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Traditional Medicare

The Medicare program organizes benefits into four separate components, each with its own cost-sharing and premium requirements. Parts A and B together are referred to as traditional fee-for-service (FFS) Medicare, in which the federal government directly pays for covered health services. In 2018, 59.6 million people were enrolled in Medicare Part A, which represented 99 percent of individuals eligible to enroll. Part B had enrollment of 54.6 million (91 percent of individuals eligible to enroll), the vast majority of whom were also enrolled in Part A.

 

Part A

Medicare Part A covers inpatient hospital services, including room and board, hospital facility use, inpatient drugs/biologics and supplies, and diagnostic and therapeutic items. Part A also covers limited periods of patient stays in post-hospital skilled nursing facilities and covers hospice care and home health care following a stay in a hospital/skilled nursing facility. Part A includes a deductible and coinsurance for hospital inpatient stays and daily coinsurance payments for skilled nursing facility care.

 

Table A-1: Medicare Part A Deductibles and Coinsurance, 2020

Hospital inpatient Skilled nursing facility
Days 0-60 Deductible $1,408 Days 0-20 No charge N/A
Days 61-90 Daily coinsurance $352/day Days 21-100 Daily coinsurance $176/day
Days 91-150 (lifetime reserve days) Daily coinsurance $704/day Days 101 and over Beneficiary responsible for all costs Unlimited
Days 151 and over Beneficiary responsible for all costs Unlimited      

 

Part A is primarily financed by a 1.45% payroll tax on all wage and salary income for the worker and the employer. Self-employed persons pay the full 2.9% of earnings. A vast majority of enrollees are eligible for premium-free Part A benefits if they or their spouse are eligible for Social Security payments and have paid Medicare eligible payroll taxes for 40 quarters (10 years). Individuals ages 65 and older without 40 quarters of coverage may choose to enroll and pay the full Part A monthly premium; however, 99 percent of Medicare beneficiaries do not pay a Part A premium.

 

Part B

Medicare Part B is a voluntary program that helps pay for doctor bills and other outpatient health care. 

It covers physician services, outpatient hospital services, and inpatient prescription drugs/biologics, durable medical equipment, clinical laboratory and diagnostic tests, and other medical services, including preventive care, physical and occupational therapy, speech–language pathology therapy, and ambulance care. Part B covers home health care when such care does not follow a stay in a hospital or skilled nursing facility. However, Part A covers all home health care for Medicare beneficiaries who lack Part B coverage. Part B enrollees are subject to a deductible of $198 in 2020 and a standard coinsurance of 20 percent for most covered services, except for clinical laboratory tests, home health agency services, and preventive care services

The standard monthly premium for Part B coverage increased from $135.50 in 2019 to $144.60 in 2020, which reflects an estimated 25 percent of program costs. Since 2007, individuals with modified adjusted gross incomes that exceed a specific threshold are subject to a higher income-related premium that reflects a greater percentage of estimated program costs. Depending on income level, high-income beneficiaries’ premiums are set to cover 35 percent to 85 percent of the expected per capita Part B costs for the year. The highest income adjusted monthly premium is $491.60 in 2020.

Additionally, beneficiaries who enroll in Part B after their initial enrollment period pay a premium surcharge unless they are employed and receive employer-sponsored health insurance benefits. In 2018, 1.4 percent of Medicare Part B enrollees were subject to this penalty. The penalty is waived for beneficiaries eligible for a special enrollment period, such as when an individual has previously had employer coverage.