Medicare (United States) facts for kids

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Medicare
Agency overview

Formed	July 30, 1965 (1965-07-30)
Headquarters	7500 Security Boulevard, Baltimore, MD 21244
Agency executive	Chiquita Brooks-LaSure, Administrator
Parent department	Centers for Medicare and Medicaid Services

Centers for Medicare and Medicaid Services logo

Medicare is a federal health insurance program in the United States for people age 65 or older and younger people with disabilities, including those with end stage renal disease and amyotrophic lateral sclerosis (ALS or Lou Gehrig's disease). It was begun in 1965 under the Social Security Administration (SSA) and is now administered by the Centers for Medicare and Medicaid Services (CMS).

In 2022, according to the 2023 Medicare Trustees Report, Medicare provided health insurance for 65.0 million individuals—more than 57 million people aged 65 and older and about 8 million younger people. According to annual Medicare Trustees reports and research by Congress' MedPAC group, Medicare covers about half of healthcare expenses of those enrolled. Enrollees almost always cover most of the remaining costs by taking additional private insurance and/or by joining a public Medicare Part C and/or Medicare Part D health plan. In 2022, spending by the Medicare Trustees topped $900 billion per the Trustees report Table II.B.1, of which $423 billion came from the U.S. Treasury and the rest primarily from the Part A Trust Fund (which is funded by payroll taxes) and premiums paid by beneficiaries. Households that retired in 2013 paid only 13 to 41 percent of the benefit dollars they are expected to receive.

No matter which of those supplemental options the beneficiaries choose—private insurance or public health plans—to make up for the shortfall of what Medicare covers (or if they choose to do nothing), beneficiaries also have other healthcare-related costs. These additional costs can include but are not limited to Medicare Part A, B and D deductibles and Part B and C co-pays; the costs of long-term custodial care (which Medicare does not consider health care); the cost of annual physical exams (for those not on Part C health plans almost all of which include physicals); and the costs related to basic Medicare's lifetime and per-incident limits.

Medicare is divided into four Parts: A, B, C and D. Part A covers hospital, skilled nursing, and hospice services. Part B covers outpatient services. Part D covers self-administered prescription drugs. Additionally, Part C is an alternative that allows patients to choose their own plans with different benefit structures and that provide the same services as Parts A and B, almost always with additional benefits. The specific details on these four Parts are as follows:

Part A covers hospital (inpatient, formally admitted only), skilled nursing (only after being formally admitted to a hospital for three days and not for custodial care), home health care, and hospice services.
Part B covers outpatient services including some providers' services while inpatient at a hospital, outpatient hospital charges, most provider office visits even if the office is "in a hospital", durable medical equipment, and most professionally administered prescription drugs.
Part C is an alternative often called Managed Medicare by the Trustees (and almost all of which are deemed Medicare Advantage plans), which allows patients to choose health plans with at least the same service coverage as Parts A and B (and most often more), often the benefits of Part D; Part C's key difference with Parts A and B is that C plans always include an annual out-of-pocket expense limit in an amount between $1500 and $8000 of the beneficiary's choosing; Parts A and B lack that protection. A beneficiary must enroll in Parts A and B first before signing up for Part C.
Part D covers mostly self-administered prescription drugs.

History
Financing
Eligibility
Images for kids
See also

History

Lyndon B. Johnson signing the Medicare amendment. Former President Harry S. Truman (seated) and his wife, Bess, are on the far right.

Originally, the name "Medicare" in the United States referred to a program providing medical care for families of people serving in the military as part of the Dependents' Medical Care Act, which was passed in 1956. President Dwight D. Eisenhower held the first White House Conference on Aging in January 1961, in which creating a health care program for social security beneficiaries was proposed.

Various attempts were made in Congress to pass a bill providing for healthcare for the elderly, all without success. In 1963, however, a bill providing for both Medicare and an increase in Social Security benefits passed the Senate by 68-20 votes. As noted by one study, this was the first time that either chamber “had passed a bill embodying the principle of federal financial responsibility for health coverage, however limited it may have been.” There was uncertainty over whether this bill would pass the House, however, as White House aide Henry Wilson's tally of House members’ votes on a conference bill that included Medicare “disclosed 180 “reasonably certain votes for Medicare, 29 “probable/possible,” 222 “against,” and 4 seats vacant.” Following the 1964 midterm elections however, pro-Medicare forces obtained 44 votes in the House and 4 in the Senate. In July 1965, under the leadership of President Lyndon Johnson, Congress enacted Medicare under Title XVIII of the Social Security Act to provide health insurance to people age 65 and older, regardless of income or medical history. Johnson signed the Social Security Amendments of 1965 into law on July 30, 1965, at the Harry S. Truman Presidential Library in Independence, Missouri. Former President Harry S. Truman and his wife, former First Lady Bess Truman became the first recipients of the program.

