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Medicare

MEDICARE

When Medicare was established in 1965, many of its supporters believed that insuring persons age sixty-five and over was a precursor to a national system of health insurance. The Medicare program was thought to be just the first piece of legislation towards this end. But instead, Medicare has become the largest public program of health insurance, and universal health insurance is a reality only for older adults and some persons with disabilities.

Although in many ways Medicare has been one of the most successful public programs of the federal government, it has also faced criticism as a result of its rapid expansion. At $222 billion in spending in 2000, it represents about 12 percent of the federal budget. Since the 1980s, it has been a frequent target of efforts to reduce federal spending. Major legislation enacted in 1997 as part of the Balanced Budget Act set in motion the most recent set of changes aimed at slowing the growth of the program. (Legislation enacted in 1998 and 1999 mitigated some of these changes, however.) The implications of an aging society, moreover, are that Medicare will continue to come under scrutiny, and perhaps face major changes in the future.

A brief history and overview

The issue of national health insurance was debated periodically in the United States after World War II. Gradually, the focus shifted to a strategy to begin with older persons. President John F. Kennedy made this one of his major campaign issues in 1960. But it was not until 1965, during a period of considerable social activism, that the legislation was finally passed. Persons over the age of sixty-five were singled out because they had higher rates of poverty and lower rates of insurance than other groups. As a social insurance program, the goals of Medicare have been to provide equal access to care for those who are eligible, supported by taxpayers (who will later become beneficiaries). By most accounts, it has been extremely successful.

Initially, everyone over the age of sixty-five in 1965 was eligible to participate in Medicare when it began in July of 1966. After that, eligibility was limited to persons over the age of sixty-five who qualified for some type of Social Security benefit, usually as a worker or dependent. This still captures about 98 percent of all persons age sixty-five and older. In 1972, the program's scope was expanded to include persons who receive Social Security Disability Insurance, following a two-year waiting period. In addition, persons with end-stage renal diseasewho face costly kidney dialysis treatments were also added to the program. Over 39 million persons, nearly one in every eight Americans, were enrolled in Medicare in 2000, up from 19 million in 1966.

The benefits covered by Medicare have been altered little since 1965, although changes in the way care is delivered in the United States have affected the size of the various components of the benefit package. Part A of Medicare, also called Hospital Insurance, covers inpatient hospital services, up to one hundred days of care in a skilled nursing facility following a hospital stay, and hospice care. Part B of Medicare, referred to as Supplementary Medical Insurance, covers physician services, outpatient hospital care, laboratory testing, and ambulatory services. Home health care servicesskilled care such as rehabilitation services provided to persons who are homebound have been subject to a number of changes in recent years; presently these services are divided between the two parts of the program.

Part A of Medicare is financed by a payroll tax of 1.45 percent of all wages assessed on both employers and employees (when the program began, that tax rate was 0.35 percent, and has gradually increased over time). The rate of the tax has not changed since 1986, although the amount subject to tax has risen. In 1993, the upper limit on the tax was eliminated so that all wages are subject to the Medicare payroll tax. Part B is voluntary and financed by premiums on beneficiaries and by general revenues sufficient to make up the level of spending required. The premium initially paid 50 percent of the costs of Part B, but legislation reduced this share beginning in 1972 because Medicare's costs were growing substantially faster than incomes of beneficiaries. It was set at 25 percent of the costs of a beneficiary's benefits on a temporary basis starting in 1982, and it became a permanent requirement in 1997.

When Medicare began, it was dominated by inpatient hospital care, which accounted for about two-thirds of all spending. Indeed, most of the focus of debate before Medicare's passage was on Part A of the program. But as care has moved out of the inpatient setting, Part B has become a much larger share of the program. Care in hospital outpatient departments and in physicians' offices now replaces many surgeries and treatments formerly done only in inpatient settings. In addition, skilled nursing facility care and home healthreferred to as post-acute carehave also increased in importance over time. When individuals leave a hospital after only a few days, post-acute care is often needed as a transition. But these benefits have also come under increased scrutiny for moving Medicare into the domain of long-term care services.

Another original principle of the program was that it would not interfere with the practice of medicine. Payments were designed to be as much like the standard insurance policies then in place as possible. But costs for the program rose rapidly almost from the beginning, and in the mid-1970s it became clear that the government needed to slow spending growth. This was done largely through application of new payment policies. Traditional Medicare has remained a fee-for-service program in which beneficiaries are free to see any hospitals or doctors they wish.

Changes in payment policies

Medicare is first and foremost an insurer for elderly and disabled persons, setting rates of payment and contracting with private firms to process and pay claims. Originally, Medicare approved payments with little oversight of charges that providers of care submitted. However, restrictions soon began to be added, and by the mid-1980s, most of the payment systems for various Medicare-covered services had been modified. The most recent broad changes were contained in the 1997 Balanced Budget Act (BBA), which placed a particular emphasis on the post-acute care area. New ways of paying for care, as well as lower rates of payment were legislated, although implementation has taken considerably longer than expected.

These changes were built on similar reforms that date to the 1980s, when new payment systems for hospitals and physicians were developed. Medicare served as a leader with these reforms, fundamentally changing the way that hospitals and doctors are paid. The hospital payment system for Medicare now pays a flat rate to a hospital, based on the patient's diagnosis. While hospitals with varying characteristics may be paid somewhat different rates, this was a major move away from a system in which the costs reported by the hospital were simply reimbursed by Medicare. This new system has encouraged hospitals to be more efficient, although it has also resulted in some premature discharges. Over time, however, this payment system has been judged to be relatively successful. It has helped to encourage movement away from long inpatient stays and to more care being delivered outside of hospitals. Medicare has been credited with contributing to an array of changes that affect the health care system in general.

Physician payment changes in Medicare sought to rebalance the level of payments between primary-care physicians and specialists. Payments for procedures by specialists have been reduced relative to office visits to primary-care physicians, for example, in order to elevate the importance of basic care. Again, this has been relatively successful, although the level of payments is often criticized by physicians. Many other health care insurers now use Medicare's resource-based relative value scale (RBRUS). Both hospital and physician payments require periodic updating, and Medicare is sometimes criticized for falling behind in making adjustments in response to new procedures, but the program has been a major player affecting the delivery of care.

