How Medicare and Medicaid Work

How Medicare and Medicaid Work

By Dan Horan

America’s public health-care programs are the nation’s largest provider of funds, a speaker told members of the New York State Society of CPAs’ Government Accounting and Auditing Committee learned recently.

Jill Flinton, an expert with the federal Office of Inspector General, told the committee that in New York state alone, approximately 70 percent of all residents are covered by Medicaid, which, along with Medicare, comprises the nation’s public health reimbursement system. And as the population ages, the number of people covered by these programs will continue to increase.

Flinton gave a brief glimpse into the complex world of public health care during a one-hour CPE presentation on Medicare and Medicaid. Committee members were attentive as Flinton discussed the creation of the two programs by the Social Security Act of 1965. The Medicare program is federally funded, while state governments join the Federal government to fund Medicaid. New York counties also participate in the funding.

Medicare is an entitlement program. People aged 65 and over, the disabled and those who suffer from kidney failure qualify for this program.

Medicaid is based on two kinds of financial criteria, categorized as either community or institutional need. Those who have exhausted their financial resources, Medicare benefits, other insurance and savings fall under “institutional” need.

Both programs are overseen by the Center for Medicare and Medicaid Service (CMS) in conjunction with other agencies. Medicare has one set of regulations (federal); Medicaid has several sets of regulations (each state has its own regulations).

The Office of the Inspector General (OIG), the General Accounting Office (GAO) and CMS monitor the Medicare program, while state governments join those agencies in monitoring Medicaid. These agencies audit cost reports, intergovernmental transfers, indigent care, nursing- home receivables, corporate integrity, agreements and self-disclosure. Hospitals and nursing homes in New York file cost reports based on audited financial statements, which include financial and demographic data. In the case of hospitals, they are reviewed by the fiscal intermediary and may be audited by the OIG. In New York state cost reports are audited by the Department of Health.

Medicare claims are paid to providers by insurance companies. In New York state, the federal government pays 50 percent of Medicaid claims while the state and county cover 25 percent each. But recent OIG and GAO testimony suggests the possibility of costs shifting in this program.

The Medicare program is divided into three segments: for hospital costs (Part A); for doctor and ancillary costs, or Part B (which require a person to pay a monthly premium); and for drug benefits, which fall under Part D.

While a person can have both Medicare and Medicaid coverage, Medicaid is the payor of last resort, which will not pay until other sources of payment are exhausted, including Medicare and other insurances. Most services, though, are covered under Medicare Part A, and other services that aren’t covered still may be billed separately under Medicare Part B. A patient paying privately for a nursing-home stay may receive ancillary services that are billable under Medicare Part B.

Hospitals may receive indigent care payments if they have an indigent care policy. Hospitals receive payment after three valid attempts to collect have been documented.

Flinton concluded by saying that the federal government has recently executed legislation covering some prescription drugs. Drug discount cards are more available, and drug benefits will become available beginning in 2006. Unfunded mandates are the county’s share of the Medicaid costs that are caused by increased costs of services approved by the state.

Dan Horan is a partner with Horan Martello Morrone P.C. in Hauppauge, N.Y. and a member of the Government Accounting and Auditing Committee.