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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 refer to Health Programs, Medicare Part D.


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%.

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.

Summary of Medicare


Medicare is an insurance based government health benefit for individuals who, in most cases, qualify based on having a work history and has paid Social Security taxes (that is, is an insured worker) or has a qualifying relationship with an insured worker. 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 beneficiaries can access Medicare either through Original Medicare or managed care plans.

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.

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.

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 Savings for Medicare Beneficiaries


There are three Medicare Savings Programs: the Qualified Medicare Beneficiary (QMB), the Specified Low Income Medicare 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.