It remains to be seen whether the payment changes in post-acute care and hospital outpatient services will be as successful. Again, the goal has been to move away from a cost-based system and toward one that will provide incentives for "appropriate" levels of care. It has taken much longer than anticipated to develop these new payment systems, however, because there is much less consensus about the amount of care needed in particular circumstances. Not surprisingly, efforts to implement these new systems have been controversial.

Consider the case of home health carehow many home health visits should someone who has had hip replacement surgery need? Little careful research has been done to help address such issues, and without standards or norms of care it is difficult to devise a fair system. However, spending on Medicare's home-health benefit grew from $3.3 billion in 1990 to $19.6 billion in 1997, so it is not surprising that it became a target for change. This included an effort to introduce a new payment system in stages and to demand greater accountability from agencies to reduce fraud and abuse. As a consequence, home health care spending actually declined in the late 1990s. Unfortunately, just as policy in 1997 was not developed with a full understanding of its ultimate consequences, changes in the new payment system are also likely to be undertaken with little guidance.

Other Medicare policies affecting health care delivery

In addition to the influence of Medicare's payment systems, the program has had other important effects on the delivery of health care. One of the most significant of these was the requirement that hospitals treating Medicare patients must treat all those eligible, leading to the desegregation in the 1960s of many hospitals that had formerly excluded black Americans. Medicare has also been a leader in the development of data systems that have allowed research into various issues, such as how care is delivered in different parts of the country, and the creation of various quality measurements. Medicare decisions about coverage of certain procedures are often used by private insurers for their decision-making processes as well. Finally, included in Medicare's payments to hospitals are subsidies for hospitals that provide medical education and for those that treat a disproportionate share of low-income individuals. Unlike many other payers of health care, Medicare contributes not just to the costs for its own beneficiaries, but for other activities that benefit all Americans.

Private plans serving Medicare beneficiaries

Beneficiaries have another option under the Medicare program: they can choose to enroll in a participating private plan and agree to get all of their Medicare-covered services from that plan. This planusually a health maintenance organization (HMO)agrees to provide care to Medicare beneficiaries in a given geographical area for a fixed monthly payment. When this HMO option was established in 1983, it was intended to save money for Medicare by paying plans at a rate of 95 percent of the costs of average enrollees. The new Part C of Medicare, called Medicare+Choice, established by the BBA renamed and modified the managed-care option. The intent of this change was to move Medicare further away from its traditional role as insurer and expand its role as a purchaser of private insurance. Additional types of plans, such as private fee-for-service plans and physician- or hospital-led insurance, are now also allowed to participate in Medicare+Choice, although so far only a few such plans have been offered to Medicare beneficiaries.

Initially, when the HMO option began, private plans attracted only a very small share of Medicare beneficiaries, because HMOs require beneficiaries to use only plan-approved doctors and hospitals as a condition of coverage. Medicare has lagged behind the rest of the health care system in part because beneficiaries can choose to remain in traditional fee-for-service Medicare and use services at will with no penalties attached. To be more competitive with fee-for-service, many HMOs offer beneficiaries services in addition to those covered by Medicare, such as prescription drug coveragea strategy that became more successful as the cost of supplemental insurance elsewhere in the system rose rapidly. Many of the HMOs offering further benefits do so in those parts of the country where Medicare's monthly contribution to HMOs is high. Plans are able to offer more benefits in part because beneficiaries agree to abide by a stricter set of rules for participation, such as using only doctors, hospitals, and other health care providers who are on a prescribed list. In exchange, beneficiaries usually face lower cost-sharing requirements, and they sometimes have access to benefits such as prescription drug coverage or dental care.

Most studies of the private-plan option have suggested that payments are more generous than what it actually costs to provide services, so that Medicare's monthly payments to plans effectively subsidize additional benefits for those in private plansand the option therefore fails to save money for the government. Changes made under the BBA were intended to reduce these overpayments, but these changes have been controversial and have contributed to a number of plans withdrawing from the Medicare+Choice system. BBA clearly did not accelerate the move to more private coverage of Medicare beneficiaries. Some of the BBA changes were modified in 1999, but HMOs remain critical of the severity of the BBA cutbacks. Although plans may still be overpaid, both HMOs and their enrollees argue that they should not be subject to slower rates of growth in payments over time, as this restricts their ability to continue offering extra benefits. On the other hand, beneficiaries in fee-for-service Medicare do not receive subsidies for extra benefits, and higher payments to HMOs may increase the gap in funding levels between these two sources.

In early 2001, about 5.6 million beneficiaries participated in Medicare+Choice plans. While still representing only about 14 percent of all beneficiaries, this portion of Medicare has grown rapidly since the early 1990s, though growth slowed between 1998 and 2001. The viability of the Medicare+Choice plan remains one of the most important problems facing Medicare, and also raises concerns about some of the broader reform options now under consideration.

Costs to beneficiaries

Although Part B of Medicare is voluntary, because the premium required represents only 25 percent of the costs of the benefit, most who are eligible choose to enroll. In addition to the Part B premium, Medicare beneficiaries are required to pay an array of cost-sharing charges. That is, beneficiaries must pay for a share of much of the care they receive, either in up-front costs (deductibles) or each time they visit physicians (coinsurance). Both Parts A and B have a deductible, and most of the services are subject to some type of co-insurance. The Part A deductible ($776 in 2000) is particularly high. This requires cost-sharing, and the required exclusion of some benefits (such as prescription drugs) from coverage have resulted in a less comprehensive benefit package than what is available to many younger families. Consequently, a market for supplemental insurance has arisen, either supported by employers as part of a retirement package or purchased specifically by beneficiaries (and referred to as Medigap).

Persons covered by employer-subsidized retiree benefits have the best coverage. The extra coverage is usually quite comprehensive, and any premiums that retirees must pay are usually subsidized. This coverage usually fills in most of Medicare's required cost-sharing, as well as benefits such as prescription drugs. In contrast, Medigap plans are expensive and carry high administrative costs. Those who enroll in these plans get some protection from unusually high expenses, but also face substantially higher financial burdens from the premiums. Regulations on the Medigap market place controls on what can be offered but not on the costs of plans. These costs tend to be very high for the oldest beneficiaries and often are not available to beneficiaries under age sixty-five.

As noted above, beneficiaries also can obtain additional benefits to supplement Medicare's basic package by enrolling in Medicare+Choice. Cost sharing is lower, and some additional benefits are usually offered for less than the price of a Medigap plan. But these plans have also become more expensive and less comprehensive over time.

