Medicare, with net outlays more than $800 billion and 13% of the budget, is the national health insurance program administered by the federal government for seniors and disabled adults, and financed by general revenues, payroll taxes, premiums, and copayments.
Medicare in a Nutshell
- Medicare is a national health insurance entitlement program for nearly all Americans 65 and older.
- Medicare was established in 1965 under Title XVIII of the Social Security Act to provide health insurance to individuals 65 and older, and has been expanded over the years to include workers who have become disabled and people diagnosed with end-stage renal disease or amyotrophic lateral sclerosis (ALS, or Lou Gehrig’s disease).
- The program is administered by the Centers for Medicare & Medicaid Services (CMS), and by private entities that contract with CMS to provide claims processing, auditing, and quality control services.
- The Medicare program has two separate trust funds, the Hospital Insurance (HI) Trust Fund and the Supplementary Medical Insurance (SMI) Trust Fund.
- HI, otherwise known as Medicare Part A, covers most of the costs of hospital, home health services following hospital stays, skilled nursing facilities, and hospice care for seniors and disabled Americans.
- SMI consists of Medicare Parts B and D. For people who voluntarily enroll, Part B covers most of the costs for physician and outpatient hospital visits, home health, and other services for seniors and disabled Americans; and Part D provides coverage for prescription drugs.
- General revenues finance roughly three-quarters of Parts B and D, and premiums paid by beneficiaries almost all of the remaining quarter. (See analysis of Medicare financing by Paul Van De Water.)
- Medicare pays doctors, hospitals, and most other providers using a “prospective payment system” under which predetermined payment amounts are established for specific services, with annual “updates” and limitations on patient cost-sharing (deductibles, coinsurance, and co-payments).
- Spending under the program (except for a portion of administrative costs) is considered “mandatory” spending, i.e., it is not subject to annual appropriations decisions.
- Medicare is required to pay for all covered services provided to eligible persons, provided specific criteria are met; this is what makes Medicare an “entitlement.”
The Annual Medicare Sequester under the Budget Control Act
Medicare v. Medicaid
- Medicare is an entitlement based on age (65 or older) or disability without regard to income; Medicaid is a means-tested entitlement where eligibility is based on being at or near the Federal poverty level.
- Medicare is a health insurance program similar to private sector health insurance, with specified coverage, premiums, and beneficiary cost-sharing; Medicaid is a health coverage program where States pay healthcare providers for services on behalf of beneficiaries, usually without any cost-sharing.
- Medicaid assists millions of low-income Medicare enrollees (called “dual eligibles”) by paying Medicare premiums, deductibles and coinsurance.
- Medicare is funded by federal payroll (HI) taxes, general tax revenues, and premiums; Medicaid is funded jointly by the Federal and State governments.
- Medicare is national health insurance administered by the federal Centers for Medicare and Medicaid Services (CMS), while Medicaid is administered by the States.