Before Medicare was created, approximately 60% of people over the age of 65 had health insurance (as opposed to about 70% of the population younger than that), with coverage often unavailable or unaffordable to many others, because older adults paid more than three times as much for health insurance as younger people. Many of this group (about 20% of the total in 2022, 75% of whom were eligible for all Medicaid benefits) became "dual eligible" for both Medicare and Medicaid (which was created by the same 1965 law). In 1966, Medicare spurred the racial integration of thousands of waiting rooms, hospital floors, and physician practices by making payments to health care providers conditional on desegregation.

Medicare has been operating for almost 60 years and, during that time, has undergone several major changes. Since 1965, the program's provisions have expanded to include benefits for speech, physical, and chiropractic therapy in 1972. Medicare added the option of payments to health maintenance organizations (HMOs) in the 1970s. The government added hospice benefits to aid elderly people on a temporary basis in 1982, and made this permanent in 1984.

Congress further expanded Medicare in 2001 to cover younger people with amyotrophic lateral sclerosis (ALS, or Lou Gehrig's disease). As the years progressed, Congress expanded Medicare eligibility to younger people with permanent disabilities who receive Social Security Disability Insurance (SSDI) payments and to those with end-stage renal disease (ESRD).

The association with HMOs that began in the 1970s was formalized and expanded under President Bill Clinton in 1997 as Medicare Part C (although not all Part C health plans sponsors have to be HMOs, about 75% are). In 2003, under President George W. Bush, a Medicare program for covering almost all self-administered prescription drugs was passed (and went into effect in 2006) as Medicare Part D.

Financing

Medicare has several sources of financing.

Part A's inpatient admitted hospital and skilled nursing coverage is largely funded by revenue from a 2.9% payroll tax levied on employers and workers (each pay 1.45%). Until December 31, 1993, the law provided a maximum amount of compensation on which the Medicare tax could be imposed annually, in the same way that the Social Security payroll tax operates. Beginning on January 1, 1994, the compensation limit was removed. Self-employed individuals must calculate the entire 2.9% tax on self-employed net earnings (because they are both employee and employer), but they may deduct half of the tax from the income in calculating income tax. Beginning in 2013, the rate of Part A tax on earned income exceeding $200,000 for individuals ($250,000 for married couples filing jointly) rose to 3.8%, in order to pay part of the cost of the subsidies to people not on Medicare mandated by the Affordable Care Act.

In 2022, Medicare spending was over $900 billion, near 4% of U.S. gross domestic product according to the Trustees Figure 1.1 and over 15% of total US federal spending. Because of the two Trust funds and their differing revenue sources (one dedicated and one not), the Trustees analyze Medicare spending as a percent of GDP rather than versus the Federal budget.

The aging of the Baby Boom generation into Medicare is projected by 2030 (when the last of the baby boom turns 65) to increase enrollment to more than 80 million. In addition, the fact that the number of payroll tax payors per enrollee will decline over time and that overall health care costs in the nation are rising pose substantial financial challenges to the program. Medicare spending is projected to increase from near 4% of GDP in 2022 to almost 6% in 2046. Baby-boomers are projected to have longer life spans, which will add to the future Medicare spending. In response to these financial challenges, Congress made substantial cuts to future payouts to providers (primarily acute care hospitals and skilled nursing facilities) as part of PPACA in 2010 and the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) and individual Congresspeople have offered many additional competing proposals to stabilize Medicare spending further. Many other factors have complicated the forecasting of Medicare Trust Fund health and spending trends including but not limited to the Covid pandemic, the overwhelming preference of people joining Medicare this century for Part C, and the increasing number of dual eligible (Medicaid and Medicare eligibility) beneficiaries.

In 2013 the Urban Institute published a report which analyzed the amounts that various households (single male, single female, married single-earner, married dual-earner, low income, average income, high income) contributed to the Medicare program over their lifetimes, and how much someone living to the statistically expected age would expect to receive in benefits. They found differing amounts for the different scenarios, but even the group with the "worst" return on their Medicare taxes would have concluded their working years with $158,000 in Medicare contributions and growth (assuming annual growth equal to inflation plus 2%) but would receive $385,000 in Medicare benefits (both numbers are in 2013 inflation adjusted dollars). Overall, the groups paid into the system 13 to 41 percent of what they were expected to receive.

Cost reduction is influenced by factors including reduction in inappropriate and unnecessary care by evaluating evidence-based practices as well as reducing the amount of unnecessary, duplicative, and inappropriate care. Cost reduction may also be effected by reducing medical errors, investment in healthcare information technology, improving transparency of cost and quality data, increasing administrative efficiency, and by developing both clinical/non-clinical guidelines and quality standards. Of course all of these factors relate to the entire United States health care delivery system and not just to Medicare.

Eligibility

Those who are 65 and older who choose to enroll in Part A Medicare must pay a monthly premium to remain enrolled in Medicare Part A if they or their spouse have not paid the qualifying Medicare payroll taxes.