Medicare (United States)

This article refers to Medicare, a United States health insurance program. For similarly named programs in other countries, see Medicare.

President Johnson signing the Medicare amendment. Harry Truman and his wife, Bess, are on the far right

Medicare is a social insurance program administered by the United States government, providing health insurance coverage to people who are aged 65 and over, or who meet other special criteria. It was originally signed into law on July 30, 1965, by President Lyndon B. Johnson as amendments to Social Security legislation. At the bill-signing ceremony President Johnson enrolled former President Harry S. Truman as the first Medicare beneficiary and presented him with the first Medicare card. The Centers for Medicare and Medicaid Services (CMS), a component of the Department of Health and Human Services (HHS), administers Medicare, Medicaid, the State Children's Health Insurance Program (SCHIP), and the Clinical Laboratory Improvement Amendments (CLIA). Along with the Departments of Labor and Treasury, CMS also implements the insurance reform provisions of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). The Social Security Administration is responsible for determining Medicare eligibility and processing premium payments for the Medicare program.

Medicare is partially financed by payroll taxes imposed by the Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act of 1954. In the case of employees, the tax is equal to 2.9% (1.45% withheld from the worker and a matching 1.45% paid by the employer) of the wages, salaries and other compensation in connection with employment. Until December 31, 1993, the law provided a maximum amount of wages, etc., on which the Medicare tax could be imposed each year. Beginning January 1, 1994, the compensation limit was removed. In the case of self-employed individuals, the entire 2.9% tax of self employed net earnings must be paid by the self-employed individual, however half of the tax can be deducted from the income calculated for income tax purposes.

Eligibility

In general, individuals are eligible for Medicare if they are a U.S. citizen or have been a permanent legal resident for 5 continuous years, and they are 65 years or older, or they are under 65, disabled and have been receiving either Social Security or the Railroad Retirement Board disability benefits for at least 24 months, or they get continuing dialysis for permanent kidney failure or need a kidney transplant, or they are eligible for Social Security Disability Insurance and have Amyotrophic Lateral Sclerosis (ALS-Lou Gehrig's disease).

Many beneficiaries are dual-eligible. This means they qualify for both Medicare and Medicaid. In some states for those making below a certain income, Medicaid will pay the beneficiaries' Part B premium for them (most beneficiaries have worked long enough and have no Part A premium), and also pay any drugs that are not covered by Part D.

In 2007, Medicare provided health care coverage for 43 million Americans. Enrollment is expected to reach 77 million by 2031, when the baby boom generation is fully enrolled.

Benefits

A Medicare card, with several areas of the card obscured to protect privacy.
There are separate lines with for Part A and Part B, each with its own date.
There is no lines for Part C or D, as a separate card is issued for those benefits by the private insurance company.

The original Medicare program has two parts: Part A (Hospital Insurance), and Part B (Medical Insurance). Only a few special cases exist where prescription drugs are covered by original Medicare, but as of January 2006, Medicare Part D provides more comprehensive drug coverage. Medicare Advantage plans are another way for beneficiaries to receive their Part A, B and D benefits. All Medicare benefits are subject to medical necessity.

Part A: Hospital Insurance

Part A covers hospital stays (including stays in a skilled nursing facility) if certain criteria are met:

1. The hospital stay must be at least three days, three midnights, not counting the discharge date.
2. The nursing home stay must be for something diagnosed during the hospital stay or for the main cause of hospital stay. For instance, a hospital stay for a broken hip and then a nursing home stay for physical therapy would be covered.
3. If the patient is not receiving rehabilitation but has some other ailment that requires skilled nursing supervision then the nursing home stay would be covered.
4. The care being rendered by the nursing home must be skilled. Medicare part A does not pay for custodial, non-skilled, or long-term care activities, including activities of daily living (ADLs) such as personal hygiene, cooking, cleaning, etc.

The maximum length of stay that Medicare Part A will cover in a skilled nursing facility per ailment is 100 days. The first 20 days would be paid for in full by Medicare with the remaining 80 days requiring a co-payment (as of 2008, $128.00 per day). Many insurance companies have a provision for skilled nursing care in the policies they sell.

If a beneficiary uses some portion of their Part A benefit and then goes at least 60 days without receiving facility-based skilled services, the 100-day clock is reset and the person qualifies for a new 100-day benefit period.

Part B: Medical Insurance

Part B medical insurance helps pay for some services and products not covered by Part A, generally on an outpatient basis. Part B is optional and may be deferred if the beneficiary or their spouse is still actively working. There is a lifetime penalty (10% per year) imposed for not enrolling in Part B unless actively working.

