Several types of supplemen­tal health insurance

Understanding benefit options for prescription drugsFinding out about mental health coverageBridging the gap with short-term insuranceGetting the picture on Medicare and Medicaid fundamentalsSupporting children’s health insurance programs

This post gives you a look at several types of supplemen­tal health insurance — prescription drug programs, mental health coverage, short-term coverage, Medicare, Medicaid, and CHIP.

As the cost of prescription drugs continues to rise, health insurance companies put much effort into finding ways to keep these costs in check. This section describes three prac­tices that work toward accomplishing the goal of minimiz­ing drug expenses.

Insurers save money with prescription drug formularies. A for­mulary is a list of drugs that the health insurance plan approves. In a closed formulary, the insurer pays only for certain, approved drugs. If the drug you need isn’t on the approved list, you pay the entire cost. An open formulary offers most drugs, but the prices of the drugs vary.

More and more, HMOs are using a three-stage format to set prices for prescription drugs. For example, you pay a copay­ment of $5 for a generic (no brand name) drug, $10 to $15 for a brand-name drug in the formulary, and around $30 for a brand-name drug outside the formulary.

If your plan has a closed formulary, and that formulary doesn’t include your drug, check your plan carefully: It may have a provision that lets you request approval for benefit coverage of your drug.

Health insurance plans also limit the high cost of drugs through step therapy. Step therapy requires plan members to follow a specific progression of prescriptions. You start with the least-expensive medication and then move one prescrip­tion at a time toward the most expensive prescription, stop­ping when your condition is under control.

If you already know which prescription drug is successful for you, take action before you join a new plan. Call the new plan’s member services department to see whether it restricts the drug you’re taking. If the plan puts your medication in the Step 3 category, explain that you already take this med­ication. Ask whether you can leave out Steps 1 and 2. If the insurer denies your request, look for another plan.

Your health insurance plan may offer a prescription drug card program. Prescription drug card programs are a way to give members discounts on prescription drugs when they fill their prescriptions at a pharmacy that is a member of a pharmacy network. You also save money when you get an FDA (Food and Drug Administration) approved, generic equivalent drug instead of the brand-name drug.

If you go outside the pharmacy network to purchase a generic or brand-name prescription, you pay the deductible and coin­surance. The plan pays only the amount it would pay if you bought the medication at a member pharmacy.

Mental illnesses are brain disorders that frequently make cop­ing with life’s daily tasks difficult. Mental illnesses may affect thinking, emotions, moods, and a person’s ability to relate to other people.

Many health insurance plans provide some mental health coverage for psychological services that mental health prac­titioners, such as psychiatrists and licensed clinical social workers, provide. Coverage varies greatly from plan to plan. Some plans offer a fixed dollar amount for mental health services for each day of a hospital stay and limit the number of days covered. For outpatient services, plans may pay a fixed amount for each visit and limit the number of visits they cover for each year. With just a few examples, Table 6-1 shows how widely mental health insurance coverage can vary.

Table 6-1: Examples of Mental Health Insurance Coverage in Three HMOs

HMO 1           HMO 2             HMO 3

Inpatient     Covered at $50 per day. $240 per admission.

services       100%. Limit Limit of 15              Limit of 30 days

of 45 days       days per year. per year.

per year.          No lifetime         Detoxification

maximum.         days do not count

toward inpatient rehabilitation days.

Table 6-1: Examples of Mental Health Insurance Coverage in Three HMOs (continued)

HMO 1                HMO 2               HMO 3

Outpatient $20 (individual) $20 (individual) $10 per visit.

services       or $10 (group)      or $10 (group) Limit of 60 visits

per visit. Limit       per visit. Limit per year.

of 20 visits           of 30 visits

per year.              per year.

No lifetime maximum.

The Mental Health Parity Act (MHPA) of 1996 went into effect in January 1998. This law requires that the annual and lifetime benefit limits for mental illnesses be equal to the annual and lifetime benefit limits that health insurance plans offer for other illnesses and injuries. The requirements of this act don’t apply to employers with fewer than 51 employees or to a group health plan whose costs increase 1 percent or more as a result of implementing MHPA’s requirements.

