Medicare (United States)
Overview
 
Medicare is a social insurance
Social insurance
Social insurance is any government-sponsored program with the following four characteristics:* the benefits, eligibility requirements and other aspects of the program are defined by statute;...

 program administered by the United States government, providing health insurance
Health insurance
Health insurance is insurance against the risk of incurring medical expenses among individuals. By estimating the overall risk of health care expenses among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is...

 coverage to people who are aged 65 and over; to those who are under 65 and are permanently physically disabled or who have a congenital physical disability; or to those who meet other special criteria. Medicare in the United States somewhat resembles a single-payer health care
Single-payer health care
Single-payer health care is medical care funded from a single insurance pool, run by the state. Under a single-payer system, universal health care for an entire population can be financed from a pool to which many parties employees, employers, and the state have contributed...

 system, but is not. Before Medicare, only 51% of people aged 65 and older had health care coverage, and nearly 30% lived below the federal poverty level.
Discussions
Encyclopedia
Medicare is a social insurance
Social insurance
Social insurance is any government-sponsored program with the following four characteristics:* the benefits, eligibility requirements and other aspects of the program are defined by statute;...

 program administered by the United States government, providing health insurance
Health insurance
Health insurance is insurance against the risk of incurring medical expenses among individuals. By estimating the overall risk of health care expenses among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is...

 coverage to people who are aged 65 and over; to those who are under 65 and are permanently physically disabled or who have a congenital physical disability; or to those who meet other special criteria. Medicare in the United States somewhat resembles a single-payer health care
Single-payer health care
Single-payer health care is medical care funded from a single insurance pool, run by the state. Under a single-payer system, universal health care for an entire population can be financed from a pool to which many parties employees, employers, and the state have contributed...

 system, but is not. Before Medicare, only 51% of people aged 65 and older had health care coverage, and nearly 30% lived below the federal poverty level. "Original Medicare" plans (when Medicare Advantage has not been elected) cover 80% of the Medicare-approved amount of any given medical cost; the remaining 20% of cost must be paid by either a Medicare Supplement plan, which is a "supplemental insurance" from a private health insurance company (normally requiring a monthly insurance premium paid to that company by the holder), or out-of-pocket via the patient's own personal funds (check, money order, cash, etc.). Medicare Advantage plans are not Medicare Supplements, but take the place of "Original Medicare". In return for a premium, these plans share costs and cap out of pocket expenses.

The Medicare program also funds residency training programs for the vast majority of physicians in the United States.

The Social Security Act of 1965
Social Security Act of 1965
The Social Security Amendments of 1965 was legislation in the United States whose most important provisions resulted in creation of two programs: Medicare and Medicaid. The legislation initially provided federal health insurance for the elderly and for poor families. While President Lyndon B...

 was signed into law on July 30, 1965, by President Lyndon B. Johnson
Lyndon B. Johnson
Lyndon Baines Johnson , often referred to as LBJ, was the 36th President of the United States after his service as the 37th Vice President of the United States...

 as amendments to existing Social Security
Social Security (United States)
In the United States, Social Security refers to the federal Old-Age, Survivors, and Disability Insurance program.The original Social Security Act and the current version of the Act, as amended encompass several social welfare and social insurance programs...

 legislation. This legislation included the establishing of the Medicare program. At the bill-signing ceremony, Johnson enrolled former President Harry S. Truman
Harry S. Truman
Harry S. Truman was the 33rd President of the United States . As President Franklin D. Roosevelt's third vice president and the 34th Vice President of the United States , he succeeded to the presidency on April 12, 1945, when President Roosevelt died less than three months after beginning his...

 as the first Medicare beneficiary and presented him with the first Medicare card, and Truman's wife Bess, the second.

Administration

The Centers for Medicare and Medicaid Services
Centers for Medicare and Medicaid Services
The Centers for Medicare & Medicaid Services , previously known as the Health Care Financing Administration , is a federal agency within the United States Department of Health and Human Services that administers the Medicare program and works in partnership with state governments to administer...

 (CMS), a component of the Department of Health and Human Services (HHS), administers Medicare, Medicaid
Medicaid
Medicaid is the United States health program for certain people and families with low incomes and resources. It is a means-tested program that is jointly funded by the state and federal governments, and is managed by the states. People served by Medicaid are U.S. citizens or legal permanent...

, the State Children's Health Insurance Program
State Children's Health Insurance Program
The State Children's Health Insurance Program – later known more simply as the Children's Health Insurance Program – is a program administered by the United States Department of Health and Human Services that provides matching funds to states for health insurance to families with children...

 (SCHIP), and the Clinical Laboratory Improvement Amendments
Clinical Laboratory Improvement Amendments
Clinical Laboratory Improvement Amendments of 1988 are United States federal regulatory standards that apply to all clinical laboratory testing performed on humans in the United States, except clinical trials and basic research.-CLIA Program:...

 (CLIA). Along with the Departments of Labor
United States Department of Labor
The United States Department of Labor is a Cabinet department of the United States government responsible for occupational safety, wage and hour standards, unemployment insurance benefits, re-employment services, and some economic statistics. Many U.S. states also have such departments. The...

 and Treasury
United States Department of the Treasury
The Department of the Treasury is an executive department and the treasury of the United States federal government. It was established by an Act of Congress in 1789 to manage government revenue...

, CMS also implements the insurance reform provisions of the Health Insurance Portability and Accountability Act
Health Insurance Portability and Accountability Act
The Health Insurance Portability and Accountability Act of 1996 was enacted by the U.S. Congress and signed by President Bill Clinton in 1996. It was originally sponsored by Sen. Edward Kennedy and Sen. Nancy Kassebaum . Title I of HIPAA protects health insurance coverage for workers and their...

 of 1996 (HIPAA). The Social Security Administration
Social Security Administration
The United States Social Security Administration is an independent agency of the United States federal government that administers Social Security, a social insurance program consisting of retirement, disability, and survivors' benefits...

 is responsible for determining Medicare eligibility and processing premium payments for the Medicare program.

The Chief Actuary of CMS is responsible for providing accounting information and cost-projections to the Medicare Board of Trustees to assist them in assessing the financial health of the program. The Board is required by law to issue annual reports on the financial status of the Medicare Trust Funds, and those reports are required to contain a statement of actuarial opinion by the Chief Actuary.

Since the beginning of the Medicare program, CMS has contracted with private companies to operate as intermediaries between the government and medical providers. These contractors are commonly already in the insurance or health care
Health care
Health care is the diagnosis, treatment, and prevention of disease, illness, injury, and other physical and mental impairments in humans. Health care is delivered by practitioners in medicine, chiropractic, dentistry, nursing, pharmacy, allied health, and other care providers...

 area. Contracted processes include claims and payment processing, call center services, clinician enrollment, and fraud investigation.

Taxes imposed to finance Medicare

Medicare is financed by payroll tax
Payroll tax
Payroll tax generally refers to two different kinds of similar taxes. The first kind is a tax that employers are required to withhold from employees' wages, also known as withholding tax, pay-as-you-earn tax , or pay-as-you-go tax...

es imposed by the Federal Insurance Contributions Act
Federal Insurance Contributions Act tax
Federal Insurance Contributions Act tax is a United States payroll tax imposed by the federal government on both employees and employers to fund Social Security and Medicare —federal programs that provide benefits for retirees, the disabled, and children of deceased workers...

 (FICA) and the Self-Employment Contributions Act of 1954. In the case of employees, the tax is equal to 2.9% (1.45% withheld from the worker and a matching 1.45% paid by the employer) of the wages, salaries and other compensation in connection with employment. Until December 31, 1993, the law provided a maximum amount of compensation on which the Medicare tax could be imposed each year. Beginning January 1, 1994, the compensation limit was removed. A self-employed individual must pay the entire 2.9% tax on self employed net earnings, but may deduct half of the tax from the income in calculating income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...

. Beginning in 2013, the 2.9% hospital insurance tax will continue to apply to the first US$200,000 of income for individuals or $250,000 for couples filing jointly and will rise to 3.8% on income in excess of those amounts.

Eligibility

In general, all persons 65 years of age or older who have been legal residents of the United States for at least 5 years are eligible for Medicare. People with disabilities under 65 may also be eligible if they receive Social Security Disability Insurance
Social Security Disability Insurance
Social Security Disability Insurance is a payroll tax-funded, federal insurance program of the United States government. It is managed by the Social Security Administration and is designed to provide income supplements to people who are physically restricted in their ability to be employed...

 (SSDI) benefits. Specific medical conditions may also help people become eligible to enroll in Medicare.

People qualify for Medicare coverage, and Medicare Part A premiums are entirely waived, if the following circumstances apply:
  • They are 65 years or older and U.S. citizens or have been permanent legal residents for 5 continuous years, and they or their spouse has paid Medicare taxes for at least 10 years.
or
  • They are under 65, disabled, and have been receiving either Social Security
    Social Security (United States)
    In the United States, Social Security refers to the federal Old-Age, Survivors, and Disability Insurance program.The original Social Security Act and the current version of the Act, as amended encompass several social welfare and social insurance programs...