Part B coverage includes physician and nursing services, x-rays, laboratory and diagnostic tests, influenza and pneumonia vaccinations, blood transfusions, renal dialysis, outpatient hospital procedures, limited ambulance transportation, Immunosuppressive drugs for organ transplant recipients, chemotherapy, hormonal treatments such as lupron, and other outpatient medical treatments administered in a doctor's office. Medication administration is covered under Part B only if it is administered by the physician during an office visit.

Part B also helps with durable medical equipment (DME), including canes, walkers, wheelchairs, and mobility scooters for those with mobility impairments. Prosthetic devices such as artificial limbs and breast prosthesis following mastectomy, as well as one pair of eyeglasses following cataract surgery, and oxygen for home use is also covered.

Part C: Medicare Advantage plans

With the passage of the Balanced Budget Act of 1997, Medicare beneficiaries were given the option to receive their Medicare benefits through private health insurance plans, instead of through the original Medicare plan (Parts A and B). These programs were known as "Medicare+Choice" or "Part C" plans. Pursuant to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, the compensation and business practices changed for insurers that offer these plans, and "Medicare+Choice" plans became known as "Medicare Advantage" (MA) plans.

Medicare has a standard benefit package that covers medically necessary care members can receive from nearly any hospital or doctor in the country. For people who choose to enroll in a Medicare private health plan, Medicare pays the private health plan a set amount every month for each member. Members may have to pay a monthly premium in addition to the Medicare Part B premium and generally pay a fixed amount (a copayment of $20, for example) every time they see a doctor. The copayment can be higher to see a specialist.

The private plans are required to offer a benefit “package” that is at least as good as Medicare’s and cover everything Medicare covers, but they do not have to cover every benefit in the same way. Plans that pay less than Medicare for some benefits, like skilled nursing facility care, can balance their benefits package by offering lower copayments for doctor visits. Private plans use some of the excess payments they receive from the government for each enrollee to offer supplemental benefits. Some plans put a limit on their members’ annual out-of-pocket spending on medical care, providing some insurance against catastrophic costs over $5,000, for example. But many plans use the excess subsidies to offer dental coverage and other services not covered by Medicare and can leave members exposed to high medical bills if they fall seriously ill. Private plan members can end up with unexpectedly high out-of-pocket costs.

In 2006 enrollees in Medicare Advantage Private Fee-for-Service plans were offered a net extra benefit value (the value of the additional benefits minus any additional premium) of $55.92 a month more than the traditional Medicare benefit package; enrollees in other Medicare Advantage plans were offered a net extra benefit value of $71.22 a month more.

Medicare Advantage Plans that also include Part D prescription drug benefits are known as a Medicare Advantage Prescription Drug plan or a MAPD.

Part D: Prescription Drug plans

Medicare Part D went into effect on January 1, 2006. Anyone with Part A or B is eligible for Part D. It was made possible by the passage of the Medicare Prescription Drug, Improvement, and Modernization Act. In order to receive this benefit, a person with Medicare must enroll in a stand-alone Prescription Drug Plan (PDP) or Medicare Advantage plan with prescription drug coverage (MA-PD). These plans are approved and regulated by the Medicare program, but are actually designed and administered by private health insurance companies. Unlike Original Medicare (Part A and B), Part D coverage is not standardized. Plans choose which drugs (or even classes of drugs) they wish to cover, at what level (or tier) they wish to cover it, and are free to choose not to cover some drugs at all. The exception to this is drugs that Medicare specifically excludes from coverage, including but not limited to benzodiazepines, cough suppressant and barbiturates. Plans that cover excluded drugs are not allowed to pass those costs on to Medicare, and plans are required to repay CMS if they are found to have billed Medicare in these cases.

It should be noted again for beneficiaries who are dual-eligible (Medicare and Medicaid eligible) Medicaid may pay for drugs not covered by part D of Medicare, such as benzodiazepines, and other restricted controlled substances.

Medicare supplement (Medigap) policies

Some people elect to purchase a type of supplemental coverage, called a Medigap plan, to help fill in the holes in Original Medicare (Part A and B). These Medigap insurance policies are standardized by CMS, but are sold and administered by private companies. Some Medigap policies sold before 2006 may include coverage for prescription drugs. Medigap policies sold after the introduction of Medicare Part D on January 1, 2006 are prohibited from covering drugs.

Some have suggested that by reducing the cost-sharing requirements in the Medicare program, Medigap policies increase the use of health care by Medicare beneficiaries and thus increase Medicare spending. One recent study suggests that this concern may have been overstated due to methodological problems in prior research.