Gaps in coverage for low-income beneficiaries are made up through Medicaid, a joint federal/state program to which most Medicare beneficiaries can qualify if their financial resources are low enough. In addition, legislation enacted in 1988 established the Qualified Medicare Beneficiary Program, which allows Medicaid to further fill in the gaps. Later additions include the Specified Low-Income Medicare Beneficiary Program and the Qualified Individual Program. These programs help to fill in Medicare's cost-sharing or premium requirements for low-income persons who do not qualify for full Medicaid benefits, and each is targeted to a different income group. However, participation rates remain a problem, reducing the effectiveness of these programs. As a consequence, the comprehensiveness of coverage for older Americans and eligible disabled persons varies considerably via this complicated environment of patchwork supplemental benefits.

One important result of the absence of a comprehensive Medicare benefit is the financial burden that beneficiaries face in paying for their own care. When the premiums that they pay for Part B and supplemental insurance are added to the direct expenses for care not covered by any insurance, older Americans devote over 20 percent of their incomes to health care on average. This does not include the costs of long-term care for persons in institutions. Those enrolled in the Medicare+Choice program face smaller but not insignificant burdens. In 1965, when Medicare was instituted, the share of income that individuals paid for their care was about 19 percent. Medicare reduced that share, but it has gradually risen over time as the costs of health care have gone up faster than the incomes of older Americans. Even without further requirements on beneficiaries to pay more for their care, that share will likely rise over time as health costs continue to outpace retirement incomes.

The future of Medicare

The future of Medicare has become a controversial political issue, mainly because it is a large and popular public program that faces projections of rapid growth in the future. As a government program, either new revenues will have to be added to support Medicare, or its growth will have to be curtailed. Much of the problem is driven by the expected increase in the number of persons eligible for Medicarefrom 39 million in 2000 to 78 million in 2030as the baby-boom generation becomes eligible for benefits. While the numbers covered by Medicare have already doubled since 1966, this is likely to be a more significant change because the share of the population eligible for Medicare will also grow from one in every eight Americans to more than one in every five.

One option for savings often discussed is an increase in the age of eligibility, although this would have only a small impact on the numbers eligible if the age were to rise from sixty-five to sixty-seven, for example. About 5 percent of beneficiaries are in this age range, but they are considerably less costly to insure than the average Medicare beneficiary. Nonetheless, this option is likely to be seriously debated as one means for reducing Medicare's costs. Another approach is to limit eligibility to persons with low or moderate incomes, changing dramatically the nature of a program that has always been very inclusive. As yet there seems to be little political support for this latter option, although proposals to ask higher income beneficiaries to bear a greater share of Medicare's costs (e.g., through an income-related premium) is more often discussed. One of Medicare's strengths is its universality and resulting broad-based taxpayer acceptance, and making high-income persons ineligible could undermine that support.

Most of the political discussion in the late 1990s and early in this century continues to focus on ways to make the program more efficient, but there is little agreement on how to do this. The two major strains of debate center on whether extensive restructuring (relying on the private sector to achieve efficiencies) is necessary, or whether more incremental changes within the current program would be sufficient. The Medicare+Choice program, for example, was enacted in an effort to rely more upon the private sector to find ways to hold down the rate of spending growth. Supporters of using the private sector to foster competition among plans serving the Medicare population would put private plans center stage, with the traditional program offered as just one of many options. This approach has been termed premium support and would require that beneficiaries wishing to stay in the traditional plan or choose expensive options pay higher premiums to do so. An even more dramatic restructuring proposal would simply give those who are eligible the resources to buy private plans with very little oversight. Supporters of these approaches promote the likelihood of greater efficiency from relying on private plans as compared to the government. Thus, savings would likely come both from charging some beneficiaries more and from any benefits of competition.

On the other hand, a substantial slowdown in growth in 1998 and 1999 was achieved for Medicare using traditional methods of limiting payments and reforming the payment structure for benefits, lending support to those who would prefer to retain the current structure with its emphasis on a public program. Reforms would still be needed, but might instead concentrate on improving the Medicare+Choice payment mechanism and adding more active management to the fee-for-service piece of Medicare. Key issues in the debate between these approaches center on which will retain the highest quality of care and the greatest protections for the beneficiaries of the program.

Regardless of whether structural or incremental approaches to change are adopted, it is unlikely that the program can be maintained in its current form without more revenues. A further complicating policy issue arises over the comprehensiveness of the benefit package. It is difficult to imagine achieving greater efficiency in the delivery of health care if major pieces of that care, such as prescription drugs, are not included in the basic benefit package. Both sides of the debate generally agree that improvements in the benefit package should be made, but this adds to the complexity of any solution because new benefits inevitably mean higher costs, putting further pressure on the need for new revenues and/or reforms in the current system. The contentious debate on the prescription drug issue in 2000 and 2001 is illustrative of the difficulty in finding common ground for reforms.

Finally, another issue that may add to the costs of the Medicare program over time is reform of the protections for low-income beneficiaries. Low participation and state reluctance to improve upon these protections suggest that they might better be moved out of Medicaid and into Medicare, but again this would raise costs for the Medicare program.

The future of Medicare will inevitably bring changes: some will come from explicit policy and legislative initiatives, but others will reflect the rapidly changing nature of the health care system as a whole. Medicare cannot be understood or administered without an appreciation for its interrelationships with the American health care system, and an aging society will inevitably put pressures on the program that will require new approaches and new funding.

Marilyn Moon

See also Health Insurance, National Approaches; Medicaid; Medication Costs and Reimbursements; Medigap.

BIBLIOGRAPHY

Aaron, H. J., and Reischauer, R. D. "The Medicare Reform Debate: What is the Next Step?" Health Affairs 14 (1995) 830.

Centers for Medicare and Medical Services. Medicare & You 2001. Washington, D.C.: USGPO,2001.

Feder, J., and Moon, M. "Can Medicare Survive its Saviors?" American Prospect (May-June 1999): 5660.

Fuchs, V. "Health Care for the Elderly: How Much? Who Will Pay for It?" Health Affairs 18 (1999): 1121.

Huskamp, H.; Rosenthal, M.; Frank, R.; and Newhouse, J. "The Medicare Prescription Drug Benefit: How Will the Game Be Played?" Health Affairs 19 (2000): 823.

Moon, M. Medicare Now and in the Future, 2d ed. Washington, D.C.: The Urban Institute Press, 1996.

