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 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 overage 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 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 SSDI, although only after 24 months of entitlement to SSDI cash benefits, and to those with end stage renal disease. It also began to place limitations on the definition of reasonable costs and charges in order to gain some control over program spending. In 1973 it was expanded once again to cover certain persons who elect 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.
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 refer to Health Programs, Medicare Part D.
WHO ADMINISTERS THE PROGRAM
The overall responsibility for the administration of the Medicare program 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.
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%.
Beginning January 1, 2013 an individual is 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 the threshold amount for the individual’s filing status: over $200,000 for single filers, over $250,000 for joint filers, and over $125,000 for persons who are married but filing separately (there is no additional Medicare tax on employers for these high wage earners). This tax is incurred without regard to the individual’s filing status or wages paid by another employer. If one spouse pays the additional Medicare tax because s/he is earning more than $200,000, but the combined income of the married couple filing jointly is less than $250,000, the couple will be able to claim credit for any withheld additional Medicare tax against the total tax liability on their income tax return. For additional information on this new Medicare tax go to https://www.irs.gov/businesses/small-businesses-self-employed/questions-and-answers-for-the-additional-medicare-tax.
In addition, with tax year 2013, single taxpayers who have net investment income and also a modified adjusted gross income over $200,000 for singles or head of household, or over $250,000 if married filing jointly (over $125,000 if filing separately) will have a 3.8% Medicare tax on their investment gains. The tax applies to investment income including interest, dividends, capital gains, rents, royalties and the taxable portion of an annuity payout. For additional information on this tax go to https://www.irs.gov/uac/newsroom/net-investment-income-tax-faqs.
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.
Summary of Medicare
Original Medicare is based on a private health insurance model; it requires the beneficiary to pay deductibles and copayments, and it pays only a portion of the cost of certain services. Claims must be submitted to an insurance company, acting as an agent for the government, for approval prior to payment, and payments are usually made directly to the health care provider.
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 medical insurance. Both are described in this chapter. Part D is Medicare’s prescription drug benefit. Refer to Health Programs, Medicare Part D, for a full description of Medicare’s Part D benefit.
Medicare Part C is Medicare Advantage, which is the managed care option for Medicare beneficiaries, that is, it refers to how beneficiaries access their Medicare benefit; it is not a benefit itself. Medicare beneficiaries may enroll in a managed care plan rather than accessing medical services through Original Medicare. 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.
Medicare is available to the 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.
Eligible individuals apply for Medicare during specifically designated enrollment periods; see below, Enrolling in Medicare.
Cost Sharing Benefits for Medicare Beneficiaries
MEDICARE SAVINGS PROGRAM
There are three Medicare Savings Programs: the Qualified Medicare Beneficiary (QMB), the Specified Low Income Beneficiary (SLMB), 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 Savings Programs for additional information.