Some states have passed their own, stricter parity (equality) laws for mental health coverage. The Consumer Insurance Guide, www.insure. com/health, describes each state’s mental illness parity laws.

Hospital indemnity insurance pays a specified daily, weekly, or monthly amount to an insured person during a hospital stay. You choose the amount of coverage when you buy the plan, so the money you receive isn’t based on the actual cost of the hospitalization. You can spend the amount you receive in any way you choose.

Some policies have an elimination period provision that pays benefits only after you’ve been in the hospital for a specific number of days. You can reduce your premiums by choosing a longer elimination period, but remember that hospitaliza­tions are usually for relatively brief periods.

Short-term insurance plans are designed to provide coverage for hospitalization and/or medical services for individuals and families when you find yourself temporarily out of health insurance.

Short-term policies do not cover pre-existing conditions.

With short-term policies, you get to choose the length of the policy. In many cases, coverage can begin immediately after you apply. Short-term plans are not renewable, but you can reapply for a second policy. However, the second coverage won’t continue the coverage you had under the first plan; the second plan is brand-new. Consequently, the second plan considers any condition that occurred while you were cov­ered under the first plan to be a pre-existing condition and doesn’t cover it. The combined total coverage of both the first and second short-term policies usually can’t exceed 365 days.

Eligibility requirements for short-term health insurance vary from plan to plan, so check the requirements of the plan you’re considering carefully.

Short-term plans for students are specially designed to remain in effect during a student’s full-time enrollment in an accred­ited college or university. Short-term health insurance poli­cies are available in most states. For information on student plans, call your school or an insurance company or agent. For student and short-term plans in general, check with your state’s insurance department for companies that sell short-term plans.

The Health Care Financing Administration (HCFA) of the U.S. Department of Health and Human Services adminis­ters Medicare, the nation’s largest health insurance program. Medicare (Title XVIII of the Social Security Act) covers peo­ple who are 65 years and older and are citizens or perma­nent residents of the United States, certain people who are disabled, and people with End-Stage Renal Disease.

If you reach the age of 65 and are still working, you may end up with health insurance through Medicare as well as through your employer-sponsored health plan. In this case, your employer-sponsored group health plan is the primary insurer (pays first) and Medicare is the secondary insurer (pays after the primary insurer pays). See this post for more about pri­mary and secondary insurers and coordination of benefits.

HCFA, which administers Medicaid as well as Medicare, pro­vides toll-free telephone numbers for information about your health plan benefits, rights, and options. It also provides information on the quality of managed care plans, Medigap insurance, and the Medicare + Choice program. (Later, this post discusses these programs in more detail.)

Call 800-MEDICARE, or 800-633-4227 (877-486-2048 if you have a TDD or TTY) 8:00 a.m. to 4:30 p.m., local time, weekdays. Talk to a customer service representative in English or Spanish for

General information about Medicare and Medigap insuranceGeneral information about Medicare health plan options in your communitySpecific quality and satisfaction information about man­aged care plansTelephone numbers for help with billing questions about Medicare claims or other issues

After hours, use the automated options to

Order Medicare & You handbooks or audiotapes in English or SpanishRequest updated information about health plans in your areaHear recorded answers to frequently asked questions Determining eligibility

If you’re eligible for Social Security retirement payments, you’re usually eligible for Medicare coverage. You (or your spouse) accumulate earnings credits on your annual Social Security wages. One earnings credit equals one calendar quar­ter. You need 40 quarters (ten years) of Social Security credit to enroll in Medicare Part A without cost and in Part B for $45.50 per month (1999 amount). (Look for more infor­mation on Medicare later in this post.)

Federal government workers, nonprofit-organization employ­ees, and certain other workers may qualify with fewer than 40 quarters. You may also qualify if you have a disability or a chronic kidney disease.

Check with your local Social Security office for more infor­mation or to enroll in Medicare, or call the Social Security Administration at 800-772-1213. (The TTY-TDD number for the hearing- and speech-impaired is 800-325-0778.)