     SSDI benefits or Railroad Retirement Board
    Railroad Retirement Board
    The U.S. Railroad Retirement Board is an independent agency in the executive branch of the United States government created in 1935 to administer a social insurance program providing retirement benefits to the country's railroad workers....

     disability benefits; they must receive one of these benefits for at least 24 months from date of entitlement (first disability payment) before becoming eligible to enroll in Medicare.
or
  • They get continuing dialysis for end stage renal disease or need a kidney transplant.
or
  • They are eligible for Social Security Disability Insurance
    Social Security Disability Insurance
    Social Security Disability Insurance is a payroll tax-funded, federal insurance program of the United States government. It is managed by the Social Security Administration and is designed to provide income supplements to people who are physically restricted in their ability to be employed...

     and have amyotrophic lateral sclerosis
    Amyotrophic lateral sclerosis
    Amyotrophic lateral sclerosis , also referred to as Lou Gehrig's disease, is a form of motor neuron disease caused by the degeneration of upper and lower neurons, located in the ventral horn of the spinal cord and the cortical neurons that provide their efferent input...

     (known as ALS or Lou Gehrig's disease).


Those who are 65 and older must pay a monthly premium to remain enrolled in Medicare if they or their spouse have not paid Medicare taxes over the course of 10 years while working.

People with disabilities who receive SSDI are eligible for Medicare while they continue to receive SSDI payments; they lose eligibility for Medicare based on disability if they stop receiving SSDI. The 24 month exclusion means that people who become disabled must wait 2 years before receiving government medical insurance, unless they have one of the listed diseases or they are eligible for Medicaid
Medicaid
Medicaid is the United States health program for certain people and families with low incomes and resources. It is a means-tested program that is jointly funded by the state and federal governments, and is managed by the states. People served by Medicaid are U.S. citizens or legal permanent...

.

Many beneficiaries are dual-eligible
Medicare dual eligible
Medicare dual eligibles, in the Medicare system of the United States, are Medicare Part A and/or B recipients who either [1] qualify for a Medicare Savings Programs or [2] qualify for Medicaid benefits. Dual eligibles generally qualify for the QMB benefits, in which the beneficiary's non-Medicare...

. This means they qualify for both Medicare and Medicaid
Medicaid
Medicaid is the United States health program for certain people and families with low incomes and resources. It is a means-tested program that is jointly funded by the state and federal governments, and is managed by the states. People served by Medicaid are U.S. citizens or legal permanent...

. In some states for those making below a certain income, Medicaid will pay the beneficiaries' Part B premium for them (most beneficiaries have worked long enough and have no Part A premium), and also pay for any drugs that are not covered by Part D.

In 2008, Medicare provided health care coverage for 45 million Americans. Enrollment is expected to reach 78 million by 2030, when the baby-boom generation is fully enrolled.

Benefits

Medicare has four parts: Part A is Hospital Insurance. Part B is Medical Insurance. Medicare Part D
Medicare Part D
Medicare Part D is a federal program to subsidize the costs of prescription drugs for Medicare beneficiaries in the United States. It was enacted as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 and went into effect on January 1, 2006.- Eligibility and...

 covers prescription drugs. Medicare Advantage plans, also known as Medicare Part C, are another way for beneficiaries to receive their Part A, B and D benefits. All Medicare benefits are subject to medical necessity
Medical necessity
Medical necessity is a United States legal doctrine, related to activities which may be justified as reasonable, necessary, and/or appropriate, based on evidence-based clinical standards of care. Other countries may have medical doctrines or legal rules covering broadly similar grounds...

.

The original program included Parts A and B. Part D was introduced in January 2006; before that, Parts A and B covered prescription drugs in a few special cases.

Part A: Hospital Insurance

Part A covers inpatient hospital stays (at least overnight), including semiprivate room, food, tests, and doctor's fees.

Part A covers brief stays for convalescence in a skilled nursing facility if certain criteria are met:
  1. A preceding hospital stay must be at least three days, three midnights, not counting the discharge date.
  2. The nursing home stay must be for something diagnosed during the hospital stay or for the main cause of hospital stay.
  3. If the patient is not receiving rehabilitation but has some other ailment that requires skilled nursing supervision then the nursing home stay would be covered.
  4. The care being rendered by the nursing home must be skilled. Medicare part A does not pay for custodial, non-skilled, or long-term care
    Long-term care
    Long-term care is a variety of services which help meet both the medical and non-medical need of people with a chronic illness or disability who cannot care for themselves for long periods of time....

     activities, including activities of daily living
    Activities of daily living
    Activities of Daily Living is a term used in healthcare to refer to daily self-care activities within an individual's place of residence, in outdoor environments, or both...

     (ADL) such as personal hygiene, cooking, cleaning, etc.


The maximum length of stay that Medicare Part A will cover in a skilled nursing facility per ailment is 100 days. The first 20 days would be paid for in full by Medicare with the remaining 80 days requiring a co-payment (as of 2011, $141.50 per day). Many insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...

 companies have a provision for skilled nursing care in the policies they sell.

If a beneficiary uses some portion of their Part A benefit and then goes at least 60 days without receiving facility-based skilled services, the 100-day clock is reset and the person qualifies for a new 100-day benefit period.

Part B: Medical Insurance

Part B medical insurance helps pay for some services and products not covered by Part A, generally on an outpatient basis. Part B is optional and may be deferred if the beneficiary or his/her spouse is still working. There is a lifetime penalty (10% per year) imposed for not enrolling in Part B unless actively working. Part B coverage begins once a patient meets his or her deductible, then typically Medicare covers 80% of approved services, while the remaining 20% is paid by the patient.

Part B coverage includes physician and nursing services, x-rays
Medical radiography
Radiography is the use of ionizing electromagnetic radiation such as X-rays to view objects. Although not technically radiographic techniques, imaging modalities such as PET and MRI are sometimes grouped in radiography because the radiology department of hospitals handle all forms of imaging...

, laboratory and diagnostic tests, influenza and pneumonia vaccinations, blood transfusion
Blood transfusion
Blood transfusion is the process of receiving blood products into one's circulation intravenously. Transfusions are used in a variety of medical conditions to replace lost components of the blood...

s, renal dialysis
Dialysis
In medicine, dialysis is a process for removing waste and excess water from the blood, and is primarily used to provide an artificial replacement for lost kidney function in people with renal failure...

, outpatient hospital procedures
Outpatient surgery
Outpatient surgery, also known as ambulatory surgery, same-day surgery or day surgery, is surgery that does not require an overnight hospital stay. The term “outpatient” arises from the fact that surgery patients may go home and do not need an overnight hospital bed...

, limited ambulance transportation, immunosuppressive drug
Immunosuppressive drug
Immunosuppressive drugs or immunosuppressive agents are drugs that inhibit or prevent activity of the immune system. They are used in immunosuppressive therapy to:...

s for organ transplant
Organ transplant
Organ transplantation is the moving of an organ from one body to another or from a donor site on the patient's own body, for the purpose of replacing the recipient's damaged or absent organ. The emerging field of regenerative medicine is allowing scientists and engineers to create organs to be...

 recipients, chemotherapy
Chemotherapy
Chemotherapy is the treatment of cancer with an antineoplastic drug or with a combination of such drugs into a standardized treatment regimen....

, hormonal treatments such as Lupron, and other outpatient medical treatments administered in a doctor's office. Medication administration is covered under Part B if it is administered by the physician during an office visit.

Part B also helps with durable medical equipment
Durable medical equipment
Durable medical equipment is a term of art used to describe any medical equipment used in the home to aid in a better quality of living. It is a benefit included in most insurances. In some cases certain Medicare benefits, that is, whether Medicare may pay for the item...

 (DME), including canes, walkers, wheelchair
Wheelchair
A wheelchair is a chair with wheels, designed to be a replacement for walking. The device comes in variations where it is propelled by motors or by the seated occupant turning the rear wheels by hand. Often there are handles behind the seat for someone else to do the pushing...

s, and mobility scooter
Mobility scooter
A mobility scooter is a mobility aid equivalent to a wheelchair but configured like a motorscooter. It is often referred to as a power-operated vehicle/scooter or electric scooter as well.-Description:...

s for those with mobility impairments. Prosthetic devices
Prosthesis
In medicine, a prosthesis, prosthetic, or prosthetic limb is an artificial device extension that replaces a missing body part. It is part of the field of biomechatronics, the science of using mechanical devices with human muscle, skeleton, and nervous systems to assist or enhance motor control...

 such as artificial limbs and breast prosthesis
Breast prosthesis
Breast prostheses are breast forms intended to simulate breasts. There are a number of materials and designs although the most common construction is silicone gel in a plastic skin...

 following mastectomy
Mastectomy
Mastectomy is the medical term for the surgical removal of one or both breasts, partially or completely. Mastectomy is usually done to treat breast cancer; in some cases, women and some men believed to be at high risk of breast cancer have the operation prophylactically, that is, to prevent cancer...

, as well as one pair of eyeglasses following cataract surgery
Cataract surgery
Cataract surgery is the removal of the natural lens of the eye that has developed an opacification, which is referred to as a cataract. Metabolic changes of the crystalline lens fibers over time lead to the development of the cataract and loss of transparency, causing impairment or loss of vision...

