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What is Medicare?

A look at the plans and who's eligible for them

  • March 4, 2015

Medicare is the federal health insurance program created in 1965 to provide health coverage for Americans aged 65 and older. Approximately 13 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 and also provides benefits to those diagnosed with end-stage renal disease and amyotrophic lateral sclerosis (ALS). Approximately 17 percent of the Medicare population – or 8 million beneficiaries – are listed as under-65 and disabled.

Fifty-four million Americans are currently covered by Medicare, and funding for the program now constitutes an estimated 14 percent of federal spending. The government’s net Medicare spending is expected to grow from $512 billion in 2014 to an estimated $686 billion in 2020. That projected growth is significantly lower – by about $90 billion – than the CBO had projected in 2010, due to improvements that have been ushered in as part of the ACA.

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 amyothrophic 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 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.

Find out when you will be eligible for Medicare and how to enroll.

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. In exchange for the benefits, coverage may be limited to network of providers.
  • Medicare Part D – prescription drug coverage – provides substantial price breaks on prescription drugs for approximately 27 million Americans who enroll in Part D plans designed and administered by private health insurance companies.
  • Medicare supplement (Medigap) – is supplemental coverage purchased by Medicare beneficiaries to fill the holes in Original Medicare. The 10 different plans – lettered A through N – offer different combinations of money-saving benefits.