subsequent death. Even though I am a physician, I quickly realized how little I knew about Medicare as questions and medical care issues surfaced. My sister’s issues made me study the nuances of Medicare. This exploration was motivated by my awareness of how little I knew about Medicare.

I hope this brief introduction will stimulate the readership to dive into a deeper study of Medicare so they can help themselves, their parents, their friends, and patients.

Michael Lewis’s book Money Ball allowed readers to understand how “sabermetrics” revolutionized baseball. Sabermetrics is the empirical analysis of baseball, especially baseball statistics that measure in-game activity. Sabermetricians collect and summarize the relevant data from this in-game activity to answer specific questions. This statistical approach altered how baseball pundits approached Major League Baseball. Michael Lewis followed the low-budget Oakland A’s, visionary general manager Billy Beane, and the strange brotherhood of amateur baseball theorists. All were in search of new baseball knowledge—insights that would give the little guy who is willing to discard old wisdom the edge over big money.

Billy Beane, the general manager of the Oakland A’s, attempted to assemble a baseball team on a lean budget by employing computer-generated analysis to acquire new players. Faced with a tight budget, Beane reinvented his team by outsmarting the richer ball clubs. Joining forces with Ivy League graduate Peter Brand, Beane recruited bargain-bin players whom the scouts had labeled as flawed, but who had game-winning potential. His strategy challenged old-school traditions and put him in the crosshairs of those who said he was tearing out the heart and soul of the game.

As general manager of the Oakland A’s, one of the poorest teams in Major League Baseball, Beane was unusual in that he’d seen first-hand why traditional recruitment strategies didn’t work. In the second half of the 2002 season, the A’s won 20 straight games, a league record. They qualified for the playoffs, but lost against a far inferior team, the Minnesota Twins. Nevertheless, Billy and Paul proved that general managers can use sabermetrics and economic thinking to create a powerful team. Other general managers, managers, and coaches came together and claimed that Billy and Paul’s success was a fluke. However, Billy was offered a contract to manage the Boston Red Sox—the highest-paying contract in baseball history—suggesting that the Major League Baseball world recognized his talents. After much thought, Billy turned down the contract, claiming that, as a high school player, he’d made a big mistake by signing with the Mets, and he would never again make a decision that’s just about money.

The question to ponder is whether sabermetrics can apply to CMS. CMS is faced with a dearth of money to provide healthcare for poor, elderly, and disabled patients in the United States. CMS was created in 1965 and has resulted in a degree of centralized control over the nation’s healthcare system. Although CMS oversees the healthcare needs of only the poor, older, and disabled Americans, these groups represent such a large share of the nation’s healthcare consumers that what CMS does and does not do sets the tone for all of America’s healthcare.

This article explores how CMS beneficiaries can maximize coverage and minimize cost from start to finish, and how CMS should use artificial intelligence with “big data” and genomics to better determine what testing and treatments should be covered. Genomics and precision medicine may help support value-based medical care. Get ready—because this venture is like jumping into an abyss of the unknown. This article barely puts a toe in the water of the complex ocean of CMS coverage and cost. It is meant to be a stimulus to the reader for a deep exploration of the Medicare and Medicaid abyss. Who will be medicine’s Billy Beans?

It’s Always About the Money

Want to live forever? It will cost you. The longer we live, the more likely it is that we will run up large medical debts. Counterintuitively, people who take better care of themselves spend more money on healthcare.(1) In general, people fear running out of money more than death itself. Catastrophic health expenses are a major cause of personal bankruptcies in the United States. Healthcare expenses can destroy the financial futures of entire families, not just the patient incurring the expense. Approximately 70% of Medicare beneficiaries—more than 35 million people—use what is called “original” Medicare. This includes Part A for hospital expenses and Part B for doctor visits, medical equipment, and outpatient medical costs. The other 30% get private Medicare Advantage (MA) plans.

Original Medicare requires beneficiaries to pay 20% copay for most covered Part B services. Forever. There is no ceiling on this copay. Other Medicare insurance, called Medigap or Medicare supplemental insurance, is available to close this gap. But you must know this and purchase the insurance before a catastrophic health event occurs. Going insurance-bare is a dangerous proposition.

Medicare Advantage policies provide annual out-of-pocket caps to protect patients and families from devastating expense.

Less than 25% of original Medicare beneficiaries get Medigap policies.(2) These people are taking a huge gamble—Russian roulette–type behavior. Perhaps they don’t have the funds to afford Medigap premiums. But perhaps they just don’t know about the vast hole in original Medicare.

MA policies provide annual out-of-pocket caps to protect patients and families from devastating expense. But to millions of seniors on Medicare, catastrophe is not thousands of dollars in healthcare bills. It’s the $20 per month for the copay on a prescription that they simply cannot afford.

These seemingly modest healthcare expenses turn out not be modest. They pit healthcare use against food on the table, heat for the house, and rent money. This leads to medication nonadherence that further exacerbates health issues. So good health is all about the money.

What You Don’t Know About Medicare Will Cost You

Medicare is complicated. So don’t feel bad if you know little about Medicare, that some of what you think you know is wrong, that you are uncertain even about the things that you do know, and that good people who run the enormous machine called Medicare may not be the right people for information or advice.