, and oxygen
Oxygen therapy
Oxygen therapy is the administration of oxygen as a medical intervention, which can be for a variety of purposes in both chronic and acute patient care...

 for home use is also covered.

Complex rules are used to manage the benefit, and advisories are periodically issued which describe coverage criteria. On the national level these advisories are issued by CMS, and are known as National Coverage Determinations (NCD). Local Coverage Determinations (LCD) apply within the multi-state area managed by a specific regional Medicare Part B contractor, and Local Medical Review Policies (LMRP) were superseded by LCDs in 2003. Coverage information is also located in the CMS Internet-Only Manuals (IOM), the Code of Federal Regulations
Code of Federal Regulations
The Code of Federal Regulations is the codification of the general and permanent rules and regulations published in the Federal Register by the executive departments and agencies of the Federal Government of the United States.The CFR is published by the Office of the Federal Register, an agency...

 (CFR), the Social Security Act, and the Federal Register
Federal Register
The Federal Register , abbreviated FR, or sometimes Fed. Reg.) is the official journal of the federal government of the United States that contains most routine publications and public notices of government agencies...

.

Part C: Medicare Advantage plans

With the passage of the Balanced Budget Act of 1997
Balanced Budget Act of 1997
The Balanced Budget Act of 1997, , was signed into law on August 5, 1997. It was an omnibus legislative package enacted using the budget reconciliation process and designed to balance the federal budget by 2002....

, Medicare beneficiaries were given the option to receive their Medicare benefits through private health insurance
Health insurance
Health insurance is insurance against the risk of incurring medical expenses among individuals. By estimating the overall risk of health care expenses among a targeted group, an insurer can develop a routine finance structure, such as a monthly premium or payroll tax, to ensure that money is...

 plans, instead of through the original Medicare plan (Parts A and B). These programs were known as "Medicare+Choice
Medicare+Choice
With the passage of the Balanced Budget Act of 1997, Medicare beneficiaries were given the option to receive their Medicare benefits through private health insurance plans, instead of through the original Medicare plan...

" or "Part C" plans. Pursuant to the Medicare Prescription Drug, Improvement, and Modernization Act
Medicare Prescription Drug, Improvement, and Modernization Act
The Medicare Prescription Drug, Improvement, and Modernization Act is a federal law of the United States, enacted in 2003. It produced the largest overhaul of Medicare in the public health program's 38-year history.The MMA was signed by President George W...

 of 2003, "Medicare+Choice" plans were made more attractive to Medicare beneficiaries by the addition of prescription drug coverage and became known as "Medicare Advantage" (MA) plans.

Traditional or "fee-for-service" Medicare has a standard benefit package that covers medically necessary care members can receive from nearly any hospital or doctor in the country. For people who choose to enroll in a Medicare Advantage health plan, Medicare pays the private health plan a fixed amount every month. Members typically also pay a monthly premium in addition to the Medicare Part B premium to cover items not covered by traditional Medicare (Parts A & B), such as prescription drugs, dental care, vision care and gym or health club memberships. In exchange for these extra benefits, enrollees may be limited in the providers they can receive services from without paying extra. Typically, the plans have a "network" of providers that patients can use. Going outside that network may require permission or extra fees.

Medicare Advantage plans are required to offer coverage that meets or exceeds the standards set by the original Medicare program, but they do not have to cover every benefit in the same way. If a plan chooses to pay less than Medicare for some benefits, like skilled nursing facility care, the savings may be passed along to consumers by offering lower co-payments for doctor visits. Medicare Advantage plans use a portion of the payments they receive from the government for each enrollee to offer supplemental benefits. Some plans limit their members’ annual out-of-pocket spending on medical care, providing insurance against catastrophic costs over $5,000, for example. Many plans offer dental coverage, vision coverage and other services not covered by Medicare Parts A or B, which makes them a good value for the health care dollar, if you want to use the provider included in the plan's network or "panel" of providers.

Because the 2003 payment formulas overpay plans by 12 percent or more compared to traditional Medicare, in 2006 enrollees in Medicare Advantage Private Fee-for-Service plans were offered a net extra benefit value (the value of the additional benefits minus any additional premium) of $55.92 a month more than the traditional Medicare benefit package; enrollees in other Medicare Advantage plans were offered a net extra benefit value of $71.22 a month more. However, Medicare Advantage members receive additional coverage and medical benefits not enjoyed by traditional Medicare members, and savings generated by Medicare Advantage plans may be passed on to beneficiaries to lower their overall health care costs. Other important distinctions between Medicare Advantage and traditional Medicare are that Medicare Advantage health plans encourage preventive care and wellness and closely coordinate patient care.

Medicare Advantage Plans that also include Part D prescription drug benefits are known as a Medicare Advantage Prescription Drug plan or a MA-PD.

Enrollment in Medicare Advantage plans grew from 5.4 million in 2005 to 8.2 million in 2007. Enrollment grew by an additional 800,000 during the first four months of 2008. This represents 19% of Medicare beneficiaries. A third of beneficiaries with Part D coverage are enrolled in a Medicare Advantage plan. Medicare Advantage enrollment is higher in urban areas; the enrollment rate in urban counties is twice that in rural counties (22% vs. 10%). Almost all Medicare beneficiaries have access to at least two Medicare Advantage plans; most have access to three or more. Because of the 2003 law's overpayments, the number of organizations offering Fee-for-Service plans has increased dramatically, from 11 in 2006 to almost 50 in 2008. Eight out of ten beneficiaries (82%) now have access to six or more Private Fee-for-Service plans.

Each year many individuals disenroll from MA plans. A recent study noted that about 20 percent of enrollees report that "their most important reason for leaving was due to problems getting care." There is some evidence that disabled beneficiaries "are more likely to experience multiple problems in managed care." Some studies have reported that the older, poorer, and sicker persons have been less satisfied with the care they have received in MA plans. On the other hand, an analysis of the Agency for Healthcare Research and Quality
Agency for Healthcare Research and Quality
The Agency for Healthcare Research and Quality is a part of the United States Department of Health and Human Services, which supports research designed to improve the outcomes and quality of health care, reduce its costs, address patient safety and medical errors, and broaden access to effective...

 data published by America’s Health Insurance Plans found that Medicare Advantage enrollees spent fewer days in the hospital than Fee-for-Service enrollees, were less likely to have "potentially avoidable" admissions, and had fewer re-admissions. These comparisons adjusted for age, sex and health status using the risk score used in the Medicare Advantage risk adjustment mechanism.

In December 2009 the Kaiser Family Foundation
Kaiser Family Foundation
The Henry J. Kaiser Family Foundation , or just Kaiser Family Foundation, is a U.S.-based non-profit, private operating foundation headquartered in Menlo Park, California. It focuses on the major health care issues facing the nation, as well as the U.S. role in global health policy...

 published a report that rated Medicare Advantage organizations on a five star scale. The ratings were based on data from CMS, the Consumer Assessment of Healthcare Providers and Systems (CAHPS), Healthcare Effectiveness Data and Information Set (HEDIS) data, and the Health Outcomes Survey (HOS). New plans did not receive ratings, because data was not available. Almost six out of ten (59%) of MA plans did receive ratings, and these plans represented 85% of the enrollment for 2009. The average rating was 3.29 stars. Twenty-three percent of enrollees were in a plan with four or more stars; 20% were in a plan with fewer than three stars.

Twenty percent of Black-American and 32 percent of Hispanic-American Medicare Beneficiaries were enrolled in Medicare Advantage plans in 2006. Almost half (48%) of Medicare Advantage enrollees had incomes below $20,000, including 71% of minority enrollees. Others have reported that minority enrollment is not particularly above average. Another study has raised questions about the quality of care received by minorities in MA plans.

The Government Accountability Office reported that in 2006, the plans earned profits of 6.6 percent, had overhead (sales, etc.) of 10.1 percent, and provided 83.3 percent of the revenue dollar in medical benefits. These administrative costs are far higher than traditional fee-for-service Medicare.

Part D: Prescription Drug plans

Medicare Part D
Medicare Part D
Medicare Part D is a federal program to subsidize the costs of prescription drugs for Medicare beneficiaries in the United States. It was enacted as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 and went into effect on January 1, 2006.- Eligibility and...

 went into effect on January 1, 2006. Anyone with Part A or B is eligible for Part D. It was made possible by the passage of the Medicare Prescription Drug, Improvement, and Modernization Act
Medicare Prescription Drug, Improvement, and Modernization Act
The Medicare Prescription Drug, Improvement, and Modernization Act is a federal law of the United States, enacted in 2003. It produced the largest overhaul of Medicare in the public health program's 38-year history.The MMA was signed by President George W...

. In order to receive this benefit, a person with Medicare must enroll in a stand-alone Prescription Drug Plan (PDP) or Medicare Advantage plan with prescription drug coverage (MA-PD). These plans are approved and regulated by the Medicare program, but are actually designed and administered by private health insurance companies. Unlike Original Medicare (Part A and B), Part D coverage is not standardized. Plans choose which drugs (or even classes of drugs) they wish to cover, at what level (or tier) they wish to cover it, and are free to choose not to cover some drugs at all. The exception to this is drugs that Medicare specifically excludes from coverage, including but not limited to benzodiazepine
Benzodiazepine
A benzodiazepine is a psychoactive drug whose core chemical structure is the fusion of a benzene ring and a diazepine ring...

s, cough suppressant and barbiturate
Barbiturate
Barbiturates are drugs that act as central nervous system depressants, and can therefore produce a wide spectrum of effects, from mild sedation to total anesthesia. They are also effective as anxiolytics, as hypnotics, and as anticonvulsants...

s. Plans that cover excluded drugs are not allowed to pass those costs on to Medicare, and plans are required to repay CMS if they are found to have billed Medicare in these cases.