If you’re under 65 and receive Social Security or Railroad Retirement benefits, you’re automatically enrolled in Medicare Part A and Part B. About three months before your 65th birthday, HCFA mails your Medicare card to you. If you decide to reject Part B after you receive your Medicare card, follow the instructions that accompany the card.

If you’re disabled, you are automatically enrolled in Part A and Part B of Medicare beginning in your 25th month of dis­ability. HCFA mails your card to you about three months before you are entitled to Medicare.

Part A and Part B each cover a different set of expenses. The next two sections explain the benefits and costs for each part. All dollar amounts shown are for 1999; figures may change from year to year.

Medicare’s Part A (hospital insurance) covers hospital services, care in skilled nursing facilities, and home health and hospice care services after you’re discharged from the hospital. Members of Medicare Part A pay the following premiums:

Eligible individuals (with 40 quarters of Social Security coverage) pay no premium.Individuals with 30 to 39 quarters of Social Security coverage pay $170 per month ($187.00 if you’re a late enrollee).Ineligible individuals (with fewer than 30 quarters of Social Security coverage) pay $309 per month ($339.90 if you’re a late enrollee).

You are a late enrollee if you enroll in Part B after your eligi­bility period expires. The seven-month eligibility period includes the three months before your 65th birthday, the month of your 65th birthday, and the three months after the month of your 65th birthday. The next opportunity for you to enroll in Part B is during the general enrollment period, from January 1 to March 31 of each year, with coverage beginning July 1. If you wait more than 12 months after the initial enrollment period, you pay an additional 10 percent of the premium. This surcharge applies for a period that is twice as long as enrollment was delayed.

Medicare determines benefits based on a benefit period. A benefit period starts the day you’re admitted to a hospital or skilled nursing facility. It ends after 60 consecutive days (including the day you’re discharged) without hospital inpa­tient or skilled nursing facility care. If you stay in a skilled nursing facility, a benefit period ends after 60 consecutive days without skilled nursing care.

In each benefit period, Medicare limits the number of days it will help pay for inpatient hospital and skilled nursing facil­ity care. After you exceed the benefit period limit, you must pay for all charges for each additional day of care. After you end a benefit period, a new one begins, with renewed hospi­tal and skilled nursing facility benefits. The number of ben­efit periods you can have is unlimited.

You are entitled to 60 nonrenewable reserve days. You may use reserve days to help pay the bill if you are in the hospital for more than 90 days in a benefit period.

Part A’s benefits for inpatient hospital insurance include:

Days 1-60: You pay a deductible of $768 per benefit period; Medicare pays the rest. Note: For days 21-100, Part A also pays coinsurance of $96 a day in a skilled nursing facility.Days 61-90: You pay coinsurance of $192 a day; Medicare pays the rest.Days 91-150: You pay $384 a day for each nonrenew­able, lifetime reserve day; Medicare pays the rest. (You have a maximum of 60 reserve days, and you may use them only once.)Days 151 and beyond: You pay all costs; Medicare pays nothing.

Check the Medicaid section later in this post for infor­mation on additional sources of medical cost reimbursement.

When you enter the hospital for covered care, the hospital must give you a document called An Important Message from Medicare, which explains your rights as a Medicare hospital patient. If you don’t get a copy, be sure to ask for one. Also ask the billing department for assistance in getting the most benefit from your health insurance coverage.

Medicare’s Part B (medical insurance) covers medical serv­ices other than hospitalization. It helps pay doctors and out­patient hospital care. Part B also pays for some other medical services that Part A doesn’t cover, including the following:

Physical and occupational therapyFlu, pneumonia, and hepatitis B shotsX rays and laboratory testsMammograms, and Pap smears to screen for cervical cancerOutpatient mental health servicesArtificial limbs and eyesDurable medical equipment, including wheelchairs, walkers, hospital beds, and oxygen equipment prescribed for home use by a doctorKidney dialysis and kidney transplants; under limited circumstances, heart, lung, and liver transplants in a Medicare-approved facilityMedical supplies and items such as ostomy bags, surgi­cal dressings, splints, and casts

Medicare Part B doesn’t cover several medical services and items, such as routine physicals, most dental care, dentures, hearing aids, and most prescription drugs. Part B covers eye­glasses only for corrective lenses after cataract surgery.

