Medicare coverage can be confusing and, if miscalculated, very costly. In this article, we'll clarify some common misconceptions about Medicare, as well its rules of eligibility.

Medicare 101
In 1965, President Lyndon Johnson signed the original Medicare program into law. The program originally covered two portions:

  • Part A - Hospital insurance
  • Part B - Medical insurance

Part A covers a large portion of hospital-related costs for eligible people over the age of 65 and only includes medically necessary and skilled care, not custodial care. Persons not eligible for coverage can participate in the program if they pay a monthly fee

Part B is optional and pays a portion of non-hospital provided medical care, such as doctor visits and other outpatient services. There is a monthly fee for this program. The fee was $93.50 in 2007 and is likely to rise in the future. Part B coverage is subject to various deductibles and co-pays.

The Medicare program still fulfills its original role, but was expanded in 1997 and refined in 1999 to include:

  • Part C - "Medicare" + Choice, now known as "Medicare Advantage"

Part C gives Medicare beneficiaries the opportunity to enroll in private healthcare plans and receive all Medicare services, including Part A and Part B, from a private provider. It operates like the healthcare coverage provided by most employers. A menu of offerings is available with a variety of coverage options, co-payments and monthly costs. The private provider also covers services not provided by Parts A and B. Part C is available in most areas and provides a convenient way to receive medical services.

In 2006, the program expanded again to offer:

  • Part D - Prescription drug coverage

Part D is an optional insurance program that charges a monthly fee in exchange for prescription drug coverage. The monthly cost varies widely depending on the coverage options you choose. Like employer-provided health care plans, Part D holds an open enrollment session November 15 - December 31 each year, during which time program participants can choose to change their coverage options. While Part D is a voluntary program, Medicare recipients have to seriously review their healthcare needs immediately upon eligibility because the cost of Part D increases each year for individuals who choose not to participate immediately upon eligibility.

Although prescription drug coverage is particularly important for many senior citizens and Part D does help, the program has drawn heavy criticism. Many people find the array of coverage options and pricing to be particularly confusing. (To learn more about Medicare coverage options, see Getting Through The Medicare Part D Maze.)

What to Choose?
Participants in Medicare Part A and B can choose to participate in Part C and/or Part D, or they can choose to purchase supplemental insurance from a private carrier. This supplemental insurance, often referred to as "medigap" coverage, pays for expenses that are not covered by Medicare. Participants in Part C do not need to purchase medigap coverage because Part C enables them to select medical coverage that addresses most needs.

Medicare and Long-Term Care
The Medicare program is designed to provide for medical care, not the cost of long-term care (LTC). As such, Medicare's coverage for long-term needs is extremely limited. Assuming you qualify, Medicare may pay up to 100% of your costs in a nursing home for the first 20 days in a benefit period. Once 20 days have passed, you must pay a hefty co-insurance amount for days 21 through 100 for each benefit period.

In order for Medicare to pay for your LTC costs at all, you must meet three criteria:

  1. The 72-Hour Rule - You must have been hospitalized for at least three full days and three full nights. Many hospital stays are three days and two nights. For example, you might go in for a hip replacement on Monday morning and leave Wednesday afternoon.

  2. Medical Necessity - Your care must fulfill the following requirements:
    • It must be medically necessary.
    • It must be care that can only be given in a nursing home, in most cases by skilled personnel.
    • It must result from the condition for which you were hospitalized.
  3. Places Where Care Can Be Given - In almost all cases, patients leaving a hospital go straight to a nursing home for further care.

There's a difference between care that is skilled and medically necessary, and care that is custodial. The bottom line is determining whether you need assistance with activities of daily living (ADL) or custodial care. (For related reading, see Taking the Surprise Out of Long-Term Care.)

With some exceptions, Medicare pays for medically necessary skilled care in a nursing home setting. If you are homebound and need skilled care, Medicare may pay to have a caregiver come to your home to tend to your needs. Another exception is end-of-life or hospice care. The exact levels and locations for receiving skilled care vary from state to state.

Medicare is not designed to provide assistance with ADL or to provide assistance and aid to keep you in your home or in an assisted living facility. Providing funds for long-term care is the role of Medicaid and LTC. (To learn more about LTC and Medicaid, see Long-Term Care Insurance: Who Needs It? and What's The Difference Between Medicare And Medicaid?)

Conclusion
The rules and regulations covering Medicare can be difficult to understand, especially when it comes to needing assistance with ADLs or needing medical care. Not understanding the difference could cost you or your family dearly. Medicare may cost more and provide less in coverage and benefits than you may have thought. Investing time and energy into determining the best combination of coverage options can help you avoid unpleasant and expensive surprises down the road.