Moon, M. "Will the Care Be There? Vulnerable Beneficiaries and Medicare Reform. Health Affairs 18 (1999): 107117.

Poisal, J., and Chulis, G. "Medicare Beneficiaries and Drug Coverage." Health Affairs 19 (2000): 248256.

Vladeck, B. "The Political Economy of Medicare." Health Affairs 18 (1999): 2236.

Wilensky, G., and Newhouse, J. "Medicare: What's Right? What's Wrong? What's Next?" Health Affairs 18 (1999): 92106.

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Moon, Marilyn. "Medicare." Encyclopedia of Aging. 2002. Encyclopedia.com. 26 Aug. 2016 <http://www.encyclopedia.com>.

Moon, Marilyn. "Medicare." Encyclopedia of Aging. 2002. Encyclopedia.com. (August 26, 2016). http://www.encyclopedia.com/doc/1G2-3402200255.html

Moon, Marilyn. "Medicare." Encyclopedia of Aging. 2002. Retrieved August 26, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-3402200255.html

Medicare

MEDICARE

As the largest publicly funded health care program, Medicare plays an essential role in insuring the needs of America's elderly and disabled populations. It remains one of the most popular federal programs, although it has been under considerable scrutiny since the 1980s because of its large share of the federal budget and rapid rates of expenditure growth. Initially, the program covered about 19 million persons who were sixty-five years of age and older. In 2000, over 39 million persons, nearly one in every eight Americans, were enrolled, and that number is projected to rise to nearly 78 million by 2030.

As enacted in 1965, Medicare offered coverage to all persons aged sixty-five and older. After that, eligibility was limited to persons sixty-five years of age and older who were eligible for some type of Social Security benefit, usually as a worker or dependent. In 1972, the program's scope was expanded to include persons who receive Social Security Disability Insurance, after meeting a two-year waiting period. Persons with permanent kidney failure who face costly kidney dialysis treatments were also added to the program. Despite warnings about creating a "disease of the month" approach to Medicare eligibility, no other groups have been added since 1972.

Because of its sizenearly $213 billion in spending in 1999Medicare plays an important role in the overall health care system. Changes in Medicare's payment systems are often adopted by other insurers, and decisions by Medicare about coverage of new technologies are also closely watched. Further, subsidies for medical education and for hospitals serving a disproportionate number of low income patients or located in rural areas are provided through the Medicare program, even though these reflect broader health care issues.

MEDICARE'S COVERAGE

Medicare's benefit package has changed little since 1965, although changes in the way care is delivered have affected the size of the various components of that benefit package. Part A of Medicare, also called Hospital Insurance, covers inpatient hospital services, up to one hundred days of care in a skilled nursing facility following a hospital stay, and some hospice services. Part B of Medicare, Supplementary Medical Insurance, covers physician services, outpatient hospital care, laboratory services, and other ambulatory services. Home health care servicesskilled care such as rehabilitation provided to persons who are homeboundhave been subject to a number of changes in recent years; as of 2000 they were divided between the two parts of the program.

When Medicare began, it was dominated by inpatient hospital care, which accounted for about two-thirds of all spending under the program. But as care has moved out of the inpatient setting, Part B has expanded and now represents over 40 percent of spending, about the same as spending on inpatient hospital care. In addition, post-acute careskilled nursing-facility care services and home healthhas also increased in importance. But these benefits have also come under increased criticism for moving Medicare into the domain of long-term care services.

Part B is voluntary and requires a premium from those who choose to enroll. Because that premium represents only 25 percent of the costs of the benefit, however, most who are eligible choose to enroll in Part B. In addition to the premium, Medicare beneficiaries are required to pay an array of cost-sharing charges. Both parts have a deductible, and most services are subject to some type of coinsurance. This cost sharing, and the exclusion of some benefits (such as prescription drugs) from coverage, results in a benefit package that is less comprehensive than that available to many younger families. Consequently, a market for supplemental insurance has arisen, either supported by employers as part of a retirement package or purchased specifically by beneficiaries. This latter supplemental insurance is referred to as "Medigap."

Gaps in coverage for low-income beneficiaries are made up through Medicaid, a joint federal/state program for which most Medicare beneficiaries can qualify if they have limited financial resources. In addition, legislation passed in 1988 established a Qualified Medicare Beneficiary program to use Medicaid to further fill in the gaps. Later programs include the Specified Low Income Medicare Beneficiary program and a program for Qualified Individuals. These programs help fill in Medicare's cost sharing or premium requirements for persons with low incomes but who do not qualify for full Medicaid benefits. But participation is relatively low and varies across the states. Thus, the comprehensiveness of coverage for older Americans and eligible disabled persons varies considerably via this complicated environment of patchwork supplemental benefits.

Another way in which beneficiaries can obtain supplemental benefits is to opt out of traditional Medicare and enroll in a managed care plan. This option has been available for many years, but the Balanced Budget Act (BBA) of 1997 expanded its scope by creating a new Part C of MedicareMedicare+Choice. In early 2000, about6.2 million beneficiariesnearly 16 percent of all beneficiariesparticipated in Medicare+Choice plans. Medicare+Choice moves Medicare away from its traditional role as the insurer and into a role as a purchaser of insurance. Beneficiaries who enroll in Medicare+Choice agree to get all of their care from a private plan. This plan, which is paid a fixed monthly amount on behalf of each enrollee, is usually a health maintenance organization (HMO) although other types of plans may also participate. These plans may offer benefits in addition to the basic Medicare benefit package, and they can afford to do so in part because of savings that arise from requiring beneficiaries to abide by a stricter set of rules, such as using only doctors, hospitals, and other health care providers who are on a prescribed list.

Most studies of Medicare's HMO program have suggested that plans have been overpaid, so that Medicare's contributions implicitly help subsidize additional benefits for those in private plans. As a result, some beneficiaries are better off, but Medicare then loses money on each enrollee. Changes made under the BBA were intended to reduce these overpayments, but the new restrictions have been controversial and may have contributed to a number of plans withdrawing from the Medicare+Choice system. Reforms of Medicare+Choice are likely to continue to be controversial.

