As the baby boomers continue to peak with turning 65 (starting in 2017-2020), there are many areas where changes will be impacting the new 65 -year-old.’ In this “Turning 65” column, we will address tidbits and educational items to help clear the haze while reducing the hassle factor related to a Traditional Medicare Inpatient claim.

How does Medicare actually pay a hospital for an inpatient claim?

Let’s begin with clarification of terms.

Traditional Medicare versus Managed Medicare/Medicare Advantage. Traditional Medicare was created in 1965 with about two thirds of all adults over 65 receiving healthcare coverage thought this federal government program. It was never intended to cover all health care costs. The Balanced Budget Act of 1997 created the Managed Medicare/Medicare Advantage with commercial insurance companies offering the basic Traditional Medicare benefit package but with additional potential services, insurance company specific. (We will discuss Managed Medicare/Medicare Advantage in a subsequent Healthcare Buzz.)

In 1982, Congress changed the way hospitals were paid when a patient was an inpatient.

Traditional Medicare pays the hospital based on the diagnoses the patient was treated for during the stay as an inpatient. The charges are submitted but the hospital is paid on the diagnoses, not the charges. There is an inpatient deductible that changes yearly (2017 is $1,316). This amount is due for every 60 days the patient is out of the hospital.

Let’s make this real with an example:

Clarence was in the ICU for 14 days. Charges were $130,000. He saw no way he could pay the charges, even though he had Medicare and a supplemental insurance plan to pay the inpatient deductible of $1,316.

Under Traditional Medicare, the hospital’s payment is based on the diagnoses (with a single payment called a DRG payment).

Charges $130,000

DRG payment from Medicare $ 12,000

Medicare withholds the deductible—$ 1,316 *due from the patient or their supplemental insurance


The hospital MUST absorb/write off the difference between $130,000 billed and $12,000. Nothing additional is billed to the patient besides the inpatient deductible. The cost of the 14 days in ICU must be covered by the total payment of $12,000.

Is health care complicated? The payment system is different for each insurance plan, Medicaid/per state and Traditional Medicare vs Managed Medicare/Medicare Advantage.

Learn more about all the areas of impact through the Patient Financial Navigator Community Boot Camp: “Turning 65” Oct. 28 College of Southern Idaho Fine Arts building. 8:30 am-1:30 PM. No Cost! No registration is required! Let us help reduce the hassle factor though education.

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