Medicare

DEFINITION: A federal health insurance program for persons over sixty-five, persons with end-stage renal disease, and some individuals with disabilities

Introduction

Medicare is a federal health insurance program for individuals who are sixty-five or older, persons who have end-stage renal disease (irreversible kidney failure), and some individuals who have disabilities. In addition to age and special conditions, eligible individuals or their spouses must have been employed for at least ten years in a job in which they paid Social Security payroll taxes and must be citizens or permanent residents of the United States. Medicare was passed into law as Title XVIII of the Social Security Act of 1965. The intent of the Medicare law was to provide financial protection to older individuals against the high cost of illness and hospitalization.

According to the Centers for Medicare & Medicaid Services (CMS), by the summer of 2024 more than 67 million Americans were enrolled in Medicare services. Medicare is administered through the CMS, formerly the Health Care Financing Administration (HCFA). CMS is an agency of the Social Security Administration within the Department of Health and Human Services (DHHS).

Medicare is financed through a combination of Social Security payroll tax, premiums, and general revenue funds. Services for the Original Medicare Plan are available nationwide, and the insured person can go to any provider that accepts Medicare. The original program operates in the same way as other fee-for-service medical insurance plans, which means the insured person is charged a fee each time that person receives health-care services. The person providing the service files a claim for payment. These fees, or claims, are paid fully or partially by Medicare. The Social Security Administration does not pay the claims directly; it has contractual arrangements with private insurance organizations that handle all payments. Fiscal intermediaries process claims from hospitals and other inpatient facilities, and carriers process claims from physicians and suppliers.

CMS has the responsibility to interpret and clarify the provisions of the laws and regulations governing Medicare. Its responsibility includes making determinations as to whether a particular service will be approved for payment by Medicare. However, the majority of decisions about whether a specific type of service will be covered are made at the local level by the fiscal intermediaries or carriers who process claims.

Medicare has become far more complicated than it was in its original form. There are four sections to Medicare: A, B, C, and D. Respectively, they cover hospital insurance, medical insurance, advantage plans, and prescription drug coverage. One of the ongoing problems for the Medicare program has been to continue to provide the health insurance required by older people and persons with disabilities while also trying to contain costs. Medicare also has variations in practice among states, which also leads to some confusion over and frustration with the program.

Part A benefits include a semiprivate room in a hospital or skilled nursing facility as well as related services and supplies, including laboratory and diagnostic procedures, nursing care, surgical care, and rehabilitative services. Skilled nursing home services are paid for after the person has been hospitalized for three days for a related health condition. Medicare pays for medications given to the patient while in the hospital or skilled nursing facility. In situations of medical necessity, a private room is allowed. Part A also pays for part-time skilled nursing care in the home as well as for physical, occupational, and speech-language therapy. Hospice care for terminally ill patients is paid for through Part A. Hospice care includes medical and support services such as drugs for the control of pain or other symptoms and skilled nursing care.

Part B, called Medical Insurance (MI), pays for outpatient services, including services from primary care providers, specialist physicians, clinical psychologists, and social workers. Part B also pays for outpatient mental health services, surgical services and supplies, diagnostic tests, procedures, outpatient therapies, and durable medical equipment such as canes, wheelchairs, walkers, and oxygen-delivery equipment. These services and supplies are covered when they are medically necessary. Medicare helps pay for ambulance services when other sources of transportation would endanger the person’s health, artificial limbs and prosthetic devices, braces, chiropractic services, emergency care, immunosuppressive drugs for patients who have undergone organ transplantation, kidney dialysis, nutritional therapy services for diabetics or patients with ESRD, and telemedicine in rural areas. Medicare pays for approved medications that are administered as part of physicians’ services.

Preventive services are also covered under Part B. These preventive services include bone density tests, colorectal cancer screening, diabetes services and supplies, glaucoma screening, mammography, clinical breast examinations, Pap tests and pelvic examinations, prostate cancer screening, and vaccinations. Rules apply as to who qualifies and the frequency of these services.

A provider or supplier must inform the beneficiary if a specific service will likely not be paid for by Medicare. If the person still chooses to receive the service, the person will be asked to sign an advance beneficiary notice (ABN). By signing the ABN, the person is agreeing to pay out-of-pocket if Medicare does not pay.

Part B is optional, and individuals have a choice of whether to enroll in Part B at the same time that they enroll in Part A. Most people do have to pay for coverage under Part B. A portion of the total cost for these services is financed through premiums, and the remainder is financed through general federal revenue funds. The monthly premium is deducted from the person’s Social Security, railroad retirement, or civil service retirement check. If individuals do not receive a retirement check, then Medicare bills them for the Part B premiums on a quarterly basis. Eligible persons can postpone enrolling in Part B if they or their spouses are working and have group health insurance through their employment. However, if they do not have group health insurance and delay enrolling in Part B, then their monthly payments may be increased by 10 percent for every year that they did not enroll but could have done so. For services under both Part A and Part B, the insured person is responsible for paying the deductible, coinsurance, and copayment.

Part C is not considered a separate benefit of Medicare. Rather, these Medicare Advantage plans allow private health insurance companies, such as HMOs and PPOs, to contract with Medicare to provide individuals with all of the Part A and Part B Medicare benefits. These plans, which include plans for individuals with special needs, are annual contracts and are subject to a change in benefits, premiums, and copayments at the end of each contracted year.