Costs and funding challenges

Medicare and Medicaid Spending as % GDP

As an expansive social insurance program, Medicare often faces funding challenges such as long-term financial viability, the ageing population at large, as well as waste and fraud. According to the 2004 "Green Book" of the House Ways and Means Committee, Medicare expenditures from the American government were $256.8 billion in fiscal year 2002. Beneficiary premiums are highly subsidized, and net outlays for the program, accounting for the premiums paid by subscribers, were $230.9 billion.

Medicare spending is growing steadily in both absolute terms and as a percentage of the federal budget. Total Medicare spending reached $440 billion for fiscal year 2007, or 16 percent of all federal spending. The only larger categories of federal spending are Social Security and defense. Given the current pattern of spending growth, maintaining Medicare's financing over the long-term may well require significant changes.

According to the 2008 report by the board of trustees for Medicare and Social Security, Medicare will spend more than it brings in from taxes this year (2008). The Medicare hospital insurance trust fund will become insolvent by 2019. Shortly after the release of the report, the Chief Actuary testified that the insolvency of the system could be pushed back by 18 months if Medicare Advantage plans were paid at the same rate as the traditional fee-for-service program. He also testified that the 10-year cost of Medicare drug benefit is 37% lower than originally projected in 2003, and 17% percent lower than last year's projections.

Spending on Medicare and Medicaid is projected to grow dramatically in coming decades. While the same demographic trends that affect Social Security also affect Medicare, rapidly rising medical prices appear a more important cause of projected spending increases. The Congressional Budget Office (CBO) has indicated that: "Future growth in spending per beneficiary for Medicare and Medicaid—the federal government’s major health care programs—will be the most important determinant of long-term trends in federal spending. Changing those programs in ways that reduce the growth of costs—which will be difficult, in part because of the complexity of health policy choices—is ultimately the nation’s central long-term challenge in setting federal fiscal policy." Further, the CBO also projects that "total federal Medicare and Medicaid outlays will rise from 4 percent of GDP in 2007 to 12 percent in 2050 and 19 percent in 2082—which, as a share of the economy, is roughly equivalent to the total amount that the federal government spends today. The bulk of that projected increase in health care spending reflects higher costs per beneficiary rather than an increase in the number of beneficiaries associated with an aging population."

Another segment of the cost of Medicare is attributable to fraud, which government auditors estimate costs Medicare billions of dollars a year. The Government Accountability Office lists Medicare as a "high-risk" government program in need of reform, in part because of its vulnerability to fraud and partly because of its long-term financial problems. A Washington Post story from June of 2008 reported that Medicare fraud is a growing problem. Limited resources mean that fewer than 5% of Medicare claims are audited. The annual cost to taxpayers of Medicare fraud is estimated to be over $60 billion.

Estimated net Medicare benefits for different worker categories

File:Fig. 169 - Net lifetime Medicare benefits.JPG

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In 2004, Urban Institute economists C. Eugene Steuerle and Adam Carasso created a Web-based Medicare benefits calculator. Using this calculator it is possible to estimate net Medicare benefits (i.e., estimated lifetime Medicare benefits received minus estimated lifetime Medicare taxes paid, expressed in today's dollars) for different types of recipients. In the book, Democrats and Republicans - Rhetoric and Reality, Joseph Fried used the calculator to create graphical depictions of the estimated net benefits of men and women who were at different wage levels, single and married (with stay-at-home spouses), and retiring in different years. Three of these graphs are shown below, and they clearly show why Medicare (as currently formulated) is on the path to fiscal insolvency: No matter what the wage level, marital status, or retirement date, a man or woman can expect to receive benefits that will cost the system far more than the taxes he or she paid into the system.

In the first graph (Figure 169) we see that estimated net benefits range from $108,000 to $240,000 for single men and from $142,000 to $277,000 for single women. Generally, the benefits are progressive. Note that women usually get higher benefits due to their greater longevity.

File:Fig. 170 - Comparison of Medicare benefits.JPG

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In the next graph (Figure 170) we see a comparison of net Medicare benefits for a single woman versus a married woman (or man) with a stay-at-home spouse. The single woman can expect substantial net benefits, ranging from $142,000 to $277,000, However, these benefits are dwarfed by the estimated net benefits of her married counterpart. Due to a "spousal benefit" built into the Medicare formula, the married person will get net benefits ranging from $393,000 to $525,000. The impact of the spousal benefit can disrupt the intended progressivity of Medicare benefits. For example, we see in Figure 170 that the married worker earning $95,000 is estimated to get net benefits of $393,000, while the single worker earning $5,000 is estimated to get $277,000. In either case, the benefits paid to the worker greatly exceed the taxes paid by the worker (and pose a financial burden on the system); however, the high-earning married worker gets a better "return," so to speak, on each tax dollar paid into the system.