Don’t get me wrong—Medicare is a terrific program. It has improved the healthcare of millions Americans since its creation in 1965. But it has grown as convoluted and murky as the increasingly sophisticated medical services it helps deliver.

Medicare Decisions

When enrolling in Medicare, it is necessary to:

• Identify how to sign up at the right time and avoid penalties and the loss of coverage;

• Choose from one of two Medicare paths: original Medicare (hopefully with Medigap supplemental insurance) and a Part D drug plan, or Medicare Advantage, which usually comes with a bundled Part D plan; and

• Understand what Medicare covers and how to get the most from whichever coverage path you choose.

The first issue is the confusing rules for signing up for Medicare. Getting this wrong has significations ramifications. If you forego Medicare and later change your mind, there can be steep late-enrollment penalties, and months may pass before Medicare insurance takes effect. One of the greatest jolts that many people have when leaving their employer-based health insurance is how complicated it is to even sign up for Medicare.

Medicare allows patients to choose a new plan yearly should they wish, but few people change, and many end up with plans that cost too much and cover too little. There are many pathways to Medicare, and each pathway has its own process and rules that need to be understood. But most people don’t know about them. There is no coordinated government communication program to let people know about their opportunities and responsibilities. People approaching their 65th birthday get flooded with Medicare notes from private insurance companies. They often receive nothing form the government-run CMS, or, at best, a note for those taking early Social Security that they can also sign up for Medicare.

Next, what are the different types of Medicare coverage and how can you choose the best plan to meet your needs? An early decision in the fork in the healthcare highway is whether to buy original Medicare, with or without a Medigap option, or one of the highly advertised MA programs. MA plans often offer dental, hearing, and vision insurance, which are not offered with original Medicare. These plans can afford to offer more features while still staying competitively priced because they offer their services through proprietary provider networks of participating doctors, hospitals, other care providers, and even medical equipment companies. Original Medicare is a fee-for-service program that allows people to choose whatever caregivers they wish, whereas MA programs only allow patients to choose from their providers. Remember HMOs and PPOs! The downside of MA plans is that patients often cannot have the most expert physician for their particular healthcare issue. Part of choosing the right Medicare policy or policies is understanding which healthcare providers you want to use and why. Having access to your preferred physicians continues to be the most important variable that people cite in explaining their Medicare insurance purchases. This is an important distinction between original Medicare and MA plans. Cheaper healthcare can have significant clinical downsides.

Health Insurance 101: Understanding the Terminology

We all have a deficit in healthcare literacy. I will go over some of the basic terms to make us more informed and healthcare literate:

• Premium: The amount you pay each year to buy a health insurance policy. It is not the only or best gauge of policy costs. Medicare plans with the lowest premiums sell the best.

• Deductible: The amount of covered expenses that you must first pay, usually each year, before your insurance begins helping you pay your medical bills. Choosing low-deductible plans with high premiums, however, could boost spending without providing any more coverage.

• Coinsurance: After you have paid the deductible and your health insurance kicks in, what percentage of medical expenses does it pay? Many Medicare plans pay 80% of covered expenses; usually based on the maximum prices. Medicare will pay physicians, medical equipment, and other provider expenses. Original Part B has no ceiling on expenses subject to coinsurance, but other plans do.

• Copayment: Usually a set amount, but can be a percentage that you must pay for a medical service after you have paid for your deductible.

• Out-of-pocket maximum: Part B of original Medicare has no ceiling on how much beneficiaries can be required to pay as their 20% copay. You could end up owing 20% of a very large number. Medigap policies can protect people from this copay risk. MA health plans offer out-of-pocket ceilings to avoid exposure to catastrophic health expenses. Drug plans, whether they are separate Part D plans or are bundled with MA plans, offer catastrophic coverage. This reduces but does not eliminate risk. If you need a super expensive procedure or treatment, you are still responsible for 5%.

Medicare’s Great Invasion of Uncle Sam’s Bank

There is a myth that consumers have completely paid for their Medicare benefits because they pay 1.45% of their pretax wages in Medicare payroll taxes, an amount matched by their employer. The payroll taxes that go to Social Security do support the entire program, but in the case of Medicare, our payroll taxes fall far short of paying for program expenses. In 2014 nearly $600 billion flowed into Medicare and $613 billion flowed out. Of the $600 billion, how much do you think came from payroll taxes? Here comes the money ball metaphor—38% of the total came from payroll taxes, leaving $373 billion. There was $80 billion in Medicare premiums. Doing the math, Uncle Sam was left with a $250 billion bill. Medicare is clearly a bargain. Clearly healthcare costs strongly superseded our societal contribution through payroll taxes.