Another consequence of the absence of a comprehensive Medicare benefit is the financial burden that beneficiaries face in paying for their own care. When the premiums that they pay for Part B and supplemental insurance are added to the direct expenses for care not covered by any insurance, older Americans pay about 20 percent of their incomes for health care (even excluding the costs of long-term care for persons in institutions). Enrollees in the Medicare+Choice program face smaller but not insignificant burdens. In 1965, when Medicare was instituted, the share of income that individuals paid for their care was about 19 percent. Medicare initially reduced that share, but it has gradually risen again over time as the costs of health care have gone up faster than the incomes of older Americans. Even with no changes in policy, the share of income spent on health will likely rise over time if health costs continue to outpace retirement incomes.

REFORM ISSUES

Because Medicare is projected to grow substantially as the baby boom generation reaches sixty-five years of age, it is likely to become an ever larger share of the federal budget and need additional revenues. Efforts to find ways to reduce spending on Medicare have been a high priority for politicians who do not wish to raise taxes. The urgency behind various reform efforts has diminished, however, as projections of spending growth moderated at the end of the 1990s.

Nonetheless, several competing approaches to reform remain under discussion. They usually focus on reducing per capita spending and range from incremental changes to major structural reforms that would shift Medicare more under the control of private plans. Incremental approaches usually seek to modernize the existing Medicare program, largely by changing payment policies for services and for private plans. Critics of this approach worry that it focuses more on prices charged for services and less on controlling the amount of care being used.

One of the principal Medicare restructuring plans is a variant of the 1999 plan of the co-chairs of the National Bipartisan Commission on the Future of Medicare. It has since been offered in an amended form by Senators John Breaux (D-Louisiana) and Bill Frist (R-Tennessee). Termed "premium support," this approach would require that beneficiaries choose among an array of private plans (with traditional Medicare being just one choice). If the plan chosen is more expensive than the national average, the beneficiary would have to pay a higher premium. This would presumably result in greater awareness by beneficiaries of the costs of health care and a greater incentive for private plans to hold the line on costs so as to be competitive. Traditional Medicare, which is now effectively the default plan for most persons, would become much more expensive and perhaps would be eliminated over time. This and other proposals to expand competition in Medicare are controversial because they are based more on theory than on practice, and because many supporters of Medicare are skeptical of the level of savings likely to be generated and fearful of what protections for beneficiaries might be lost if private plans take over.

Other proposed reforms that are sometimes combined with changes aimed at the efficient operation of Medicare include increases in the age of eligibility and income-testing the program, either through higher premiums or eliminating eligibility entirely for persons at high income levels. All of these proposals, and any new ones, will likely continue to be debated as baby boomers move inexorably toward eligibility for Medicare and as the projected costs of Medicare continue to grow.

Marilyn Moon

(see also: Access to Health Services; Economics of Health; Health Care Financing; Landmark Public Health Laws and Court Decisions; Managed Care; Medicaid; National Health Insurance; Retirement; Uninsurance )

Bibliography

Aaron, H. J., and Reischauer, R. D. (1995). "The Medicare Reform Debate: What Is the Next Step?" Health Affairs 14:830.

Feder, J., and Moon, M. (1999). "Can Medicare Survive its Saviors?" American Prospect MayJune:5660.

Fuchs, V. (1999). "Health Care for the Elderly: How Much? Who Will Pay for It?" Health Affairs 18:121.

Health Care Financing Administration (2000). Medicare & You 2000. Washington, DC: U.S. Government Printing Office.

Moon, M. (1996). Medicare Now and in the Future, 2nd edition. Washington, DC: The Urban Institute Press.

Vladeck, B. (1996). "The Political Economy of Medicare." Health Affairs 18:2236.

Wilensky, G., and Newhouse, J. (1999). "Medicare: What's Right? What's Wrong? What's Next?" Health Affairs 18:92106.

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Moon, Marilyn. "Medicare." Encyclopedia of Public Health. 2002. Encyclopedia.com. 26 Aug. 2016 <http://www.encyclopedia.com>.

Moon, Marilyn. "Medicare." Encyclopedia of Public Health. 2002. Encyclopedia.com. (August 26, 2016). http://www.encyclopedia.com/doc/1G2-3404000532.html

Moon, Marilyn. "Medicare." Encyclopedia of Public Health. 2002. Retrieved August 26, 2016 from Encyclopedia.com: http://www.encyclopedia.com/doc/1G2-3404000532.html

Medicare

MEDICARE

A federally funded system of health and hospital insurance for persons aged 65 and older and fordisabled persons.

The Medicare program provides basic health care benefits to recipients of social security and is funded through the Social Security Trust Fund. President harry s. truman first proposed a medical care program for the aged during the late 1940s, but Medicare was not enacted until 1965, as one of President Lyndon B. Johnson's great society programs (42 U.S.C.A. §§ 1395 et seq.).

Medicare went into effect in 1966 and was first administered by the social security administration. In 1977, the Medicare program was transferred to the newly created Health Care Financing Administration (HCFA). The HCFA is concerned with the development of policies, programs, procedures, and guidance regarding Medicare recipients, the providers of services—such as hospitals, nursing homes, and physicians—and other organizations that are closely related to the Medicare program.

Unlike other federal programs, Medicare is not supported by a large, federal organizational hierarchy. The federal government enters into contracts with private insurance companies for the processing of Medicare claims. Health care providers must meet state and local licensing laws and standards set by the HCFA in order to qualify for Medicare payments for their services.

Eligibility for Medicare does not depend on income. Almost everyone aged 65 and older is entitled to Medicare coverage. Disabled persons under age 65 may receive Medicare benefits after they have been collecting Social Security or railroad disability payments for at least two years. Workers do not have to retire at age 65 in order to be protected by Medicare. People who have not worked long enough under Social Security to receive retirement benefits may enroll in the plan by paying a monthly premium. For those individuals who are not covered under Social Security and who are too poor to pay the monthly premium, medicaid, the state and federal program for low-income persons, is available.

Medicare is divided into a hospital insurance program and a supplementary medical insurance program. The Medicare hospital insurance plan is funded through Social Security payroll taxes. It covers reasonable and medically necessary treatment in a hospital or skilled nursing home, meals, regular nursing-care services, and the cost of necessary special care. Medicare also pays for home health services and hospice care for terminally ill patients.