File:Fig. 171 - Medicare benefits of men at different wages levels and retirement dates.JPG

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The last graph shown (Figure 171) compares the net benefits of a single man retiring in 2005 with the net benefits of a man retiring in 2045. It is clear that the future retiree is likely to get a far greater net benefit than the current retiree (and is likely to be a greater burden to the system). Interestingly, in the Social Security system we see the opposite pattern. In that case, the future retiree can expect a much smaller net retirement benefit than the current retiree can expect. See "Estimated net Social Security benefits under differing circumstances" in Social Security (United States)

Criticism

Medicare faces continuing financial challenges. In its 2006 annual report to Congress, the Medicare Board of Trustees reported that the program's hospital insurance trust fund could run out of money by 2018. The trustees have made such projections in the past, but this one was bleaker than the outlook reported in 2005.

Popular opinion surveys show that the public views Medicare’s problems as serious, but not as urgent as other concerns. In January 2006, the Pew Research Center found 62 percent of the public said addressing Medicare’s financial problems should be a high priority for the government, but that still put it behind other priorities. Surveys suggest that there’s no public consensus behind any specific strategy to keep the program solvent.

Quality of beneficiary services

An a 2001 study by the Government Accountability Office evaluated the quality of responses given by Medicare contractor customer service representatives to provider (physician) questions. The evaluators assembled a list of questions, which they asked during a random sampling of calls to Medicare contractors. The rate of complete, accurate information provided by Medicare customer service representatives was 15%.

Hospital accreditation

In most states the Joint Commission, a private, non-profit organization for accrediting hospitals, possesses a monopoly over whether or not a hospital is able to participate in Medicare, as currently there are no competitor organizations recognized by CMS. An attempt by TÜV Healthcare Specialists to provide a hospital accreditation option was denied in 2006. Rebecca Wise, CEO of TÜVHS, has said "Choice and competition are the hallmarks of a free market.... Can you think of an industry with a more profound impact on our lives than healthcare? Yet there is a much higher chance of you getting the wrong dosage of medicine in a hospital than there is of a manufacturer putting the wrong chip on a circuit board. It’s a failure of the system not the people."

Beyond hospitals and hospital accreditation, there are now a number of alternative American organizations possessing healthcare-related deeming power for Medicare. These include the Community Health Accreditation Program, the Accreditation Commission for Health Care, the Compliance Team and the Healthcare Quality Association on Accreditation.

Physician residency

Medicare funds the vast majority of residency training in the US. This tax-based financing covers resident salaries and benefits through payments called Direct Medical Education payments. Medicare also uses taxes for Indirect Medical Education, a subsidy paid to teaching hospitals in exchange for training resident physicians. Overall funding levels, however, have remained frozen over the last ten years, creating a bottleneck in the training of new physicians in the US. Meanwhile, the US population continues to grow, leading to greater demand for physicians. At the same time the cost of medical services continue rising rapidly and many geographic areas face physician shortages, both trends suggesting the supply of physicians remains too low. Medicare finds itself in the odd position of having assumed control of graduate medical education, currently facing major budget constraints, and as a result, freezing funding for graduate medical education, as well as for physician reimbursement rates. This halt in funding in turn exacerbates the exact problem Medicare sought to solve in the first place: improving the availability of medical care. In response, teaching hospitals have resorted to alternative approaches to funding resident training, leading to the modest 4% total growth in residency slots from 1998-2004, despite Medicare funding having been frozen since 1996.

Legislation and reform

• 1960 — PL 86-778 Social Security Amendments of 1960 (Kerr-Mill aid)
• 1965 — PL 89-97 Social Security Amendments of 1965, Establishing Medicare Benefits
• 1988 — PL 100-360 Medicare Catastrophic Coverage Act of 1988
• 1997 — PL 105-33 Balanced Budget Act of 1997
• 2003 — PL 108-173 Medicare Prescription Drug, Improvement, and Modernization Act

President Bill Clinton attempted an overhaul of Medicare through his health care reform plan in 1993-1994 but was unable to get the legislation passed by Congress.

In 2003 Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act, which President George W. Bush signed into law on December 8, 2003. Part of this legislation included filling gaps in prescription-drug coverage left by the Medicare Secondary Payer Act that was enacted in 1980. The 2003 bill strengthened the Workers' Compensation Medicare Set-Aside Program (WCMSA) that is monitored and administered by CMS.