It should be noted again for beneficiaries who are dual-eligible (Medicare and Medicaid eligible) Medicaid may pay for drugs not covered by part D of Medicare, such as benzodiazepine
Benzodiazepine
A benzodiazepine is a psychoactive drug whose core chemical structure is the fusion of a benzene ring and a diazepine ring...

s, and other restricted controlled substances.

Out-of-pocket costs

Neither Part A nor Part B pays for all of a covered person's medical costs. The program contains premiums, deductible
Deductible
In an insurance policy, the deductible is the amount of expenses that must be paid out of pocket before an insurer will pay any expenses. It is normally quoted as a fixed quantity and is a part of most policies covering losses to the policy holder. The deductible must be paid by the insured,...

s and coinsurance, which the covered individual must pay out-of-pocket
Out-of-pocket expenses
Out-of-pocket expenses are direct outlays of cash which may or may not be later reimbursed.In operating a vehicle, gasoline, parking fees and tolls are considered out-of-pocket expenses for the trip...

. A study published by the Kaiser Family Foundation
Kaiser Family Foundation
The Henry J. Kaiser Family Foundation , or just Kaiser Family Foundation, is a U.S.-based non-profit, private operating foundation headquartered in Menlo Park, California. It focuses on the major health care issues facing the nation, as well as the U.S. role in global health policy...

 in 2008 found the Fee-for-Service Medicare benefit package was less generous than either the typical large employer PPO plan or the Federal Employees Health Benefits Program Standard Option. Some people may qualify to have other governmental programs (such as Medicaid) pay premiums and some or all of the costs associated with Medicare.

Premiums

Most Medicare enrollees do not pay a monthly Part A premium, because they (or a spouse) have had 40 or more 3-month quarters in which they paid Federal Insurance Contributions Act taxes. Medicare-eligible persons who do not have 40 or more quarters of Medicare-covered employment may purchase Part A for a monthly premium of:
  • $248.00 per month (in 2011) for those with 30-39 quarters of Medicare-covered employment, or
  • $450.00 per month (in 2011) for those with fewer than 30 quarters of Medicare-covered employment and who are not otherwise eligible for premium-free Part A coverage.


All Medicare Part B enrollees pay an insurance premium for this coverage; the standard Part B premium for 2009 is $96.40 per month. A new income-based premium schema has been in effect since 2007, wherein Part B premiums are higher for beneficiaries with incomes exceeding $85,000 for individuals or $170,000 for married couples. Depending on the extent to which beneficiary earnings exceed the base income, these higher Part B premiums are $134.90, $192.70, $250.50, or $308.30 for 2009, with the highest premium paid by individuals earning more than $213,000, or married couples earning more than $426,000. In September 2008, CMS
Centers for Medicare and Medicaid Services
The Centers for Medicare & Medicaid Services , previously known as the Health Care Financing Administration , is a federal agency within the United States Department of Health and Human Services that administers the Medicare program and works in partnership with state governments to administer...

 announced that Part B premiums would be unchanged ($96.40 per month) in 2009 for 95 percent of Medicare beneficiaries. This was the sixth year without a premium increase since Medicare was established in 1965.

Medicare Part B premiums are commonly deducted automatically from beneficiaries' monthly Social Security checks.

Part C and D plans may or may not charge premiums, at the programs' discretion. Part C plans may also choose to rebate a portion of the Part B premium to the member.

Deductible and coinsurance

Part A — For each benefit period
Benefit period
A benefit period is a length of time during which a benefit is paid. This may be a government benefit such as the British Housing Benefit, or a healthcare benefit system such as the American Medicare, or payment from an insurance policy such as a Payment protection insurance which covers mortgage...

, a beneficiary will pay:
  • A Part A deductible of $1,132 (in 2011) for a hospital stay of 1–60 days.
  • A $283 per day co-pay (in 2011) for days 61-90 of a hospital stay.
  • A $566 per day co-pay (in 2011) for days 91-150 of a hospital stay, as part of their limited Lifetime Reserve Days
    Lifetime Reserve Days
    Lifetime Reserve Days are additional days that the United States health care system Medicare will pay for when a beneficiary is in a hospital for more than 90 days. Beneficiaries are limited to a total of 60 reserve days for their lifetime....

    .
  • All costs for each day beyond 150 days
  • Coinsurance for a Skilled Nursing Facility is $137.50 per day (in 2010) for days 21 through 100 for each benefit period.
  • A blood deductible of the first 3 pints of blood needed in a calendar year, unless replaced. There is a 3 pint blood deductible for both Part A and Part B, and these separate deductibles do not overlap.


Part B — After a beneficiary meets the yearly deductible of $162.00 (in 2011), they will be required to pay a co-insurance of 20% of the Medicare-approved amount for all services covered by Part B with the exception of most lab services which are covered at 100%, and outpatient mental health which is currently (2010–2011) covered at 55% (45% copay). The copay for outpatient mental health which started at 50% is gradually being stepped down over several years until it matches the 20% required for other services. They are also required to pay an excess charge of 15% for services rendered by non-participating Medicare providers.

The deductibles and coinsurance charges for Part C and D plans vary from plan to plan.

Medicare supplement (Medigap) policies

Some people elect to purchase a type of supplemental coverage, called a Medigap plan, to help fill in the holes in Original Medicare (Part A and B). These Medigap insurance policies are standardized by CMS, but are sold and administered by private companies. Some Medigap policies sold before 2006 may include coverage for prescription drugs. Medigap policies sold after the introduction of Medicare Part D on January 1, 2006 are prohibited from covering drugs. Medicare regulations prohibit a Medicare beneficiary from having both a Medicare Advantage Plan and a Medigap Policy. Medigap Policies may be purchased by beneficiaries who are receiving benefits from Original Medicare (Part A & Part B).

Some have suggested that by reducing the cost-sharing requirements in the Medicare program, Medigap policies increase the use of health care by Medicare beneficiaries and thus increase Medicare spending. One recent study suggests that this concern may have been overstated due to methodological problems in prior research.

Payment for services

Medicare contracts with regional insurance companies who process over one billion fee-for-service claims per year. In 2008, Medicare accounted for 13% ($386 billion) of the federal budget
United States federal budget
The Budget of the United States Government is the President's proposal to the U.S. Congress which recommends funding levels for the next fiscal year, beginning October 1. Congressional decisions are governed by rules and legislation regarding the federal budget process...

. In 2010 it is projected to account for 12.5% ($452 billion) of the total expenditures. For the decade 2010-2019 medicare is projected to cost 6.4 trillion dollars or 14.8% of the federal budget for the period.

Reimbursement for Part A services

For institutional care, such as hospital and nursing home care, Medicare uses prospective payment system
Prospective payment system
A prospective payment system is a means of determining insurance payments based on predetermined prices, commonly from Medicare. Payments are typically based on codes provided on the insurance claim.Examples of these codes include:...

s. A prospective payment system is one in which the health care institution receives a set amount of money for each episode of care provided to a patient, regardless of the actual amount of care used. The actual allotment of funds is based on a list of diagnosis-related group
Diagnosis-related group
Diagnosis-related group is a system to classify hospital cases into one of originally 467 groups. The 467th was "Ungroupable." The system of classification was developed as a collaborative project by Robert B Fetter, PhD of the Yale School of Management, and John D Thompson, MPH of the Yale...

s (DRG). The actual amount depends on the primary diagnosis that is actually made at the hospital. There are some issues surrounding Medicare's use of DRGs because if the patient uses less care, the hospital gets to keep the remainder. This, in theory, should balance the costs for the hospital. However, if the patient uses more care, then the hospital has to cover its own losses. This results in the issue of "upcoding," when a physician makes a more severe diagnosis to hedge against accidental costs.

Reimbursement for Part B services

Payment for physician services under Medicare has evolved since the program was created in 1965. Initially, Medicare compensated physicians based on the physician's charges, and allowed physicians to bill Medicare beneficiaries the amount in excess of Medicare's reimbursement. In 1975, annual increases in physician fees were limited by the Medicare Economic Index (MEI). The MEI was designed to measure changes in costs of physician's time and operating expenses, adjusted for changes in physician productivity. From 1984 to 1991, the yearly change in fees was determined by legislation. This was done because physician fees were rising faster than projected.

The Omnibus Budget Reconciliation Act of 1989 made several changes to physician payments under Medicare. Firstly, it introduced the Medicare Fee Schedule, which took effect in 1992. Secondly, it limited the amount Medicare non-providers could balance bill Medicare beneficiaries. Thirdly, it introduced the Medicare Volume Performance Standards (MVPS) as a way to control costs.