The hospital insurance program extends coverage based on "benefit periods." An episode of illness is termed a benefit period and starts when the patient enters the hospital or nursing home facility and ends 60 days after the patient has been discharged from the facility. A new benefit period starts with the next hospital stay, and there is no limit to the number of benefit periods that a person can have. In any benefit period, Medicare will pay the cost of hospitalization for up to 90 days. The patient must pay a one-time deductible fee for the first 60 days in a benefit period and an additional daily fee called a co-payment for hospital care for the following 30 days. Apart from these payments, Medicare covers the full cost of hospital care.

Medicare also pays for the first 20 days of care in a skilled nursing home and for expenses exceeding a daily minimum amount for the next 80 days when certain conditions show that such care is necessary. Payment also may be made for up to 100 home-health visits provided by a home-health agency for up to 12 months after the patient's discharge from a hospital or nursing home, provided that certain conditions apply.

Medicare's supplementary medical insurance program is financed by monthly insurance premiums paid by people who sign up for coverage, combined with money contributed by the federal government. The government contributes the major portion of the cost of the program, which is funded out of general tax revenues. Persons who enroll pay small, annual, deductible fees for any medical costs incurred above that amount during the year, and also a regular monthly premium. Once the deductible has been paid, Medicare pays 80 percent for any bills incurred for physicians' and surgeons' services, diagnostic and laboratory tests, and other services. Doctors are not required to accept Medicare patients, but almost all do. Payments may not be made for routine physical checkups, drugs and medicines, eyeglasses, hearing aids, dentures, or orthopedic shoes.

Medicare bases its 80 percent payment for medical expenses on what is considered to be a reasonable charge for each kind of service. The reasonable charge is an amount that is determined by the insurance organizations that process Medicare claims for the federal government, based on the customary charge for that service in that part of the country.

Medicare payments may be sent directly to the doctor or provider of the service or to the patient. In 1994, 93 percent of all charges to Medicare patients for covered physician services were billed directly to the insurance systems rather than to the patients themselves. Thus, few patients need to be reimbursed for payments that they had made directly to the physician or another provider of services. Under either method, the patient receives a notice after the doctor or provider files a medical insurance claim. The notice details the medical service and explains the expenses that are covered by Medicare and are approved; how much of the charge is credited toward the annual deductible amount; and how much Medicare has paid. A person who disagrees with the decision on the claim may ask the insurance company to review the decision. A formal hearing may be held on claims that, if paid, would total at least $100. Cases that involve $1,000 or more can eventually be appealed to a federal court.

The financial future of Medicare has been a hotly debated issue since the 1980s. In 1995, Medicare covered 37 million people. The number of people eligible for Medicare will continue to rise as the post–World War II baby boom generation begins to retire.

Other factors have had an impact on the financial future of Medicare. The quality of medical care has increased life expectancies.

Nearly three years have been added to life expectancies since Medicare was created. Modern medicine is likely to continue this trend, which means that Medicare will be taking care of people for longer. Another factor is the increased cost of medical care itself, which takes more resources out of the system.

Medicare's hospital insurance is financed by a payroll tax of 2.9 percent, divided equally between employers and workers. The money is placed in a trust fund and is invested in U.S. Treasury securities. A surplus accumulated during the 1980s and early 1990s, but the program's outlays are projected to rise more rapidly than the future payroll-tax revenues.

Changing the financing of Medicare has proved difficult. In 1988, Congress passed legislation to expand Medicare to cover the health care costs associated with catastrophic illnesses. The new coverage was to be financed by a surtax on the incomes of taxpayers over the age of 65. Elderly citizens and organizations such as the american association of retired persons vigorously protested the tax. In the face of this opposition, Congress repealed the law in 1989.

In Fischer v. United States, 529 U.S. 667 S. Ct. 1780, 146 L. Ed. 2d 707 (2000), the U.S. Supreme Court addressed the issue of criminal aspects with respect to payment of Medicare benefits to an institution. Fischer, while president and part owner of Quality Medical Consultants, Inc. (QMC), negotiated a $1.2 million loan to QMC from West Volusia Hospital Authority (WVHA), a municipal agency that is responsible for operating two Florida hospitals, both of which participate in the federal Medicare program. In 1993 WHVA received between $10 and $15 million in Medicare funds. After a 1994 audit of WHVA raised questions about the QMC loan, the petitioner was indicted for violations of the federal bribery statute, including defrauding an organization that receives benefits under a federal assistance program. A jury convicted him on all counts, and the district court sentenced him to prison, imposed a term of supervised release, and ordered the payment of restitution. On appeal, the petitioner argued that the government had failed to prove WHVA, as the organization affected by his wrongdoing. The U.S. Court of Appeals for the Eleventh Circuit rejected his argument and affirmed his conviction.

In 2003, President George W. Bush and Congress worked together to pass a new law to bring people with Medicare more choices in health care coverage and better health care benefits. The new Medicare Prescription Drug Improvement and Modernization Act of 2003 was passed. This new law preserved and strengthened the Medicare program by adding important new prescription drug and preventive benefits and provides extra help to people with low incomes. Seniors are still able to choose doctors, hospitals, and pharmacies.

If seniors are happy with the Medicare coverage they have, they can keep it exactly the same. Or, if they choose, may enroll in new options. One of the major changes is the Drug Discount Cards which began in 2004. Medicare-Approved Drug Discount Cards will help seniors save on prescription drugs. Medicare will contract with private companies to offer new drug discount cards until a Medicare prescription drug benefit starts in 2006. The cards will save seniors 10–25% on prescription drugs. The enrollment period for the cards is May 2004 through December 31, 2005.

Other highlights of the new law include a Medicare Advantage Plan, new and improved preventive benefits for 2005, prescription drug plans for 2006, and Health Savings Accounts for all Americans, which will work just like an Individual Retirement Account (IRA), whereby Americans will be able to set aside money each year, tax free, in Health Savings Accounts.

For the latest information on Medicare visit the Medicare web site at <www.medicare.gov>

further readings

Channick, Susan Adler. 2003. "The Ongoing Debate Over Medicare: Understanding the Philosophical and Policy Divides." Journal of Health Law 36 (winter): 59-106.

cross-references

Elder Law; Health Care Law; Health Insurance; Managed Care; Physicians and Surgeons; Senior Citizens.

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Medicare

Medicare

Definition

Medicare is a national health insurance program created and administered by the federal government in the United States to address the medical needs of older American citizens. Medicare is available to U.S. citizens 65 years of age and older and some people with disabilities under age 65.


