Is Medicare Public or Private Insurance?
Among seniors and those about to sign up for Medicare, some of the most confusing statements in the Medicare budget debate in Congress and on the “airwaves” involve the use of the terms “private” and “public option” to describe the various “Parts” of Medicare.
But the easy answer to the headline question, if you are confused by the public vs. private statements, is “It’s a trick question.” (Or if you are an old Saturday Night Live fan, the answer is “It’s both floor wax and desert topping.”)
The words “private” and “public option” have no particular meaning to the Medicare beneficiary. In fact, all Parts of Medicare — A, B, C and D — are public in the sense that they are run by the United States government’s Centers of Medicare and Medicaid Services (CMS). And they are private in the sense that the CMS uses private insurance companies to run them.
But if you want more detail on the private/public Medicare name game, read on.
In the political debate, Original Medicare (Parts A and B) are often called public and Medicare Advantage (Part C) and standalone prescription drug plans (Part D) are often called private. Despite the implications of those words, all four Medicare Parts are administered by private insurers. It is especially important for seniors and those about to sign up for Medicare not to be confused by the political posturing because A and B are required for C and most of the time for D. You the beneficiary do not have a private vs. public choice among the four Medicare Parts.
There is effectively no “option” when it comes to Original Medicare Parts A and B despite the words thrown around in the debate. (And Part A is “free” so that isn’t a hard decision to make.) In some regions of the country, different insurers handle Parts A and B enrollment, claims, fraud and abuse investigations, payment processing, and similar insurance company administrative functions. In other geographic regions, one private insurance company handes all the related administrative functions. If you want to really be confused, here is the “simple” 7-page version of an explanation put out by the CMS “as a service to the public and not intended to grant rights or impose obligations.”
(By the way, unless you worked for a very small company or a risk-averse large company or insured yourself and your family directly before you joined Medicare, this is probably the way your health insurance has always been administered. Most large employers self insure and hire an insurance company to handle the administration. In the case of Medicare, that’s what the U.S. government does.)
Where Medicare beneficiaries do have a choice, it is primarily among three supplemental Medicare options. Nationwide, over 90% of you choose a supplement because Original Medicare is not very good insurance:
- Employer-sponsored health insurance (ESI) for retirees– fewer and fewer employers offer ESI to retirees but if your former employer does, it’s typically the best of the three supplemental options. Still the employer will usually require you to sign up for Medicare Parts A and B and — if it hasn’t already done so – the employer might drop its retiree drug coverage so that you will want to sign up for Part D. And the retiree ESI plan might be more expensive than buying supplemental Medicare insurance directly — see next two options — after comparing benefits. Retiree ESI is typically regulated by the state insurance commission where your employer is headquartered.
- MediGap – MediGap is highly CMS-regulated but not officially a Part of Medicare. There are as few as two and as many as 10 types of MediGap insurance available depending on the state you live in. You have to sign up for Medicare Parts A and B and because MediGap policies do not include drug coverage, you shoud sign up for a D plan.
- Part C — Medicare Part C, also called Medicare Advantage, is effectively a bundle of a MediGap and a D plan, usually but not always implemented as an HMO. As described above, Part C is just as much a Part of Medicare as Original Medicare Parts A and B, and both A and B are required before you can sign up for a C plan. Providing Part C as a choice to Medicare beneficiaries is similar to your former employer providing an HMO as an alternative to a traditional health insurance plan before you became a Medicare beneficiary. Twenty five percent of Medicare beneficiaries currently choose C plans. The downside is that most have the perceived disadvantages of any HMO (limited geographic coverage and networked providers).
(NOTE: There are also some legal primary/secondary recourse aspects of the terms private and public but it is highly unikely that those aspects wil matter to you — as the Medicare beneficiary. If you are concerned about this sort of thing because you have a complex Medicare situation, read the fine print and contact the relevant insurer and/or Medicare. Or contact your local senior center and ask for Medicare help.)