On January 1, 1992, Medicare introduced the Medicare Fee Schedule (MFS), a list of about 7,000 services that can be billed for. Each service is priced within the Resource-Based Relative Value Scale
Resource-Based Relative Value Scale
Resource-based relative value scale is a schema used to determine how much money medical providers should be paid. It is partially used by Medicare in the United States and by nearly all Health maintenance organizations ....

 (RBRVS) with three Relative Value Units
Relative Value Units
Relative value units are a measure of value used in the Medicare reimbursement formula for physician services. RVUs are a part of the resource-based relative value scale .-Background:...

 (RVUs) values largely determining the price. The three RVUs for a procedure are each geographically weighted and the weighted RVU value is multiplied by a global Conversion Factor (CF), yielding a price in dollars. The RVUs themselves are largely decided by a private group of 29 (mostly specialist) physicians—the American Medical Association
American Medical Association
The American Medical Association , founded in 1847 and incorporated in 1897, is the largest association of medical doctors and medical students in the United States.-Scope and operations:...

's Specialty Society Relative Value Scale Update Committee
Specialty Society Relative Value Scale Update Committee
The Specialty Society Relative Value Scale Update Committee or Relative Value Update Committee, is a private group of 29 mostly specialist physicians who have made highly influential recommendations on how to value a physician's work when computing health care prices in the United States' public...

 (RUC).

From 1992 to 1997, adjustments to physician payments were adjusted using the MEI and the MVPS, which essentially tried to compensate for the increasing volume of services provided by physicians by decreasing their reimbursement per service.

In 1998, Congress replaced the VPS with the Sustainable Growth Rate
Medicare Sustainable Growth Rate
The Medicare Sustainable Growth Rate is a method currently used by the Centers for Medicare and Medicaid Services in the United States to control spending by Medicare on physician services...

 (SGR). This was done because of highly variable payment rates under the MVPS. The SGR attempts to control spending by setting yearly and cumulative spending targets. If actual spending for a given year exceeds the spending target for that year, reimbursement rates are adjusted downward by decreasing the Conversion Factor (CF) for RBRVS RVUs.

Since 2002, actual Medicare Part B expenditures have exceeded projections.

In 2002, payment rates were cut by 4.8%. In 2003, payment rates were scheduled to be reduced by 4.4%. However, Congress boosted the cumulative SGR target in the Consolidated Appropriation Resolution of 2003 (P.L. 108-7), allowing payments for physician services to rise 1.6%. In 2004 and 2005, payment rates were again scheduled to be reduced. The Medicare Modernization Act (P.L. 108-173) increased payments 1.5% for those two years.

In 2006, the SGR mechanism was scheduled to decrease physician payments by 4.4%. (This number results from a 7% decrease in physician payments times a 2.8% inflation adjustment increase.) Congress overrode this decrease in the Deficit Reduction Act (P.L. 109-362), and held physician payments in 2006 at their 2005 levels. Similarly, another congressional act held 2007 payments at their 2006 levels, and HR 6331 held 2008 physician payments to their 2007 levels, and provided for a 1.1% increase in physician payments in 2009. Without further continuing congressional intervention, the SGR is expected to decrease physician payments from 25% to 35% over the next several years.

MFS has been criticized for not paying doctors enough because of the low conversion factor. By adjustments to the MFS conversion factor, it is possible to make global adjustments in payments to all doctors.

Office medication reimbursement

Chemotherapy
Chemotherapy
Chemotherapy is the treatment of cancer with an antineoplastic drug or with a combination of such drugs into a standardized treatment regimen....

 and other medications dispensed in a physician's office are reimbursed according to the Average Sales Price, a number computed by taking the total dollar sales of a drug as the numerator and the number of units sold nationwide as the denominator. The current reimbursement formula is known as "ASP+6" since it reimburses physicians at 106% of the ASP of drugs. Pharmaceutical company discounts and rebates are included in the calculation of ASP, and tend to reduce it. In addition, Medicare pays 80% of ASP+6 which is the equivalent of 84.8% of the actual average cost of the drug. Some patients have supplemental insurance or can afford the co-pay. Large numbers do not. This leaves the payment to physicians for most of the drugs in an "underwater" state. ASP+6 superseded Average Wholesale Price in 2005, after a 2003 front-page New York Times article drew attention to the inaccuracies of Average Wholesale Price calculations.

Medicare 10% incentive payments

"Physicians in geographic Health Professional Shortage Areas (HPSAs) and Physician Scarcity Areas (PSAs) can receive incentive payments from Medicare. Payments are made on a quarterly basis, rather than claim-by-claim, and are handled by each area's Medicare carrier."

Costs and funding challenges

The 2011 Medicare Trustees report, which takes into account in its projections the anticipated effects of the 2010 Affordable Care Act, makes the following points: 1) “In 2010, 47.5 million people were covered by Medicare: 39.6 million aged 65 and older, and 7.9 million disabled … Total benefits paid in 2010 were $516 billion. Income was $486 billion, expenditures were $523 billion, and assets held in special issue U.S. Treasury securities were $344 billion"; 2) "The number of Medicare beneficiaries is currently increasing by about 3 percent per year, and this growth rate will continue as more of the post-World War II baby boom generation reaches eligibility age. As a result of the recent recession, the number of individuals with private health insurance is projected to decline through 2011 and increase only slowly in 2012-2013"; 3) “The financial status of the HI trust fund was substantially improved by the lower expenditures and additional tax revenues instituted by the Affordable Care Act. However, the HI trust fund is now estimated to be exhausted in 2024, 5 years earlier than was shown in last year’s report, and the fund is not adequately financed over the next 10 years"; 4) “As a percentage of GDP, expenditures are estimated to increase from 3.6 percent in 2010 to 6.2 percent by 2085 … If Congress continues to override the statutory decreases in physician fees, and if the reduced price increases for other health services under Medicare become unworkable and do not take effect in the long range, then Medicare spending would instead represent roughly 10.7 percent of GDP in 2085"; and 5) “Medicare expenditures represented 0.7 percent of GDP in 1970 and had grown to 2.7 percent of GDP by 2005, reflecting rapid increases in the factors affecting health care cost growth. Starting in 2006, Medicare provided subsidized access to prescription drug coverage through Part D, which caused most of the increase in Medicare expenditures to 3.1 percent of GDP in the first year.”

The costs of Medicare doubled every four years between 1966 and 1980. Medicare spending increases mostly in response to increases in overall health care costs, and it grew at a slower rate than spending by private insurance plans from 1998-2008. According to the 2004 "Green Book" of the House Ways and Means Committee, Medicare expenditures from the American government were $256.8 billion in fiscal year 2002. Beneficiary premiums are highly subsidized, and net outlays for the program, accounting for the premiums paid by subscribers, were $230.9 billion.

Medicare spending is growing steadily in both absolute terms and as a percentage of the federal budget
United States federal budget
The Budget of the United States Government is the President's proposal to the U.S. Congress which recommends funding levels for the next fiscal year, beginning October 1. Congressional decisions are governed by rules and legislation regarding the federal budget process...

. Total Medicare spending reached $440 billion for fiscal year 2007 or 16% of all federal spending and grew to $599 billion in 2008 which was 20% of federal spending. There are two larger categories of federal spending: Social Security and defense
United States Department of Defense
The United States Department of Defense is the U.S...

. Given the current pattern of spending growth, maintaining Medicare's financing over the long-term may well require significant changes.

According to the 2008 report by the board of trustees for Medicare and Social Security, Medicare will spend more than it brings in from taxes this year (2008). It is claimed that the Medicare hospital insurance trust fund will become insolvent by 2019. However, such claims have been issued continuously since the program's inception. The trustees' reports mentioned above (and issued annually) have projected erroneous insolvency dates more than two dozen times since 1970. Shortly after the release of the report, the Chief Actuary testified that the insolvency of the system could be pushed back by 18 months if Medicare Advantage plans that provide more health care services than traditional Medicare and pass savings onto beneficiaries were paid at the same rate as the traditional fee-for-service program. He also testified that the 10-year cost of Medicare drug benefit is 37% lower than originally projected in 2003, and 17% percent lower than last year's projections. The New York Times
The New York Times
The New York Times is an American daily newspaper founded and continuously published in New York City since 1851. The New York Times has won 106 Pulitzer Prizes, the most of any news organization...

wrote in January 2009 that Social Security
Social Security (United States)
In the United States, Social Security refers to the federal Old-Age, Survivors, and Disability Insurance program.The original Social Security Act and the current version of the Act, as amended encompass several social welfare and social insurance programs...

 and Medicare "have proved almost sacrosanct in political terms, even as they threaten to grow so large as to be unsustainable in the long run."

Spending on Medicare and Medicaid is projected to grow dramatically in coming decades. While the same demographic trends that affect Social Security also affect Medicare, rapidly rising medical prices appear a more important cause of projected spending increases. The Congressional Budget Office
Congressional Budget Office
The Congressional Budget Office is a federal agency within the legislative branch of the United States government that provides economic data to Congress....

