Medicare: Key takeaways
- Medicare was created in 1965 to provide health coverage for Americans age 65 and older.
- The program was expanded in 1972 cover younger Americans who have permanent disabilities.
- Each part of Medicare is funded differently.
- The program is comprised of Original Medicare (Parts A & B), Medicare Advantage (Part C), Part D prescription drug coverage and Medigap.
Medicare’s origins and growth
Medicare is the federal health insurance program created in 1965 to provide health coverage for Americans aged 65 and older. Approximately 12 percent of the Medicare population is aged 85 or older.
The program – administered by the Centers for Medicare and Medicaid Services – was expanded in 1972 to cover people younger than 65 who have permanent disabilities, including those diagnosed with end-stage renal disease (ESRD). And in 2001, Congress added amyotrophic lateral sclerosis (ALS) as a diagnosis that makes a person eligible for Medicare prior to age 65. Approximately 17 percent of the Medicare population – or 8 million beneficiaries – are under 65.
More than 61 million Americans are currently covered by Medicare, and funding for the program accounted for 14 percent of federal spending in 2018. The government’s net Medicare spending (ie, the government’s costs after subtracting enrollees’ premiums) is expected to grow from $590 billion in 2017 to an estimated $1.2 trillion in 2027, which is projected to be 17.5 percent of federal spending by that point.
Each part of Medicare is funded differently. Part A is funded primarily by payroll taxes, which end up in the Hospital Insurance Trust Fund. Part B revenue comes from general revenues and the premiums paid by Medicare beneficiaries. Part C (Medicare Advantage) is also paid for by general revenues and beneficiary premiums, while the Part D prescription drug plan is funded by general revenues, premiums and state payments.
Who is eligible for Medicare?
Generally speaking, you are eligible for Medicare if one of the following applies:
- you are 65 years old, and have been a legal permanent US resident for at least five continuous years.
- you are under 65 and have amyotrophic lateral sclerosis (ALS) – also known as Lou Gehrig’s Disease – or end-stage renal disease (ERSD); or
- you aren’t yet 65, but have been entitled to Social Security Disability benefits for at least 24 months.
In order to get Medicare Part A with no premium, you also need to have paid into the Medicare system. This means that you or your spouse (or a parent, if you’re enrolling as a disabled child) must have worked for at least ten years prior to enrolling in Medicare. If not, you’re still eligible, but will have to pay a premium for Medicare Part A.
How do Americans receive Medicare coverage?
The Medicare program is comprised of four main parts:
- Medicare Part A – often referred to as “hospital insurance” – is devoted to inpatient care, covering the costs of inpatient hospital stays (of at least one night), skilled nursing facility stays (if they meet specific criteria), home health care and hospice care.
- Medicare Part B – often called “medical insurance” – covers outpatient expenses, including physician and nursing fees, as well as a range of services (such as x-rays, diagnostic tests, and renal dialysis) and some equipment.
- Medicare Advantage (Part C) – allows Medicare beneficiaries to receive Medicare-covered benefits through private health plans which may also include extra benefits such as prescription drug coverage (ie, integrated Part D coverage). In exchange for the benefits, coverage may be limited to network of providers.
- Medicare Part D – prescription drug coverage – provides price breaks on prescription drugs for nearly 46 million Americans who enroll in Part D plans designed and administered by private health insurance companies (more than 25 million people have stand-alone Part D plans, while more than 20 million have Part D coverage integrated with a Medicare Advantage plan).
- Medicare supplement (Medigap) – is supplemental coverage purchased by Original Medicare beneficiaries to cover out-of-pocket expenses (for Medicare-covered services) they would otherwise have to pay themselves. Ten different standardized plans are offered in most states – lettered A through N – providing different combinations of money-saving benefits [note that the current plans C and F, both of which cover the Part B deductible in full, will no longer be available to new enrollees after the end of 2019; people who already have those plans at that point will be able to keep them, but people who become newly-eligible for Medicare after the end of 2019 will no longer have access to a Medigap plan that covers that Part B deductible. The most comprehensive Medigap alternative at that point, for newly-eligible enrollees, will be Plan G, which is the same as Plan F except for the coverage of the Part B deductible.]