Members of Medicare Part B pay a monthly premium of $45.50. If you enrolled late (see previous explanation), your premium goes up by 10 percent for each 12-month period you could have been enrolled but weren’t.

Part B’s members pay an annual deductible of $100. After you pay the $100 deductible, Medicare pays 80 percent of the approved charges for covered services for the rest of the year. (An approved charge is the amount that Medicare decides the service is worth. This amount may differ from the actual amount on your bill.) You pay the balance of the hospital’s charges. Medicare pays 50 percent for approved outpatient mental health services, and members pay the balance. Mem­bers also pay for all charges for services and supplies that Medicare doesn’t cover.

The Balanced Budget Act of 1997 changed the Medicare pro­gram. This law, effective in 1999, includes Medicare + Choice, which expands the Medicare health plan options to include a broader range of plans. You can choose between Original Medicare — a fee-for-service program available to all Medicare beneficiaries — and a managed care organization that has a contract with Medicare. Medicare HMOs are available in many parts of the United States. With Medicare + Choice, Medicare pays the managed care organ­ization to provide medical services to you. In addition, Medicare + Choice offers some preventive care services to help you stay healthy, at no extra cost.

In many ways, the Medicare + Choice managed care plan is like the Original Medicare with an attached Medigap policy (see the next section). Some of these Medicare managed care plans offer services that a Medigap policy doesn’t cover. The downside is that generally you can see only doctors and hos­pitals that belong to the HMO.

To enroll in Medicare + Choice health plan options:

You must have Medicare Parts A and B.You must not have end-stage renal disease.

Whether you remain in the Original Medicare plan or choose a Medicare HMO, you’re still in the Medicare program and will receive all the Medicare covered services.

Original Medicare doesn’t pay every medical expense you incur. So, you may want to consider private supplemental insurance policies, such as Medigap policies or Medicare SELECT, to add the extra coverage you need.

Although both state and federal governments regulate Medi­gap insurance policies, Medigap is not government spon­sored. Private insurance companies and consumer groups, such as the AARP (American Association of Retired Persons), sell Medigap policies to fill the gaps in the Original Medicare plan coverage. Premiums for Medigap policies are kept to a minimum because the policies cover only the gaps left by Medicare. (Sticking with a Medigap policy makes good sense. Otherwise, you buy another supplemental policy that may cover more than you need and may be more expensive.)

Call the Medicare hotline at 800-638-6833 (TTY/TDD 800-820-1202 for the hearing or speech impaired) for more information on supplemental insurance policies (Medigap). Call your state insurance office for the names of companies that are licensed to sell Medigap policies in your state. To find your state health insurance contact, check with the National Association of Insurance Commissioners (see the Resource Center for contact information).

The federal government has authorized ten standardized Medigap policies — labeled Plans A through J — which means that the insurance coverage for a specific plan, such as Plan D, is the same from one company to another and from one state to another. Plans A through J represent a wide range in coverage. Plan A offers the most basic supplement to Medicare coverage. Plan B (not to be confused with Medicare Part B) offers the same provisions as in Plan A, along with additional specified provisions, and so on through Plan J. Plan J offers the most coverage of the Medigap plans and is usually the most expensive.

The availability of these plans depends on where you live: Your state may offer all or just a few of the standard policies. If an insurance company wants to sell Medigap policies, it must sell at least Plan A.

An insurance company cannot legally sell you more than one Medigap policy. Because Medigap policies are designed to fill in the gaps left by Medicare coverage, you don’t need more than one Medigap policy.

Medigap policies normally pay most or all of the Medicare coinsurance amounts. They may also cover Medicare deductibles. Some plans pay part or all of the following:

Outpatient prescription drugs (plans H, I, and J)Preventive care (plans E and J)Emergency medical care in a foreign country (plans C through J)Limited coverage for home health care (plans D, G, I, and J)

Medigap policies don’t cover long-term care. When your financial resources are depleted, you may meet your state’s eligibility requirements for Medicaid. If so, Medicaid helps pay for long-term care.

Signing up for Medigap benefits while you’re enrolled in a Medicare HMO is duplicate coverage. Medigap policies are designed to pay benefits associated with fee-for-service plans.