 (CBO) has indicated that: "Future growth in spending per beneficiary for Medicare and Medicaid—the federal government’s major health care programs—will be the most important determinant of long-term trends in federal spending. Changing those programs in ways that reduce the growth of costs—which will be difficult, in part because of the complexity of health policy choices—is ultimately the nation’s central long-term challenge in setting federal fiscal policy." Further, the CBO also projects that "total federal Medicare and Medicaid outlays will rise from 4 percent of GDP in 2007 to 12 percent in 2050 and 19 percent in 2082—which, as a share of the economy, is roughly equivalent to the total amount that the federal government spends today. The bulk of that projected increase in health care spending reflects higher costs per beneficiary rather than an increase in the number of beneficiaries associated with an aging population."

Unfunded obligations

The present value of unfunded obligations under Part A of Medicare during FY 2009 over an infinite horizon is approximately $36.4 trillion. Under Part B, it is expected that general government revenues will account for a present value of $37.0 trillion of an estimated $50.0 trillion in expenditures; under Part D, a present value of $15.5 trillion will be contributed from general revenues to help defray $20.3 trillion in expenditures. In other words, $36.4 trillion would have to be set aside today such that the principal and interest would cover the Part A shortfall assuming the program continues indefinitely, while $88.9 trillion would need to be set aside to cover both the actuarial shortfall and the expectations of general revenue contributions.

Aging of the population

The ratio of workers paying Medicare taxes to retired people drawing benefits is shrinking, and at the same time, the price of health care services per person is increasing. Currently there are 3.9 workers paying taxes into Medicare for every older American receiving services. By 2030, as the baby boom generation retires, that is projected to drop to 2.4 workers for each beneficiary. Medicare spending is expected to grow by about 7 percent per year for the next 10 years. As a result, the financing of the program is out of actuarial balance, presenting serious challenges in both the short-term and long-term.

Fraud and waste

The Government Accountability Office
Government Accountability Office
The Government Accountability Office is the audit, evaluation, and investigative arm of the United States Congress. It is located in the legislative branch of the United States government.-History:...

 lists Medicare as a "high-risk" government program in need of reform, in part because of its vulnerability to fraud and partly because of its long-term financial problems. Fewer than 5% of Medicare claims are audited.

Estimated net Medicare benefits for different worker categories

In 2004, Urban Institute
Urban Institute
The Urban Institute is a Washington, D.C.-based think tank that carries out nonpartisan economic and social policy research, collects data, evaluates social programs, educates the public on key domestic issues, and provides advice and technical assistance to developing governments abroad...

 economists C. Eugene Steuerle and Adam Carasso created a Web-based Medicare benefits calculator. Using this calculator it is possible to estimate net Medicare benefits (i.e., estimated lifetime Medicare benefits received minus estimated lifetime Medicare taxes paid, expressed in today's dollars) for different types of recipients. In the book, Democrats and Republicans - Rhetoric and Reality, Joseph Fried used the calculator to create graphical depictions of the estimated net benefits of men and women who were at different wage levels, single and married (with stay-at-home spouses), and retiring in different years. Three of these graphs are shown below, and they clearly show why Medicare (as currently formulated) is on the path to fiscal insolvency: No matter what the wage level, marital status, or retirement date, a man or woman can expect to receive benefits that will cost the system far more than the taxes he or she paid into the system.

In the first graph (Figure 169) we see that estimated net benefits range from $108,000 to $240,000 for single men and from $142,000 to $277,000 for single women. Generally, the benefits are progressive. Note that women usually get higher benefits due to their greater longevity.
In the next graph (Figure 170) we see a comparison of net Medicare benefits for a single woman versus a married woman (or man) with a stay-at-home spouse. The single woman can expect substantial net benefits, ranging from $142,000 to $277,000, However, these benefits are dwarfed by the estimated net benefits of her married counterpart. Due to a "spousal benefit" built into the Medicare formula, the married person will get net benefits ranging from $393,000 to $525,000. The impact of the spousal benefit can disrupt the intended progressiveness of Medicare benefits. For example, we see in Figure 170 that the married worker earning $95,000 is estimated to get net benefits of $393,000, while the single worker earning $5,000 is estimated to get $277,000. In either case, the benefits paid to the worker greatly exceed the taxes paid by the worker (and pose a financial burden on the system); however, the high-earning married worker gets a better "return," so to speak, on each tax dollar paid into the system.

The last graph shown (Figure 171) compares the net benefits of a single man retiring in 2005 with the net benefits of a man retiring in 2045. It is clear that the future retiree is likely to get a far greater net benefit than the current retiree (and is likely to be a greater burden to the system). Interestingly, in the Social Security system we see the opposite pattern. In that case, the future retiree can expect a much smaller net retirement benefit than the current retiree can expect.

About 27.4 percent of Medicare expenditures for the elderly are spent in the last year of a person's life.

Unearned entitlement or Contribution based insurance paid over a lifetime?

Yaron Brook
Yaron Brook
Yaron Brook is an intellectual and political activist, and is the current president and executive director of the Ayn Rand Institute, a non-profit organization in Irvine, California, whose mission is to promote the novels of Ayn Rand and her philosophy of Objectivism.-Early life in Israel:Brook...

 of the Ayn Rand Institute
Ayn Rand Institute
The Ayn Rand Institute: The Center for the Advancement of Objectivism is a 501 nonprofit think tank in Irvine, California that promotes Ayn Rand's philosophy, called Objectivism. It was established in 1985, three years after Rand's death, by Leonard Peikoff, Rand's legal heir...

 has argued that the birth of Medicare represented a shift away from personal responsibility and towards a view that health care is an unearned "entitlement" to be provided at others' expense. However, others argue that Medicare "entitlements" are not unearned.

Robert M. Ball, a former commissioner of Social Security under President Kennedy in 1961 (and later under Johnson, and Nixon) defined the major obstacle to financing health insurance for the elderly: the high cost of care for the aged combined with the generally low incomes of retired people. Because retired older people use much more medical care than younger employed people, an insurance premium related to the risk for older people needed to be high, but if the high premium had to be paid after retirement, when incomes are low, it was an almost impossible burden for the average person. The only feasible approach, he said, was to finance health insurance in the same way as cash benefits for retirement, by contributions paid while at work, when the payments are least burdensome, with the protection furnished in retirement without further payment. In the early 1960s relatively few of the elderly had health insurance, and what they had was usually inadequate. Insurers such as Blue Cross, which had originally applied the principle of community rating
Community rating
Community rating is a concept usually associated with health insurance, which requires health insurance providers to offer health insurance policies within a given territory at the same price to all persons without medical underwriting, regardless of their health status.Pure community rating...

, faced competition from other commercial insurers that did not community rate, and so were forced to raise their rates for the elderly.

Also, Medicare is not generally an unearned entitlement. Entitlement is most commonly based on a record of contributions to the Medicare fund. As such it is a form of social insurance
Social insurance
Social insurance is any government-sponsored program with the following four characteristics:* the benefits, eligibility requirements and other aspects of the program are defined by statute;...

 making it feasible for people to pay for insurance for sickness in old age when they are young and able to work and be assured of getting back benefits when they are older and no longer working. Some people will pay in more than they receive back and others will get back more than they paid in, but this is the practice with any form of insurance, public or private.

Claims of socialism

Some conservatives opposed the enactment of Medicare, warning that a government-run program would lead to socialism
Socialism
Socialism is an economic system characterized by social ownership of the means of production and cooperative management of the economy; or a political philosophy advocating such a system. "Social ownership" may refer to any one of, or a combination of, the following: cooperative enterprises,...

 in America:
  • Ronald Reagan
    Ronald Reagan
    Ronald Wilson Reagan was the 40th President of the United States , the 33rd Governor of California and, prior to that, a radio, film and television actor....

    , as part of Operation Coffee Cup
    Operation Coffee Cup
    Operation Coffee Cup was a campaign conducted by the American Medical Association during the late 1950s and early 1960s in opposition to the Democrats' plans to extend Social Security to include health insurance for the elderly, later known as Medicare...

     in 1961, stated that: “[I]f you don’t [stop Medicare] and I don’t do it, one of these days you and I are going to spend our sunset years telling our children and our children’s children what it once was like in America when men were free.”
  • George H. W. Bush
    George H. W. Bush
    George Herbert Walker Bush is an American politician who served as the 41st President of the United States . He had previously served as the 43rd Vice President of the United States , a congressman, an ambassador, and Director of Central Intelligence.Bush was born in Milton, Massachusetts, to...

    , while a candidate for the US Senate in 1964, described Medicare as “socialized medicine.”
  • Barry Goldwater
    Barry Goldwater
    Barry Morris Goldwater was a five-term United States Senator from Arizona and the Republican Party's nominee for President in the 1964 election. An articulate and charismatic figure during the first half of the 1960s, he was known as "Mr...

     in 1964: “Having given our pensioners their medical care in kind, why not food baskets, why not public housing accommodations, why not vacation resorts, why not a ration of cigarettes for those who smoke and of beer for those who drink.”
  • In 1995 Bob Dole
    Bob Dole
    Robert Joseph "Bob" Dole is an American attorney and politician. Dole represented Kansas in the United States Senate from 1969 to 1996, was Gerald Ford's Vice Presidential running mate in the 1976 presidential election, and was Senate Majority Leader from 1985 to 1987 and in 1995 and 1996...

     stated that he was one of 12 House members who voted against creating Medicare in 1965. “I was there, fighting the fight, voting against Medicare ... because we knew it wouldn’t work in 1965.”

