Medicare

Basic Concept:

  • Medicare is a program funded and administered by the federal government that provides health insurance to individuals 65 years old or older and to some younger people with disabilities. Although the Medicare program was created by a Social Security amendment, it is administered by the federal agency the Centers for Medicare & Medicaid Services (CMS), and funded from a separate account than Social Security benefits.

Eligibility Requirements: 1

  • An individual must be 65 years old or over

  • The individual or his/her spouse must have paid payroll taxes for at least 10 years

  • Alternatively, some individuals under the age of 65 with disabilities can receive Medicare

  • Those who receive Social Security Disability Insurance (SSDI) payments are eligible for Medicare after receiving SSDI payments for 25 months

  • People with end-stage renal disease (ESRD) can receive Medicare

  • Individuals with catastrophic lateral sclerosis (ALS) can receive Medicare as well

  • Medicare is not limited to low income individuals

Program Participants: 2

  • Roughly 60 million people received Medicare in 2017

    • 51 million were over the age of 65

    • 9 million were people under the age of 65 with permanent disabilities

    • 10 million Medicare recipients were also enrolled in Medicaid, a group known as “dual eligibles”

  • In 2016, 50% of Medicare recipients had incomes below $26,20 and savings below $74,450

The Four Parts of Medicare:

  • Medicare is broken down into four different programs, Parts A, B, C, and D

    • Part A is mandatory but Parts B, C, and D are voluntary

    • Parts A and B make up “Original Medicare” and are provided by the federal government

    • Parts C and D are newer and are offered by private health insurance companies

  • For each individual enrolled in Parts C and D, the federal government pays private insurance companies to cover part of the cost

  • Part A is a hospital insurance plan dealing with nursing care and hospital stays

  • Part B is an optional medical insurance plan that among other things covers doctor services

  • Part C helps pay for private health insurance that covers Part A and B services and usually Part D

  • Part D helps cover prescription drugs through private companies approved by Medicare

  • All four parts typically require the payment of a yearly deductible

    • Parts B, C, and D typically require a monthly premium as well

    • Each program typically has further costs associated with it

  • In total, Medicare spending amounted to 15% of the federal budget in 2017 with $702 billion benefits paid out 3.

  • Below is a table comparing the four different parts of Medicare:


Part A Part B Part C Part D

Required? Yes No No No

Do you have to be enrolled in another part? No Yes. Part A Yes. Part A and Part B Yes. Part A and Part B

Primary Function Hospital Insurance-Nursing care-Hospital stays-Inpatient care in a skilled nursing facility-Hospice Care Medical Insurance-Physician services-Outpatient Care-Home Care Services-Durable Medical Equipment-Mental Health Services-Preventative Services Private Insurance approved by Medicare-At minimum must include the same services as Parts A and B-Can include additional services such as dental and vision-Generally cover Part D services as well Prescription Drug Benefits-Covers the cost of prescription drugs

Service Provider -Federal Government -Federal Government -Private Insurance Companies -Private Insurance Companies Yearly Deductible? -Yes. $1,364 in 2019 -Yes. $185 in 2019 -Typically yes. Varies by plan -Typically yes. Maximum of $415 in 2019 Monthly Premium? No -Yes. Standard of $135 in 2017-Premium is higher if income is greater and less if income is lower -Yes. Varies by plan -Yes, varies per plan-Average premium of $39.63  in 2018

-Follows the guidelines of Part B: premium is higher if income is greater and less if income is lower Other costs

-No coinsurance for first 60 days in hospital

-After 60 days, coinsurance has to be paid ($341 per day with potential to increase)

-If the stay extends long enough, individual must undertake all costs of a hospital stay

-Typically have to pay for 20% of the cost of Part B services

-Individuals enrolled in Part C still must pay premiums for Part B-Percentage of services paid for Part C varies from plan to plan

-Enrollees pay a share of each prescription drug (either a percentage of the cost or a flat copay)

-Once the total drug costs reach a certain limit ($3,820 in 2019) then individuals have to pay for a larger percentage of the drugs themselves

-This occurs until an individual’s total out-of-pocket costs (including copays and premiums) reaches a certain threshold ($5,100 in 2019)

-After this point, 95% of all remaining drug costs are covered Primary Funding

-Financed primarily by payroll taxes (87% of Part A revenues)

-Financed primarily by general tax revenues (73%) and by Part B premiums (25%)

-Financed primarily by payroll taxes, general revenues, and premiums  

-Financed primarily by general tax revenues (73%)

*Information and statistics from the Kaiser Family Foundation, Medicare.gov, Centers for Medicare and Medicaid, and AARP

Medicaid and Medicare

  • Dual eligible recipients (both Medicare and Medicaid) have much of their Medicare costs paid for by Medicaid:

Income Level What Medicaid Pays for 100% FPL or less Part A Premiums, Part B Premiums, deductibles/coinsurance/copayments 120% Only Part B Premiums 135% Only Part B Premiums 200% Only Part A Premiums

Information comes from the National Conference of State Legislatures

  • Further, Medicaid recipients are automatically enrolled in Medicare Part D

  • Through the Extra Help program (a federal program that lowers program costs for low income individuals) the cost of prescription drugs and Part D premiums are covered for Medicaid recipients

  • Medicaid covers some services that Medicare doesn’t include long term nursing facility care and hearing aids

  • Services covered by both Medicare and Medicaid are paid first by Medicare, with Medicaid making up the difference

Benefits of Medicare:

  • Medicare provides health insurance at a much lower cost to millions of Americans who need it

  • An estimated 9 out of 10 doctors accept Medicare making it easy to access care 4.

  • Premiums are relatively low for Part B and for Part A, are generally not paid by most enrollees

  • Medicare Part D has the Extra Help program which provides subsidies for low income individuals

Shortcomings of Medicare:

  • Out of pocket costs (such as deductibles, premiums, and coinsurance) can be very high

  • On average, Medicare recipients spent $5,368 of their own money on health care in 2011 5.

  • Medicare costs keep rising (albeit at a slower rate than in the past) bringing the program’s long term sustainability into question

  • Parts A and B do not cover long-term care, including most dental care, hearing care, and vision care

  • There are late enrollment penalties if an individual does not originally decide to enroll in either Medicare Parts B or D

1. Information from Medicare.gov.
2. Statistics from the Kaiser Family Foundation.
3. Statistic from the Kaiser Family Foundation.
4. Statistic from a Kaiser Family Foundation Study.
5. Statistic from the Kaiser Family Foundation.