How Medicare’s Hospital Benefit Works will Surprise You

Our marketing professionals tell us that readership tends to fall off slightly during holidays. As a result, in observance of Thanksgiving, we have reposted educational material below with edits and updates as appropriate. We’ll see you next week with a new topic.

Few people understand how Medicare’s inpatient hospital benefit is structured. And the way the Medicare hospital benefit is structured is different than any group or individual coverage one might have previously had. With Medicare, one can never have more than 150 hospital days of coverage at one time. The reason this is not more of a problem is that individuals on Medicare have unlimited benefit periods.

How does this work? When you are admitted to a hospital, a benefit period begins. If, for example, the hospitalization lasts for 30 days, after discharge from the hospital your benefit is reduced from 150 days to 120 days. However, should you remain “facility free” for 60 days (meaning, not using inpatient hospital or skilled nursing services covered under Medicare Part A), then you are back up to your maximum benefit of 150 hospital days and a subsequent admission would begin another benefit period.

Although it happens, the risk that an individual has a hospital stay that exceeds 150 days is small. The greater risk is someone being discharged and readmitted to either a hospital or skilled nursing facility and never replenishing the benefit due to not being “facility free” for 60 days. A family once came to us after the death of the wife who had exhausted her Medicare benefit in this way. Unfortunately, she remained in the hospital for several months until her death. The husband and adult children didn’t realize she was “private pay,” and the estate ultimately received a hospital bill for $800,000. The hospital accepted less but this family was devastated by unwittingly owing hundreds of thousands of dollars for care.

One way to protect yourself from such a situation is to have a Medicare supplement if you are on original Medicare. All Medicare supplements have a benefit of an extra 365 days of hospitalization. If you have retiree medical or an Advantage Plan, you should determine if there is a catastrophic hospitalization benefit and what it is. The former client who passed away had no catastrophic hospitalization through her husband’s retiree medical, but the family didn’t understand that.

With the Affordable Care Act (ACA) reforms that went into effect in 2014, ACA-compliant plans (most coverage at this point) have unlimited hospital coverage and there can’t be annual or lifetime caps on any of the 10 essential benefits named in the ACA, including hospitalization. It is ironic that in the U.S., hospital benefits for the non-Medicare population are more generous than the Medicare population which is clearly older but there are many surprising details when one examines our fragmented healthcare system.

The Medicare psychiatric hospitalization benefit works like the medical benefit with “benefit periods.” However, the Medicare psychiatric hospitalization benefit has a 190-day lifetime maximum.

Although the vast majority of hospital stays are relatively brief compared to the maximum 150 days in a benefit period, there were very lengthy hospital stays as a result of COVID and long COVID. And although it is an unpleasant thought, there are other conditions that can be very debilitating but not lead to one’s demise. As a result, those on Medicare should know that once one exceeds a 90-day hospitalization, so-called “lifetime reserve days” are used. Lifetime reserve days are the last 60 days of one’s maximum 150 hospital benefit total. They are aptly named because lifetime reserve days do not replenish. If you use them, you permanently reduce your 150 days by the number of lifetime reserve days used.

For students of healthcare history, an interesting era surrounded the passage of the Medicare Catastrophic Coverage Act of 1988 which was repealed by Congress in November 1989. This Act increased Medicare’s hospital benefit but was funded through additional taxes levied on those already on Medicare. An interesting YouTube clip shows Illinois Congressman Dan Rostenkowski, then Chairman of the House Ways and Means Committee, being heckled by a crowd of elderly in his district. The video is only two minutes long so watch it if you can.

In summary, if you are on Medicare or caring for someone who is, you should know how Medicare’s hospital coverage works. You should also plan to have a Medicare supplement if you are on original Medicare so that you have catastrophic hospital coverage. If you have retiree medical or are on an Advantage Plan, we recommend you determine whether you have additional hospital coverage through retiree medical or the Advantage Plan and how much coverage you have.