Many people are talking about the sequester that went into effect March 1st and the myriad of cuts. While the news reports no cuts in Medicare benefits, a 2% payment cut to providers will be imposed. The assumption is that the payment cut will not affect beneficiaries, yet it is unclear if the cost of this cut can be passed on to some beneficiaries.
The 2% cut applies to provider services covered under Medicare Part A and B after calculating the beneficiary’s deductible or coinsurance. For example, if the Medicare-approved amount for a physician’s service is $1,000 and the beneficiary has met the deductible, in the past, Medicare would pay 80% of the approved amount (or $800) and the beneficiary would pay the other 20% ($200). With the 2% cut, Medicare now pays 78% of the 80% of the approved amount ($800 – 2% = $784). The beneficiary still pays their 20% coinsurance, yet the question is who pays the bill for the 2% cut, or the $16? Can the provider collect the 2% from the patient or from a Medigap policy?
Medicare has made it clear that doctors who take assignment cannot bill beneficiaries for the 2%, or do what is called balance billing. However, Medicare is not clear on how unassigned claims will be treated. Doctors who do not accept assignment may legally collect payment for their services from the beneficiary who in turn may be reimbursed by Medicare. For example, assume a doctor’s charge is $1,200 and the Medicare-approved amount is $1,000. On an unassigned claim, a doctor can charge the beneficiary up to 15% more than the Medicare approved amount ($1,150 in this example) because it includes the allowable excess charge. If the beneficiary pays the doctor $1,150, Medicare will pay the beneficiary $784 because of the 2% cut (78% of the 80% Medicare used to pay, 78% of $800 in this example). The beneficiary may then pay a total of $366 ($200 for the 20% coinsurance, plus $150 for the excess charge, plus the 2% cut of $16).
Medicare has not yet clarified whether a provider can or cannot pass on the 2% reduction to beneficiaries for an unassigned claim. And because of this lack of clarity, some providers may bill their patients for the 2% reduction in their fee.
What about beneficiaries who have a Medigap? Will the Medigap pay the 2% cut for an unassigned claim? Medigap insurance policies are not designed to pay the 2% amount. This reduced payment to providers is neither part of the deductible nor the 20% coinsurance, and it is not part of the excess charge, as those amounts are covered in some Medigap policies. See our summary of Medigap plan benefits for an overview and explanation on what Medigap plans cover. In addition, Medicare has not instructed Medigap carriers on how they are to account for this 2% reduction on the benefit notice they send to their insured.
Since Medicare guidance to providers is unclear, and Medigap carriers may not show the 2% on their benefit notice, we encourage people to contact their Congressional representative and/or Medicare at 1-800-633-4227 to protest any attempts to pass this cut in provider payment on to beneficiaries.