Medicare Part D is outpatient prescription drug insurance and is provided through private insurance companies that have contracts with the US government. Individuals are not automatically enrolled in Part D coverage and must choose it as a separate benefit.

Private insurance can be purchased separately to help pay coinsurance amounts, deductibles, and other out-of-pocket expenses for individuals who have the Original Medicare Plan. Such insurance policies are called Medigap policies, since they are used to fill the gaps in the Original Medicare Plan. Medigap policies are regulated by federal and state laws. Different Medigap plans offer different benefits, and some Medigap policies pay a portion of prescription medication fees.

Medicare beneficiaries sometimes have additional health-care coverage that pays bills first, after which Medicare pays the remainder; this is called Medicare Secondary Payer. Examples of primary payers are veterans’ benefits, workers’ compensation, union health coverage, or employer-sponsored insurance. To conserve Medicare funds, the Coordination of Benefits program monitors and manages the payment process when beneficiaries have more than one policy.

Physician services and supplies will cost more if the physician or supplier does not accept assignment. Assignment is an agreement from a physician, other health-care provider, or supplier of medical equipment whereby they accept the Medicare-approved fee as full payment for rendered services. The approved fee is the cost that has been established by Medicare as reasonable for the particular service. Even if the physician or other providers do not accept assignment, a maximum is placed on what they can charge, called the limiting charge.

To reflect the changes occurring in health-care delivery, Medicare law was amended in 1997 to allow beneficiaries to choose among several different health insurance plans based on their needs. The Original Medicare Plan remained as it was originally implemented. Another option, Medicare Advantage (originally known as Medicare+Choice), enables beneficiaries to enroll in a managed care plan or private fee-for-service plan. In managed care plans, a specified group of providers render services to all members enrolled in the plan. All Medicare+Choice plans must include services covered by Parts A and B of the Original Medicare Plan. These plans can also provide additional services such as prescription medication, dental care, preventive care, and glasses. The cost for additional services depends on the specific plan. Under these plans, the beneficiary may be required to pay a premium, in addition to what is paid for Part B, and a copayment when services are rendered. All Medicare beneficiaries, regardless of the type of plan, have the right to appeal a decision related to the amount of payment for a service, whether a particular service or item should be covered, or the length of time that a service should be provided.

In addition to the right to appeal decisions, beneficiaries have a right to information, to know their treatment choices and be involved in treatment decisions, to file complaints, and to nondiscriminatory treatment that reflects sensitivity to cultural differences. Medicare is required by law to protect the privacy of medical information as set forth in the Health Insurance Portability and Accountability Act (HIPAA) of 1996.

If a person qualifies for Medicare but cannot afford to pay for Medicare deductibles and coinsurance, that person may be eligible for the Medicare Savings Programs available through the State Medical Assistance Office. If the person’s income and resources are severely limited, then the individual may qualify for Medicaid in addition to Medicare.

Perspective and Prospects

In June 2003, Congress passed bills to amend Medicare to include coverage for prescription medications and give individuals more choice in the selection of health insurance plans. These bills reflected Congress’s attempt to monitor and improve the quality of health-care services for Medicare recipients while maintaining the integrity of the Medicare Trust Fund. The resulting Part D drug benefit received mixed reviews.

The US government further reformed Medicare through the passage of the Patient Protection and Affordable Care Act (PPACA) in March 2010. The PPACA—commonly called the Affordable Care Act (ACA) or Obamacare after its major backer, US president Barack Obama—sought to reform several aspects of the US health insurance industry, as well as improve the access to and quality of health-care services. Notably, it expanded Medicare coverage through individual state governments. The act also implemented additional prescription drug coverage for some Medicare recipients and stipulated that Medicare must cover additional preventive services, such as mammograms and wellness exams, without charging a deductible.

Historically, health-care benefits for older persons were not uniform. Medicare beneficiaries enrolled in health plans, for instance, might receive essential services (such as case management) that were not covered for those enrolled in fee-for-service Medicare. Community-based alternatives to long-term care (such as the Program of All-Inclusive Care of the Elderly, PACE) were essentially out of reach financially for many older persons. The PPACA attempted to address these issues and has, among other provisions, included additional preventative care benefits through Medicare. The law also lowered the cost of prescription drugs and provided incentives to physicians who treat Medicare patients or who provide primary care in regional areas with doctor shortages. To further address the issue of inconsistent services, the PPACA increased the number of checks and balances in an effort to ensure best practices in nursing homes.

Medicare was also affected by the Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted in 2020. The $2 trillion stimulus plan was enacted amid the coronavirus disease 2019 (COVID-19) pandemic and included an expansion of Medicare to cover special treatment for COVID-19 cases. It also made it easier for Medicare to apply for telehealth services. The US government continued to promote the health of older Americans by urging them to receive a COVID-19 vaccine through their Medicare coverage and remained a key public program promoting the financial and physical health of older Americans.

Following the enactment of the Inflation Reduction Act of 2022, Medicare changes included more vaccination coverage, lower out-of-pocket drug costs, and the enablement of direct drug price negotiations with manufacturers.

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