Medicare had its beginnings in 1945 with President Truman’s call to Congress to create legislation establishing a national health insurance plan. Two decades of debate ensued, with opponents warning of the dangers of “socialized medicine.” By the end of Truman’s administration, he had backed off from a plan of universal coverage, but administrators in the Social Security system and others had begun to focus on the idea of a health program aimed at insuring Social Security beneficiaries. During the next fifteen years public hearings were held and several proposals were considered by the House of Representatives, but the issue was not on the forefront until 1960 when private insurers increasingly raised premium rates and/or reduced benefits in order to meet the rising cost of health and hospital care. Available policies became too expensive and/or inadequate for older adults living on fixed incomes.

Between 1960 and 1965 the health coverage debate was a front burner issue in Congress, with dozens of proposals introduced and testimonies given by representatives of major medical organizations. Finally, in July 1965 the U.S. House of Representatives and the Senate passed the bill which established Medicare, a social insurance program designed to provide all older adults with comprehensive health care coverage at an affordable cost. President Johnson signed the Medicare program into law in 1965, with is companion program, Medicaid (which provides insurance to the low-income population) as Title 18 of the Social Security Act. The program became effective July 1, 1966.

Since its enactment in 1965, Medicare has been revised several times by Congress to increase coverage. In 1972 coverage was extended to disabled beneficiaries in receipt of Social Security Disability Insurance (SSDI) after a 24 month wait period, in addition those with end stage renal disease would also qualify.

In 1973 Medicare was expanded again to cover qualifying individuals who were eligible to buy into the Medicare program. During the ensuing years the original services covered by Medicare was expanded to include chiropractic services, speech and physical therapy, hospice care, mammograms, and more.

The Balanced Budget Act of 1997 slowed the rate of growth in payments to providers and established new payment system for certain categories of providers. It also established the Medicare+Choice program (Medicare Part C), now known as Medicare Advantage, which expanded managed care plan options for beneficiaries and changed the way most of these plans were paid.

In 2001, U.S. Congress passed legislation which eliminated the 24 month wait period for ALS patients receiving SSDI.

One of the most significant changes to Medicare was signed into law by President George W. Bush creating the Medicare Prescription Drug Improvement and Modernization Act of 2003, which created Medicare Part D. For information about this program, see below, Medicare Part D.


The overall responsibility for the administration of the Medicare program, including Part D, lies with the Centers for Medicare & Medicaid Services (CMS), within the Department of Health and Human Services. It has 10 regional offices throughout the country that oversee the program for their areas. CMS has primary responsibility for formulation of policy and guidelines, contract oversight and operation, maintenance and review of utilization records, and general financing of Medicare. Functions, such as paying providers, enrolling physicians in the Medicare program, educating providers about Medicare billing requirements, and processing appeals are performed by Medicare Administrative Contractors (MACs).

The Social Security Administration is responsible for the initial determination of an individual’s entitlement to Medicare and for enrolling beneficiaries into Medicare Part A and Part B.

For Part D, CMS contracts with private companies, either through a stand-alone prescription drug plan or a Medicare Advantage prescription drug plan, that are approved to sell Part D prescription drug coverage.


Medicare is funded by a combination of general revenues, payroll taxes and beneficiary premiums.

Financing for Medicare Part A (Hospital Insurance – HI) is primarily through federal payroll taxes (FICA) paid into Social Security by current employees and employers, each paying 1.45% on the employee’s earnings and the self-employed pay 2.9%.

Individuals are liable for an additional Medicare tax of .9% if the individual’s wages, railroad compensation, or self-employment income (together with that of his or her spouse, if filing a joint return) exceed certain threshold amounts for the individual’s filing status. For information on threshold amounts and more visit:

Medicare Part B (Supplemental Medical Insurance – SMI) is financed through a monthly premium the Medicare beneficiary pays, which covers about 25% of the cost, as well as through federal general revenues.

The HI and SMI trust funds are overseen by a board of trustees that make annual reports to Congress.


Employers and unions may offer creditable Part D coverage (coverage as good as, or better than, Medicare Part D) to their Medicare-eligible employees and retirees through their own plans. These plans are only available to eligible employees and retirees and are not open to the public. Employer-sponsored Part D plans must follow all the same rules as commercial Part D plans, and members of these plans have the same rights as members of commercial plans.

Summary of Medicare

Medicare is an insurance-based government health benefit for Medicare for those who are aged, disabled and those with end stage renal disease who are “insured” under the Social Security system, and certain dependents. See below, Qualifying for Medicare for who is eligible for the Medicare program.

Medicare is comprised of three parts: Part A, Part B and Part D. Part A is Medicare’s hospital insurance and Part B is Medicare’s supplemental medical insurance. Medicare beneficiaries can access Medicare benefits either through Original Medicare or managed care plans.

Medicare Part C is Medicare Advantage, which is the managed care option for Medicare beneficiaries. Medicare beneficiaries may enroll in a managed care plan to access Medicare benefits. For information about enrolling into a managed care plan and how Medicare beneficiaries access services when a member of a managed care plan, see below, Managed Care: Medicare Advantage Plans.

Part D is Medicare’s prescription drug benefit which is a voluntary benefit that provides insurance coverage for prescription drugs for Medicare beneficiaries. Medicare beneficiaries access Part D by either enrolling in a stand-alone prescription drug plan (PDP), which offers drug-only coverage for beneficiaries who choose to receive all other Medicare benefits from Original Medicare, or by enrolling in a Medicare Advantage prescription drug plan (MA-PD) that covers all Medicare benefits, including prescription drug coverage, through a managed care plan.

Eligible individuals apply for Medicare during specifically designated enrollment periods; see below, Enrolling in Medicare.

Cost Sharing Savings for Medicare Beneficiaries


Under Original Medicare there are cost sharing expenses that the beneficiary is responsible for. These include deductibles, co-insurance, and co-payments. There is no yearly limit for what the beneficiary can pay out-of-pocket. The Centers for Medicare & Medicaid Services (CMS) contracts with private insurance organizations to process Medicare claims and payments for both Part A and Part B. For information about Original Medicare, see below, Original Medicare: Cost Sharing and Claims Processing.


There are two Medicare Savings Programs: the Qualified Medicare Beneficiary (QMB) and the Qualified Individual (QI). These programs assist Medicare beneficiaries with paying for the Medicare Part B premium. The QMB program also assists with paying Medicare’s deductible and co-insurance charges. Refer to Health Programs, Medicare – Programs to Assist with Cost Sharing, Medicare Savings Program – QMB and QI, for additional information.