On August 1, 2007, the U.S. House United States Congress voted to reduce payments to Medicare Advantage providers in order to pay for expanded coverage of children's health under the SCHIPS program. As of 2008, Medicare Advantage plans cost, on average, 13 percent more per person insured than direct payment plans. Many health economists have concluded that payments to Medicare Advantage providers have been excessive. The Senate, after heavy lobbying from the insurance industry, declined to agree to the cuts in Medicare Advantage proposed by the House. President Bush subsequently vetoed the SCHIPS extension.

Legislative oversight

Cameral body	Committee	Leader
Joint House/Senate	Joint Economic Committee	Charles Schumer
House	House Committee on Ways and Means	Charles Rangel
House	House Committee on Ways and Means Subcommittee on Health	Pete Stark
House	House Committee on Energy and Commerce	John Dingell
House	House Committee on Energy and Commerce Subcommittee on Health	Frank Pallone
House	House Committee on Energy and Commerce Subcommittee on Oversight and Investigations	Bart Stupak
House	House Committee on Appropriations	David Obey
House	House Committee on Appropriations Subcommittee on Labor, Health and Human Services, Education, and Related Agencies	David Obey
House	House Small Business Committee	Nydia Velazquez
House	House Budget Committee	John Spratt
Senate	Senate Committee on Finance	Max Baucus
Senate	Senate Special Committee on Aging	Herb Kohl
Senate	Senate Committee on Appropriations	Robert Byrd
Senate	Senate Committee on Appropriations Subcommittee on Labor, Health and Human Services, Education, and Related Agencies	Tom Harkin
Senate	Senate Committee on Homeland Security and Governmental Affairs	Joe Lieberman
Senate	Senate Committee on Homeland Security and Governmental Affairs Subcommittee on Oversight of Government Management, the Federal Workforce, and the District of Columbia	Daniel Akaka
Senate	Senate Committee on Health, Education, Labor and Pensions	Ted Kennedy
Senate	Senate Committee on Health, Education, Labor and Pensions Subcommittee on Retirement Security and Aging	Barbara Mikulski
Senate	Senate Budget Committee	Kent Conrad
Senate	Senate Committee on Homeland Security and Governmental Affairs Subcommittee on Federal Financial Management, Government Information, and International Security	Thomas Carper

This table incorporates information available on the CMS Website

External links

Governmental links - current

• CMS official web site at cms.hhs.gov
  • Medicare at cms.hhs.gov
• Medicare.gov — the official website for people with Medicare
  • Official Medicare publications at Medicare.gov — includes official publications about current Medicare benefits
    • Medicare & You handbook for 2008 at Medicare.gov — includes information about current Medicare benefits
  • Information about the 1-800-MEDICARE helpline from Medicare.gov — a 24X7 toll-free number to call with questions about Medicare
  • Medicare Modernization Act at Medicare.gov
  • Medicare Plan Choices at Medicare.gov — basic information about plan choices for Medicare beneficiaries, including MA Plans
  • Prescription Drug Coverage homepage at Medicare.gov — a central location for Medicare's web-based information about the Part D benefit
    • Landscape of plans — state-by-state breakdown of all plans available in an area, both stand-alone PDPs, as well as MA-PD plans
• MyMedicare.gov — Medicare's secure online service where beneficiaries can access their own personal Medicare information

Governmental links - historical

• Medicare Is Signed Into Law page from ssa.gov — material about the bill-signing ceremony
• Historical Background and Development of Social Security from ssa.gov — includes information about Medicare
• Detailed Chronology of SSA from ssa.gov — includes information about Medicare
• Early Medicare poster from ssa.gov

Non-governmental links

• Congressional Research Service (CRS) Reports related to Medicare from the University of Texas Libraries
• Center for Medicare Advocacy — National education & advocacy organization.
• Medicare Rights Center — Education and advocacy organization.
• Medicare Interactive — Online Medicare reference guide created by the Medicare Rights Center.
• Medicare.org — Medicare information site including descriptions of Part A through D
• Medicare & Medicaid Resources — Medicare information site
• Kaiser Family Foundation — Wide range of free information, including a drug benefit calculator, about the Medicare program and other U.S. health issues.
  • State Health Facts — Data on health care spending and utilization, including Medicare; provided by the Kaiser Family Foundation.
• Medicare - Alliance for Health Reform The nonpartisan, nonprofit Alliance for Health Reform offers information about health reform, in a number of formats, to elected officials and their staffs, journalists, policy analysts and advocates.
• Social Security and Disability News Resource Center
• Issue Guide on Medicare — Policy alternatives and public opinion analysis on Medicare from Public Agenda Online
• How Stuff Works - Medicare

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