November 21, 2019

The Medicare Program and the Coverage It Provides


KEY TAKEAWAYS

  • Medicare was created in 1965 to provide health care for people 65 and older, younger people with permanent disabilities, and end-stage renal disease patients.
  • The program has been modified over the years to increase benefits, modify provider payments, and expand the role of private plans in offering coverage.  
  • Each year, the Medicare trustees report the need for reform to ensure that people who pay into the program can get the care they expect. The trustees have stressed that these changes should be made sooner rather than later. 

Medicare was created in 1965 and provides health care benefits to seniors regardless of their income. Over time it has expanded coverage to younger people with certain permanent disabilities and patients requiring dialysis. The program is run by the Centers for Medicare and Medicaid Services along with private organizations contracting with the agency. The program currently serves about 61 million people.

The 4 Parts of Medicare

Medicare

coverage and costs

Traditional Medicare includes Parts A and B. Medicare Part A is a mandatory program covering inpatient hospital care, skilled nursing services, hospice care, and some home health care. Medicare only covers a small part of nursing home costs – the first 100 days following a patient’s hospital stay. 

Most beneficiaries who are 65 years old and have worked for 40 calendar quarters – or 10 years – in the United States pay no premium for Part A inpatient hospital coverage. They are required to pay a deductible for each hospital admission: $1,408 in 2020.

Medicare Part B covers doctors’ visits, outpatient hospital services, mental health, ambulance services, and durable medical equipment. It also covers physician-administered drugs, as well as injections and infusions in hospital outpatient departments. Self-administered drugs are generally not covered.

Beneficiaries pay premiums for Part B coverage.  In 2020, enrollees who earn less than $87,000 will pay a monthly premium of $144.60. After the patient meets a $198 deductible, the Part B program generally covers 80% of the cost of treatment.

Over the past few decades, Medicare has been changed to increase benefits, modify provider payment, and expand the role of private-sector insurance. For instance, in the 1970s, Medicare began covering care for end-stage renal disease, speech therapy, physical therapy, and chiropractic visits. Hospice care became a permanent benefit in 1984. The Medicare Modernization Act of 2003 added Medicare Advantage and Medicare Part D prescription drug coverage.

Traditional Medicare does not cover some services, such as routine dental and vision care, routine hearing exams and hearing aids, and long-term care. Beneficiaries pay for these out of pocket or may purchase a supplemental or additional policy, such as a Medigap or Medicare Advantage plan. Medicare Advantage, known as Part C, combines Parts A and B into a single plan and may cover services those two do not.

Many people enrolled in Medicare look at the network of doctors and the benefits and decide that the extra benefits of a Medicare Advantage plan are a good value for them. This year, more than a third of Medicare beneficiaries purchased a Medicare Advantage plan. These plans often come with lower out-of-pocket costs and co-pays than traditional Medicare coverage. CMS approves private insurers to offer Medicare coverage; these insurers are paid by Medicare to cover members’ health care claims.

Financial challenges

Medicare Part A is mostly funded by payroll taxes on workers’ wages, which are put into the Hospital Insurance trust fund. Part B is funded largely by premiums and transfers from the general treasury into the Supplemental Medical Insurance trust fund.

Every year the Medicare trustees warn of the program’s fiscal troubles. This year, they estimated the Part A Hospital Insurance trust fund would become insolvent in 2026. At that point, Medicare will only be able to pay 89% of Part A costs. Because the SMI trust fund is supported by automatic transfers from general tax revenue, it will continue to strain the economy and reduce the amount of money available for all other government priorities like defense, education, agriculture, and infrastructure. According to CMS, the Medicare program required $323 billion in general revenue last year.

The trustees note that Congress will need to address Medicare’s financial shortfalls, and it should make changes “sooner rather than later” so people have adequate time to prepare. Experts have offered several options to do this, including: combining Medicare Parts A and B into one program to simplify the cost structure and make beneficiary cost-sharing requirements more clear; adjusting Medicare premiums for higher-income enrollees; and raising the age of eligibility to 67, which would be in line with the eligibility age for Social Security. These efforts could produce savings for the program, protect Medicare for current beneficiaries, and help ensure affordability and care for future enrollees.

Issue Tag: Health Care