Financial challenges

Medicare faces continuing financial challenges. In its 2008 annual report to Congress, the Medicare Board of Trustees reported that the program's hospital insurance trust fund could run out of money by 2017. The trustees have made dozens of such projections in the past, but this one was bleaker than the outlook reported in 2007.

As an example of the problem, according to the Associated Press
Associated Press
The Associated Press is an American news agency. The AP is a cooperative owned by its contributing newspapers, radio and television stations in the United States, which both contribute stories to the AP and use material written by its staff journalists...

, the average wage couple jointly earned $89,000 annually in 2010. Upon attaining eligibility for Medicare and retirement in 2011, they would have paid in $114,000 in Medicare payroll taxes total. But their expected average medical services, including prescriptions are expected to cost $355,000, about three times what they paid in. When the last of the Baby Boomers retire in about 2030, 80 million people will be expecting coverage; the ratio of tax payers supporting the system is expected to drop from today's 3.5 for each person, to 2.3.

Popular opinion surveys show that the public views Medicare’s problems as serious, but not as urgent as other concerns. In January 2006, the Pew Research Center found 62 percent of the public said addressing Medicare’s financial problems should be a high priority for the government, but that still put it behind other priorities. Surveys suggest that there’s no public consensus behind any specific strategy to keep the program solvent.

Quality of beneficiary services

A 2001 study by the Government Accountability Office
Government Accountability Office
The Government Accountability Office is the audit, evaluation, and investigative arm of the United States Congress. It is located in the legislative branch of the United States government.-History:...

 evaluated the quality of responses given by Medicare contractor customer service representatives to provider (physician) questions. The evaluators assembled a list of questions, which they asked during a random sampling of calls to Medicare contractors. The rate of complete, accurate information provided by Medicare customer service representatives was 15%. Since then, steps have been taken to improve the quality of customer service given by Medicare contractors, specifically the 1-800-MEDICARE contractor. As a result, 1-800-MEDICARE customer service representatives (CSR) have seen an increase in training, quality assurance monitoring has significantly increased, and a customer satisfaction survey is offered to random callers.

Hospital accreditation

An attempt by TÜV Healthcare Specialists
TÜV Healthcare Specialists
DNV Healthcare Inc., DNV Healthcare Inc., DNV Healthcare Inc., (formerly TÜV Healthcare Specialists (TUVHS) is a Norwegian-US health care accrediting organization, which in the USA is an alternative to the Joint Commission...

 to provide a hospital accreditation
Hospital accreditation
Hospital accreditation has been defined as “A self-assessment and external peer assessment process used by health care organizations to accurately assess their level of performance in relation to established standards and to implement ways to continuously improve”...

 option was denied in 2006. Shortly thereafter, DNV International purchased TUV and renamed the company DNV Health Care. CMS deemed DNV Healthcare in 2008 to accredit hospitals. Beyond hospitals and hospital accreditation, there are now a number of alternative American organizations possessing healthcare-related deeming power for Medicare. These include the Community Health Accreditation Program
Community Health Accreditation Program
The Community Health Accreditation Program is an independent, US not-for-profit accrediting body and is an alternative to the Joint Commission...

, the Accreditation Commission for Health Care
Accreditation Commission for Health Care
The Accreditation Commission for Health Care is a US non-profit health care accrediting organization. It represents an alternative to the Joint Commission....

, the Compliance Team
The Compliance Team
The Compliance Team Inc., is a US for-profit organization which runs the "Exemplary Provider" accreditation programs, a US-based alternative to the Joint Commission...

 and the Healthcare Quality Association on Accreditation
Healthcare Quality Association on Accreditation
The Healthcare Quality Association on Accreditation is a US not-for-profit health care accrediting body and is an alternative to the Accreditation Commission for Health Care and Joint Commission...

.

Accreditation is voluntary and an organization may choose to be evaluated by their State Survey Agency or by CMS directly.

Graduate Medical Education

Medicare funds the vast majority of residency
Residency (medicine)
Residency is a stage of graduate medical training. A resident physician or resident is a person who has received a medical degree , Podiatric degree , Dental Degree and who practices...

 training in the US. This tax-based financing covers resident salaries and benefits through payments called Direct Medical Education payments. Medicare also uses taxes for Indirect Medical Education, a subsidy paid to teaching hospital
Teaching hospital
A teaching hospital is a hospital that provides clinical education and training to future and current doctors, nurses, and other health professionals, in addition to delivering medical care to patients...

s in exchange for training resident physicians. For the 2008 fiscal year these payments were $2.7 and $5.7 billion respectively. This in turn has funded the provision of physician level health care that would have otherwise cost the systems orders of magnitude more to finance. Overall funding levels have remained at the same level over the last ten years, so that the same number or fewer residents have been trained under this program. Meanwhile, the US population continues to grow older, which has led to greater demand for physicians. At the same time the cost of medical services continue rising rapidly and many geographic areas face physician shortages, both trends suggesting the supply of physicians remains too low.

Medicare finds itself in the odd position of having assumed control of graduate medical education, currently facing major budget constraints, and as a result, freezing funding for graduate medical education, as well as for physician reimbursement rates. This halt in funding in turn exacerbates the exact problem Medicare sought to solve in the first place: improving the availability of medical care. In response, teaching hospitals have resorted to alternative approaches to funding resident training, leading to the modest 4% total growth in residency slots from 1998–2004, despite Medicare funding having been frozen since 1996.

Legislation and reform

  • 1960 — PL 86-778 Social Security Amendments of 1960 (Kerr-Mills aid)
  • 1965 — PL 89-97 Social Security Act of 1965
    Social Security Act of 1965
    The Social Security Amendments of 1965 was legislation in the United States whose most important provisions resulted in creation of two programs: Medicare and Medicaid. The legislation initially provided federal health insurance for the elderly and for poor families. While President Lyndon B...

    , Establishing Medicare Benefits
  • 1980 — Medicare Secondary Payer Act of 1980, prescription drugs coverage added
  • 1988 — PL 100-360 Medicare Catastrophic Coverage Act of 1988
  • 1989 — Medicare Catastrophic Coverage Repeal Act of 1989
  • 1997 — PL 105-33 Balanced Budget Act of 1997
    Balanced Budget Act of 1997
    The Balanced Budget Act of 1997, , was signed into law on August 5, 1997. It was an omnibus legislative package enacted using the budget reconciliation process and designed to balance the federal budget by 2002....

  • 2003 — PL 108-173 Medicare Prescription Drug, Improvement, and Modernization Act
    Medicare Prescription Drug, Improvement, and Modernization Act
    The Medicare Prescription Drug, Improvement, and Modernization Act is a federal law of the United States, enacted in 2003. It produced the largest overhaul of Medicare in the public health program's 38-year history.The MMA was signed by President George W...

  • 2010 — Patient Protection and Affordable Care Act
    Patient Protection and Affordable Care Act
    The Patient Protection and Affordable Care Act is a United States federal statute signed into law by President Barack Obama on March 23, 2010. The law is the principal health care reform legislation of the 111th United States Congress...

     and Health Care and Education Reconciliation Act of 2010
    Health Care and Education Reconciliation Act of 2010
    The Health Care and Education Reconciliation Act of 2010 is a law that was enacted by the 111th United States Congress, by means of the reconciliation process, in order to amend the Patient Protection and Affordable Care Act...



In 1977, the Health Care Financing Administration (HCFA) was established as a federal agency responsible for the administration of Medicare and Medicaid. This would be renamed to Centers for Medicare and Medicaid Services
Centers for Medicare and Medicaid Services
The Centers for Medicare & Medicaid Services , previously known as the Health Care Financing Administration , is a federal agency within the United States Department of Health and Human Services that administers the Medicare program and works in partnership with state governments to administer...

 (CMS) in 2001.

By 1983, the diagnosis-related group
Diagnosis-related group
Diagnosis-related group is a system to classify hospital cases into one of originally 467 groups. The 467th was "Ungroupable." The system of classification was developed as a collaborative project by Robert B Fetter, PhD of the Yale School of Management, and John D Thompson, MPH of the Yale...

 (DRG) replaced pay for service reimbursements to hospitals for Medicare patients.

President Bill Clinton
Bill Clinton
William Jefferson "Bill" Clinton is an American politician who served as the 42nd President of the United States from 1993 to 2001. Inaugurated at age 46, he was the third-youngest president. He took office at the end of the Cold War, and was the first president of the baby boomer generation...

 attempted an overhaul of Medicare through his health care reform plan in 1993-1994 but was unable to get the legislation passed by Congress.

In 2003 Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....

 passed the Medicare Prescription Drug, Improvement, and Modernization Act
Medicare Prescription Drug, Improvement, and Modernization Act
The Medicare Prescription Drug, Improvement, and Modernization Act is a federal law of the United States, enacted in 2003. It produced the largest overhaul of Medicare in the public health program's 38-year history.The MMA was signed by President George W...