Certain consumer protection regulations, including a 30-day money-back guarantee and a guarantee of renewability, gov­ern the insurance companies that sell Medigap policies. The Health Insurance Portability and Accountability Act (HIPAA) regulations apply to Medigap to govern pre-existing condition waiting periods.

Insurance companies and managed care plans throughout the country can sell Medicare SELECT, another type of Medicare supplemental health insurance plan. A Medicare SELECT policy must meet all of the same requirements that a Medi­gap policy must meet, and it must be one of the ten stan­dardized benefit packages (A through J). The only difference is that with Medicare SELECT, you must use hospitals and doctors within a network to be eligible for full benefits. (Emergencies are an exception.) Medicare SELECT policy premiums are usually lower because of this restriction.

Medicaid — Title XIX of the Social Security Act — is a program that provides medical assistance for certain indi­viduals, such as children, the aged, the blind, the disabled, and people who are eligible to receive other federal assistance. It is a joint federal and state health insurance program, devel­oped to assist states in providing adequate medical care to eli­gible needy persons. The federal government set broad national guidelines for states to use in designing their Med­icaid programs. Each state, however, can do the following:

Establish its own requirements for eligibilityDecide on the type, amount, length, and range of servicesSet the rate of payment for servicesAdminister its own Medicaid program

With the states’ flexibility in setting up the details of their own Medicaid plans, plans vary a great deal from state to state, as well as within each state over time. So if you move to another state, don’t assume that you automatically meet the new state’s Medicaid eligibility requirements. You may have to reapply for Medicaid coverage; acceptance may take two or three months. If you have a gap in coverage between the old and new plans, you are responsible for any expenses that you incur.

If you qualify for both Medicare and Medicaid, Medicaid covers most of your health care costs.

Always send your medical bills to Medicare first. Medicare sends the unpaid part of the bill to your state Medicaid pro­gram for additional payment.

States determine eligibility for Medicaid by examining a per­son’s disability or age and financial need. You may have to reduce your assets to the allowable limits, which is called spending down. Because Medicaid is based on financial need, Medicare is considered a resource that you must use before Medicaid kicks in.

When you apply for Medicaid, be ready to reveal all your assets and sources of income. Not telling the state about all your assets is fraud, which is subject to criminal penalties.

If your income is limited — as defined by your state — Med­icaid may help pay for Medicare premiums, deductibles, and coinsurance.

Medicaid offers some assistance in various categories of dual eligibles. Dual eligibles are individuals who are entitled to Medicare Part A and/or Part B and are eligible for some form of Medicaid benefit.

Medicaid has eight categories of dual eligibles, defined by cri­teria such as Medicare eligibility, income level, and the dol­lar amount of resources in relation to Supplemental Security Income (SSI). (SSI is a social assistance program that pays monthly cash benefits to individuals who are at least 65, or who are blind or disabled, and who have limited income and resources.)

If you receive Supplemental Security Income (SSI) payments from Social Security, you are eligible for Medicaid. Contact your state Medicaid office for application information. In addition, contact your state or local welfare, social service, or Medicaid agency for more information about whether you qualify for financial help. You may find the appropriate tele­phone numbers in a “government” section of your local tele­phone directory under “Health and Human Services”; if not, call directory assistance. State Medicaid toll-free numbers are listed on the Web at www.hcfa .gov/MEDICAID/ obs5.htm.

Parents whose income is too large to be eligible for Medic­aid and yet too small to afford private health insurance can turn to their state’s Children’s Health Insurance Program (CHIP) to cover their uninsured children. (CHIP, or SCHIP — State Children’s Health Insurance Program — is also known as Title XXI, part of the federal Balanced Bud­get Act of 1997.) Every state and five U.S. territories have CHIP programs. Each runs its own federally funded CHIP program, so the programs vary.

States must ensure that CHIP funds only cover children who are currently uninsured.

Find out how CHIP affects you. Call the toll-free number, 877-543-7669, to find your state’s toll-free CHIP phone number, or look for your state’s number at www.hcfa.gov/ init/chipinfo.htm.