Description

Medicare is the largest health insurance program in the United States. The program was created as part of the Social Security Act Amendment in 1965 and was put into effect in 1966. At the end of 1966, Medicare served approximately 3.9 million individuals. As of 2003, it serves about 41 million people. There are 5.6 million Medicare beneficiaries enrolled in managed care programs.

In 1973, the Medicare program was expanded to include people who have permanent kidney failure and need dialysis or transplants and people under the age of 65 who have specific types of disabilities. Medicare was originally administered by the Social Security Administration, but in 1977, the program was transferred to the Health Care Financing Administration (HCFA), which is part of the United States Department of Health and Human Services (DHHS). The Centers for Medicare and Medicaid Services, an agency of the DHHS, is the administrative agency. This agency also administers Medicaid programs.

Medicare is an entitlement program similar to Social Security and is not based on financial need. Medicare benefits are available to all American citizens over the age of 65 because they or their spouses have paid Social Security taxes through their working years. Since Medicare is a federal program, the rules for eligibility remain constant throughout the nation and coverage remains constant regardless of where an individual receives treatment in the United States.

Medicare benefits are divided into two different categories referred to as Part A and Part B. Medicare Part A is hospital insurance that provides basic coverage for hospital stays and post-hospital nursing facilities, home health care, and hospice care for terminally ill patients. Most people automatically receive Part A when they turn 65 and do not have to pay a premium because they or their spouse paid Medicare taxes while they were working.

Medicare Part B is medical insurance. It covers most fees associated with basic doctor visits and laboratory testing. It also pays for some outpatient medical services such as medical equipment, supplies, and home health care and physical therapy. However, these services and supplies are only covered by Part B when medically necessary and prescribed by a doctor. Enrollment in Part B is optional and the Medicare recipient pays a premium of approximately $65 per month for these added benefits. The amount of the premium is periodically adjusted. Not every person who receives Medicare Part A enrolls in Part B.

Although Medicare provides fairly broad coverage of medical treatment, neither Part A nor B pays for the cost of prescription drugs or other medications.

Medicare is funded solely by the federal government. States do not make matching contributions to the Medicare fund. Social Security contributions, monthly premiums paid by program participants, and general government revenues generate the money used to support the Medicare program. Insurance coverage provided by Medicare is similar to that provided by private health insurance carriers. Medicare usually pays 5080% of the medical bill, while the recipient pays the remaining balance for services provided.

Normal results

As the population of the United States ages, concerns about health care and the financing of quality health care for all members of the elderly population grow. One concern is that health insurance provided by the Medicare program will become obsolete or will be cut from the federal budget in an attempt to save money. Another concern is that money provided by the Social Security Administration for Medicare will be depleted before the aging population of the United States can actually benefit from the taxes they are now paying. A third concern is coverage for prescription medications.

During the Clinton administration, several initiatives were started that saved funds for Medicare. The DHHS also supports several initiatives to save and improve the program. However, continuance of the federal health insurance program is still a problem that American citizens expect legislators to resolve.

During the George W. Bush administration, there has been debate concerning coverage for prescription drugs. Health care reformers suggest that prescription drugs be made available through the Medicare program due to the high cost of such medications. This debate has not been resolved as of early 2003, and legislation has not been enacted.

Some of the successful initiatives undertaken since 1992 include:

  • Fighting fraud and abuse. Much attention has focused on Medicare abuse, fraud, and waste. As a result, overpayments were stopped, fraud was decreased, and abuse was investigated. This has saved the Medicare program approximately $500 million per year.
  • Preserving the Medicare benefit. Due to aggressive action by the federal government, it is estimated that funds have been appropriated to keep Medicare viable through 2026.
  • Supporting Preventive Medicine and the Healthy Aging Project. Medicare programs are supporting preventive medicine and diagnostic treatments in anticipation that preventive measures will improve the health of older Americans and thereby reduce health care costs.

Medicare benefits and health care financing are major issues in the United States. Legislators and federal agencies continue to work on initiatives that will keep health-care programs in place and working for the good of American citizens.

See also Medicaid.


Resources

books

Blumenthal, David and Jon Erickson. Long-Term Care and Medicare Policy: Can We Improve the Continuity of Care? Washington, DC: Brookings Institution Press, 2003.

Marmor, Theodore R. The Politics of Medicare. Second edition. Hawthorne, NY: Aldine de Gruyter, 2000.

Oberlander, Jonathan. Political Life of Medicare. Chicago: University of Chicago Press, 2003.

Pratt, David A. and Sean K. Hornbeck. Social Security and Medicare Answer Book. Gaithersburg, MD: Aspen, 2002.

Stevens, Robert and Rosemary Stevens. Welfare Medicine in America: A Case Study of Medicaid. Somerset, NJ: Transaction Publishers, 2003.

periodicals

Charatan, Fred. "Bush proposes Medicare reform." British Medical Journal 326, no. 7389 (March 15, 2003): 570572.

Hyman, David A. "Does Medicare care about quality? " Perspectives in Biology and Medicine 46, no. 1 (Winter 2003): 5568.

Pulec, Jack L. "Medicare: all or nothing." Ear Nose and Throat Journal 82, no. 1 (January 2003): 78.

Smith, John J., and Leonard Berlin. "Medicare fraud and abuse." American Journal of Roentgenology 180, no. 3 (2003): 591595.

organizations

American College of Physicians, 190 North Independence Mall West, Philadelphia, PA 19106-1572. (800) 523-1546 x2600 or (215) 351-2600. <http://www.acponline.org>.

American College of Surgeons, 633 North St. Clair Street, Chicago, IL 60611-32311. (312) 202-5000 fax: (312) 202-5001. <http://www.facs.org>.

American Hospital Association, One North Franklin, Chicago, IL 60606-3421. (312) 422-3000 fax: (312) 422-4796. <http://www.aha.org>.

American Medical Association, 515 North State Street, Chicago, IL 60610. (312) 464-5000. <http://www.ama-assn.org>.

Center for Medicare Advocacy, P.O. Box 350, Willimantic, CT 06226. (860) 456-7790 or (202) 216-0028. <http://www.medicareadvocacy.org>.


other

Centers for Medicare and Medicaid Services, U.S. Department of Health and Human Services. <http://cms.hhs.gov>.

Medicare Information Center, <http://www.medicare.org>.

Medicare Rights Center, <http://www.medicarerights.org>.

United States Government Medicare Information, <http://www.medicare.gov>.