The Large Gap in Later-Life Care

Medicare does not cover long-term care in nursing homes, assisted living facilities, and other custodial care providers. These facilities are expensive, and there is a high likelihood that people aged 65 years and older will require long-term care services at some point in their life. Extended stays can cost a small fortune and break the bank. Unfortunately, consistent with the money ball metaphor, homemaker services, home health aide services, adult daycare, assisted living facilities, and nursing homes are all extremely expensive. If you are fortunate enough to be healthy and physically independent as you enter the late 70s and 80s, the top choice for seniors is a private continuing care retirement community (CCRC). More expensive CCRCs will sell you an apartment for $250,000 to $350,000 and then bill you thousands of dollars per month for meals and cost associated with living at the CCCR. This care can transition to assisted living, nursing home care, and on-site dementia care. It all costs lots and lots of money. Medicare will continue to provide coverage at CCRCs, but its contribution represents a small share of total community costs.

Private long-term-care insurance can defray a substantial share of long-term costs, but it is expensive, and the insurance industry has struggled to make acceptable profits from long-term-care insurance. Most have raised their rates, and there has been no stability in the outlook for the industry. Many companies have left the business. Unfortunately, many seniors who bought long-term-care insurance drop it later in life after they have paid out many thousand dollars in premiums. That money is wasted. Money woes are most often cited as the culprit for difficulty with elder care. This emphasizes the need for end-of-life financial planning.

The End of Life

In 2016, Medicare began to pay doctors to have end-of-life conversations with patients and their families. End-of-life discussions should determine what kind of healthcare the patient wants at this phase of the life cycle. There should also be an introduction to hospice and palliative care. Physicians need to know if family members are aware of patient wishes and if they are in agreement between the patient and the family members. Is there a healthcare “proxy”? That is a legally appointed person who can make medical decisions for the patient should they become unable to make their own decisions.

In Being Mortal,(3) Gawande, who is a physician, addresses coming to terms with death in his own family and how doctors and patients alike are uncomfortable and unprepared to discuss death. Discussing end-of-life issues in advance has a large payoff at a difficult time. People who have these discussions with their physicians were far more likely to die at peace and in control of their situation.(3)

Medicare has extensive hospice benefits. Hospice is offered under Part A of Medicare, and the benefits are the same for original Medicare and MA users. Hospice at home has become the preferred way that people want to spend their final days. Palliative care often is provided within a hospice setting but also is available to patients with serious illness and pain who are not considered terminally ill. Moreover, for many patients, the effort to make them comfortable, reduce pain, and provide peace and serenity also can extend their life.

Where Are the Sabermetrics in Healthcare?

The movement to payment for performance (value-based care) is the sabermetrics of healthcare. If there is a Holy Grail in medicine, it is where better care intersects with lower costs. CMS is actively evaluating value-based care systems. Many experts believe the path to that goal involves the use of healthcare provider networks, the development of coordinated care plans for patients, and a movement away from fee-for-service medicine to payment-for-performance healthcare. To encourage networks to work together, Medicare has implemented and enforced ”carrot-and-stick” rules that reward physicians for desired patient outcomes and penalize them for adverse outcomes.

The passage of the Medicare Assess and CHIP Reauthorization Act of 2015 empowered CMS to develop new programs to accelerate the move to value-based care. The development of artificial intelligence and big data sets and genomics will allow us to advance toward precision and predictive healthcare. The exponential growth of genomics will lead to a deeper understanding of how to approach healthcare issues with greater precision and lower costs. This should result in the phasing out of fee-for-service healthcare and the excess and expensive unnecessary testing for financial reasons.

Conclusion

This article has provided a brief introduction to Part A, B, C, and D Medicare plans. It is meant to stimulate the readers to take a deeper dive into this complex insurance that provides the healthcare for the majority of our society. Navigation of this complex system will allow for good care at lower costs. Like sabermetrics in baseball, value-based care will allow for better medical care at lower costs. The introduction of value-based care supported by artificial intelligence and genomics will bring us to the Holy Grail of better care at lower costs. We need Billy Beane physicians to lead this initiative.

References

1. Sanger-Katz M. No, giving more people health insurance doesn't save money. New York Times. August 5, 2015. www.nytimes.com/2015/08/06/upshot/no-giving-more-people-health-insurance-doesnt-save-money.html .

2. Medigap: spotlight on enrollment, premiums and recent trends. April 1, 2013. kff.org/medicare/report/medigap-enrollment-premiums-and-recent-trends/ .

3. Gawande A. Being Mortal. New York: Henry Holt; 2014.

A Deeper Dive into CMS

The following websites will allow a deeper understanding of the nuances of Medicare and Medicaid.

• Medicare & You: www.medicare.gov/Pubs/pdf/10050-Medicare-and-You.pdf

• Enrolling in Medicare Part A & B: www.medicare.gov/Pubs/pdf/11036-Enrolling-Part-A-Part-B.pdf

• 2022 Choosing a Medigap Policy: A Guide to Health Insurance for People with Medicare: www.medicare.gov/sites/default/files/2022-03/02110-medigap-guide-health-insurance.pdf

• What’s a Medicare Advantage Plan? www.medicare.gov/sites/default/files/2018-07/11474.pdf

• Your guide to Medicare Prescription Drug Coverage: www.medicare.gov/sites/default/files/2019-09/11109-Your-Guide-to-Medicare-Prescrip-Drug-Cov.pdf