, which President George W. Bush
George W. Bush
George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....

 signed into law on December 8, 2003. Part of this legislation included filling gaps in prescription-drug coverage left by the Medicare Secondary Payer Act that was enacted in 1980. The 2003 bill strengthened the Workers' Compensation Medicare Set-Aside Program (WCMSA) that is monitored and administered by CMS.

On August 1, 2007, the U.S. House United States Congress
United States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....

 voted to reduce payments to Medicare Advantage providers in order to pay for expanded coverage of children's health under the SCHIP
State Children's Health Insurance Program
The State Children's Health Insurance Program – later known more simply as the Children's Health Insurance Program – is a program administered by the United States Department of Health and Human Services that provides matching funds to states for health insurance to families with children...

 program. As of 2008, Medicare Advantage plans cost, on average, 13 percent more per person insured than direct payment plans. Many health economists have concluded that payments to Medicare Advantage providers have been excessive. The Senate, after heavy lobbying from the insurance industry, declined to agree to the cuts in Medicare Advantage proposed by the House. President Bush subsequently vetoed the SCHIP extension.

As a political tactic

Both political parties in the United States have issued Medicare warnings intended to scare seniors as a way to benefit their own political ambitions.

Legislative oversight

The following congressional committees provide oversight
Congressional oversight
Congressional oversight refers to oversight by the United States Congress of the Executive Branch, including the numerous U.S. federal agencies. Congressional oversight refers to the review, monitoring, and supervision of federal agencies, programs, activities, and policy implementation. Congress...

 for Medicare programs:

Senate
  • Senate Committee on Appropriations
    United States Senate Committee on Appropriations
    The United States Senate Committee on Appropriations is a standing committee of the United States Senate. It has jurisdiction over all discretionary spending legislation in the Senate....

    • Subcommittee on Labor, Health and Human Services, Education, and Related Agencies
  • Senate Budget Committee
    United States Senate Committee on the Budget
    The United States Senate Committee on Budget was established by the Congressional Budget and Impoundment Control Act of 1974. It is responsible for drafting Congress's annual budget plan and monitoring action on the budget for the Federal Government. The committee has jurisdiction over the...

  • Senate Committee on Finance
    United States Senate Committee on Finance
    The U.S. Senate Committee on Finance is a standing committee of the United States Senate. The Committee concerns itself with matters relating to taxation and other revenue measures generally, and those relating to the insular possessions; bonded debt of the United States; customs, collection...

  • Senate Committee on Homeland Security and Governmental Affairs
    United States Senate Committee on Homeland Security and Governmental Affairs
    The United States Senate Committee on Homeland Security and Governmental Affairs has jurisdiction over matters related to the Department of Homeland Security and other homeland security concerns, as well as the functioning of the government itself, including the National Archives, budget and...

    • Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia
  • Senate Committee on Health, Education, Labor and Pensions
    United States Senate Committee on Health, Education, Labor, and Pensions
    The United States Senate Committee on Health, Education, Labor, and Pensions generally considers matters relating to health, education, labor, and pensions...

    • Subcommittee on Federal Financial Management, Government Information, and International Security
    • Subcommittee on Primary Health and Aging
  • Senate Special Committee on Aging
    United States Senate Special Committee on Aging
    The United States Senate Special Committee on Aging was initially established in 1961 as a temporary committee; it became a permanent Senate committee in 1977...



House
  • House Committee on Appropriations
    United States House Committee on Appropriations
    The Committee on Appropriations is a committee of the United States House of Representatives. It is in charge of setting the specific expenditures of money by the government of the United States...

    • Subcommittee on Labor, Health and Human Services, Education, and Related Agencies
  • House Budget Committee
    United States House Committee on the Budget
    The U.S. House Committee on the Budget, commonly known as the House Budget Committee, is a standing committee of the United States House of Representatives, the lower house of Congress...

  • House Committee on Energy and Commerce
    United States House Committee on Energy and Commerce
    The Committee on Energy and Commerce is one of the oldest standing committees of the United States House of Representatives. Established in 1795, it has operated continuously—with various name changes and jurisdictional changes—for more than 200 years...

    • Subcommittee on Health
    • Subcommittee on Oversight and Investigations
      United States House Energy Subcommittee on Oversight and Investigations
      The U.S. House Energy Subcommittee on Oversight and Investigations is a subcommittee within the House Committee on Energy and Commerce.-Jurisdiction:...

  • House Small Business Committee
    United States House Committee on Small Business
    The United States House Committee on Small Business is a standing committee of the United States House of Representatives.-History:On December 4, 1941, the U. S...

  • House Committee on Ways and Means
    United States House Committee on Ways and Means
    The Committee of Ways and Means is the chief tax-writing committee of the United States House of Representatives. Members of the Ways and Means Committee are not allowed to serve on any other House Committees unless they apply for a waiver from their party's congressional leadership...

    • Subcommittee on Health
      United States House Ways and Means Subcommittee on Health
      The U.S. House Energy Subcommittee on Health is a subcommittee within the House Committee on Energy and Commerce.-Jurisdiction:The House Subcommittee on Health has general jurisdiction over bills and resolutions relating to issues within the scope of the Subcommittee's jurisdiction, and has...



Joint
  • Joint Economic Committee
    United States Congress Joint Economic Committee
    The Joint Economic Committee is one of four standing joint committees of the U.S. Congress. The committee was established as a part of the Employment Act of 1946, which deemed the committee responsible for reporting the current economic condition of the United States and for making suggestions...


See also

  • Administration on Aging
    Administration on Aging
    The Administration on Aging is an agency of the United States Department of Health and Human Services. AoA awards annual grants to State government agencies on aging and Native American tribal organizations to support programs mandated by the Congress in the Older Americans Act...

  • Federal Insurance Contributions Act
  • Health care in the United States
    Health care in the United States
    Health care in the United States is provided by many separate legal entities. Health care facilities are largely owned and operated by the private sector...

  • Health care politics
    Health care politics
    Health policy can be defined as the "decisions, plans, and actions that are undertaken to achieve specific health care goals within a society." According to the World Health Organization, an explicit health policy can achieve several things: it defines a vision for the future; it outlines...

  • Health care reform in the United States
    Health care reform in the United States
    Health care reform in the United States has a long history, of which the most recent results were two federal statutes enacted in 2010: the Patient Protection and Affordable Care Act , signed March 23, 2010, and the Health Care and Education Reconciliation Act of 2010 , which amended the PPACA and...

  • Health insurance in the United States
    Health insurance in the United States
    The term health insurance is commonly used in the United States to describe any program that helps pay for medical expenses, whether through privately purchased insurance, social insurance or a non-insurance social welfare program funded by the government...

  • Maurice Mazel
    Maurice Mazel
    Maurice Mazel was a prominent Chicago surgeon who founded Edgewater Hospital. Edgewater Hospital was a major medical center in Chicago for many decades, until it closed in the late 1990s after substantial Medicare and Medicaid fraud blacklisted it from receiving further business from Federal or...

  • Medicare (Australia)
    Medicare (Australia)
    Medicare is Australia's publicly funded universal health care system, operated by the government authority Medicare Australia. Medicare is intended to provide affordable treatment by doctors and in public hospitals for all resident citizens and permanent residents except for those on Norfolk Island...


  • Medicare (Canada)
    Medicare (Canada)
    Medicare is the unofficial name for Canada's publicly funded universal health insurance system. The formal terminology for the insurance system is provided by the Canada Health Act and the health insurance legislation of the individual provinces and territories.Under the terms of the Canada Health...

  • Medicare Rights Center
    Medicare Rights Center
    The Medicare Rights Center is a national, 501 nonprofit consumer service organization with offices in New York City and Washington, DC...

  • National Health Service
    National Health Service
    The National Health Service is the shared name of three of the four publicly funded healthcare systems in the United Kingdom. They provide a comprehensive range of health services, the vast majority of which are free at the point of use to residents of the United Kingdom...

     (United Kingdom
    United Kingdom
    The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

    )
  • Patient Protection and Affordable Care Act
    Patient Protection and Affordable Care Act
    The Patient Protection and Affordable Care Act is a United States federal statute signed into law by President Barack Obama on March 23, 2010. The law is the principal health care reform legislation of the 111th United States Congress...

     (also known as Obamacare)
  • Philosophy of healthcare
    Philosophy of healthcare
    The philosophy of healthcare is the study of the ethics, processes, and people which constitute the maintenance of health for human beings. For the most part, however, the philosophy of healthcare is best approached as an indelible component...

  • Quality improvement organizations
    Quality improvement organizations
    Quality Improvement Organizations monitor the appropriateness, effectiveness, and quality of care provided to Medicare beneficiaries. They are private contractor extensions of the federal government that work under the auspices of the U.S...

  • Single-payer health care
    Single-payer health care
    Single-payer health care is medical care funded from a single insurance pool, run by the state. Under a single-payer system, universal health care for an entire population can be financed from a pool to which many parties employees, employers, and the state have contributed...

  • Stark Law
    Stark Law
    Stark law, actually three separate provisions, governs physician self-referral for Medicare and Medicaid patients. The law is named for United States Congressman Pete Stark, who sponsored the initial bill.- Physician self-referral :...

  • United States National Health Care Act (Expanded and Improved Medicare for All Act)


Governmental links - current


Governmental links - historical


Non-governmental links

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