L. Fleming Fallon, Jr., MD, DrPH

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Medicare

Medicare

BIBLIOGRAPHY

Medicare is the name given to public health insurance programs in Canada, Australia, and the United States. In Canada and Australia, the program covers the vast majority of health services for all citizens. The Canadian provinces administer medicare (with a lowercase m ) for their inhabitants, and provincial health plans vary in some respects, but in both Canada and Australia, health-care coverage is universal and financed primarily through general tax revenues.

In the United States, Medicare is a public program that provides health insurance for people who are age sixty-five or older, considered disabled by the Social Security Administration (after a two-year wait), or diagnosed with end-stage renal disease. Medicare was enacted in 1965 as Title XVIII of the Social Security Act. In 2005, 42.5 million Medicare beneficiaries were covered at a cost of $330 billion. Despite its primarily elderly clientele, Medicare does not pay for long-term care, except for brief, medically involved stays in a skilled nursing facility.

Medicare is organized into parts A through D, each of which corresponds to a different service type with a different financing scheme. Part A is a program of inpatient hospital insurance available to all Medicare beneficiaries; there is no premium, although beneficiaries are required to pay deductibles and co-payments when they use covered services. Part A is financed through a payroll tax of 2.9 percent, paid half by employers and half by employees. Part B provides coverage for outpatient services, including physician visits, therapies, and laboratory tests. Enrollment is voluntary, and beneficiaries pay a monthly premium for coverage and deductibles and co-payments at the point of service. Part B is financed through premiums and general tax revenues. Part C concerns itself with managed care plans. Part D, passed in 2003, represents the largest expansion of Medicare benefits since 1965; as of January 1, 2006, it covers some of the cost of prescription drugs for beneficiaries who enroll. In a departure from earlier Medicare policy, enrollees receive Part D benefits through private insurance plans that offer coverage for different drugs (within limits set by the government) at different premium amounts. Like Part B, Part D is financed through premiums and general revenue funds. Medicare beneficiaries may also purchase private supplementary, or Medigap, insurance policies to cover deductibles, co-payments, and uncovered services.

Medicare is administered at the federal level by the Centers for Medicare and Medicaid Services. The Medicare programs passage followed a decades-long attempt to enact national health insurance for all Americans. Medicare proponents hoped and expected that the program would be a first step toward that end; as of 2007, Medicare for all remained just one of many proposals for health-care reform.

Among other strengths, Medicare has substantially lower administrative costs than private insurers and has instituted innovative payment systems in the form of diagnosis related groups (DRGs) for hospitals and the resource-based relative value scale (RBRVS) for physicians. Under DRGs, hospitals are paid on a prospective basis to encourage efficiency. The RBRVS makes it possible to redress payment imbalances between generalist and specialist physicians.

SEE ALSO Medicaid; Welfare; Welfare State

BIBLIOGRAPHY

Centers for Medicare & Medicaid Services. http://www.cms.gov.

Henry J. Kaiser Family Foundation. 2005. Medicare Chartbook. 3rd ed. http://www.kff.org/medicare/upload/Medicare-Chart-Book-3rd-Edition-Summer-2005-Report.pdf.

Marmor, Theodore R. 2000. The Politics of Medicare. 2nd ed. New York: de Gruyter.

Oberlander, Jonathan. 2003. The Political Life of Medicare. Chicago: University of Chicago Press.

Sandra J. Tanenbaum

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Medicare

Medicare, national health insurance program in the United States for persons aged 65 and over and the disabled. It was established in 1965 with passage of the Social Security Amendments and is now run by the Centers for Medicare and Medicaid Services. Coverage for certain people with disabilities began in 1973. Medicare provides for a basic program of hospital insurance, under which enrollees are protected against major costs of hospital and related care; and a supplementary medical insurance program, through which persons are aided in paying doctor bills and other health-care bills. It is funded by a tax on the earnings of employees that is matched by the employer and by premiums paid by enrollees. In 2012 some 51 million Americans were enrolled in Medicare. Legislation passed in 2003 provides for a drug benefit program (beginning in 2006), higher premiums for enrollees earning more than $80,000, and subsidies over 10 years to encourage private insurers to compete with Medicare.

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Medicare

MEDICARE


The Medicare program provides health and hospital insurance to disabled persons and those age 65 and older. It was first proposed by President Harry Truman (19451953), but wasn't enacted as policy until President Lyndon Johnson (19631969) included it in one of his Great Society proposals in 1965.

Effective since 1966, Medicare was first managed by the Social Security Administration. In 1977, its operations were transferred to the newly created Health Care Financing Administration, where it remains today. Unlike the social welfare program Medicaid, Medicare does not place an income requirement on individuals who receive its services. To be eligible for Medicare, one must be disabled or be age 65 or older.

The Medicare program has two components: a hospital insurance program and a supplementary medical insurance program. The hospital insurance program covers reasonable and medically necessary treatments in a hospital or nursing home. It is funded through a 2.9 percent Social Security tax on employers and workers. The money generated from this tax is placed into a trust fund for use by the Medicare program.

The supplementary medical insurance program is a service offered to individuals who sign up for it with a monthly insurance premium, which, in addition to tax revenue contributions from the federal government, funds the program. Under the supplementary medical insurance program, an individual pays the monthly premium and a small annual deductible fee for medical costs.

While there are limitations as to what Medicare will pay for (no routine physical examinations, for example), most physicians accept Medicare patients. All health care providers accepting Medicare patients must meet state and local licensing laws and standards to qualify for Medicare reimbursements for their services.

Medicare assisted about 37 million people in 1995, spending $178 billion for their care. Under current laws, the year 2002 should see a rise in Medicare spending to $345 billion. Since the 1980s debate about the program has risen. With the quality of medical care increasingly improving, life expectancy also increases. This means Medicare will be taking care of people for a longer period of time.

The program experienced a surplus in the 1980s and 1990s, but its future in the twenty-first century is uncertain. Medicare expenditures are expected to increase more rapidly than tax revenues. As the costs of medical treatment increase and the number of Medicare recipients rise with the 2010 retirement of the post-World War II baby boom generation, the program faces great financial and systemic strain.

See also: Great Society, Medicaid

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Medicare

Med·i·care / ˈmediˌke(ə)r/ a federal system of health insurance for people over 65 years of age and for certain younger people with disabilities.

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Medicare

Medicare •haircare • skincare • Medicare •childcare • aftercare

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