Medicare

September 17, 2011

Medicare (Title XVIII) of the Social Security Act is a federal health insurance program inaugurated on July 1, 1966. The program is the major health insurance for those over the age of 65 years of age, who are covered by the Social Security system, regardless of income. Amendments to the Social Security Act in 1972 extended the benefits to those who do not meet the criteria for the regular Social Security program, but who are willing to pay a premium for coverage. Further amendments in 1973 extended benefits to those entitled to Social Security disability benefits or those who suffer from chronic renal disease requiring a kidney transplant or routine dialysis. Since 1966, the number of enrollees has expanded, and the medical expenditures increased, making Medicare a major budget item for the federal government. Currently, the Medicaid program spends more than $200 billion a year.

Medicare is comprised of two parts: Part A and Part B. Part A of Medicare is the hospital insurance part, funded by Social Security taxes. Coverage includes hospitalization, care in a skilled nursing facility, home health care, or hospice care. The Medicare program has deductibles (set amount the patient must pay before Medicare begins to pay) and co-pays (a percentage of charges paid by the patient). Benefits may also have limitations on the amount of coverage. Hospital care expenses are not paid by Medicare beyond 150 days, for example, and a skilled nursing facility is limited to 100 days. Medicare pays for 14% of nursing home expenditures and Medicaid, which is another source of payment after Medicare expires, pays 44% of nursing home expenditures (1998).

Part B of Medicare is Supplemental Medical Insurance. While it is optional and must be paid for as a Social Security deduction, most elderly enroll in Part B. This part of Medicare pays for reasonable physician charges, inpatient and outpatient medical and surgical services, supplies, physical and speech therapy, ambulance and diagnostic tests, clinical laboratory tests, blood, home health care, and outpatient diagnosis and treatment. Similar to Part A, limitations on the amount of payments and deductibles apply. Physician services, for example, are covered 80% after the deductible ($100) has been met. Although Medicare greatly expanded access to medical services for the elderly, the gaps in benefits and the particular burden of cost sharing requirements on low-income populations have limited the effectiveness of the program.

Managed care, a planned approach to control health care costs, has been enrolling Medicare beneficiaries since the 1990s. A primary incentive is that the Medicare program allows beneficiaries to opt out of the traditional fee-for-Service program and voluntarily enroll in a Medicare-approved Health Maintenance Organization (HMO), provided that the beneficiaries reside in an area that is served by one or more Medicare-approved HMOs. Medicare HMOs typically offer a broader range of benefits (such as prescription coverage or preventive care). Approximately 18% of the nation’s 38 million beneficiaries are enrolled in managed care plans. Recently, however, a number of HMOs have declined to participate in the Medicare program or narrowed their service areas. Access to Medicare providers and facilities continues to be a challenge for elderly citizens: About one in seven Medicare beneficiaries do not have a usual source of care or have not seen a physician when they needed medical care.

By the year 2030, it is estimated there will be 120% more elderly than today (65 million) and people over 65 will comprise 22% population. Individuals 85 years of age and older are the fastest growing segment of the population.

Persons over the age of 65 years use 23% of the ambulatory care visits, 48% of hospital days, and 69% of home health services. With increasing availability of community-based services, nursing home utilization has decreased. A major problem for this growing group of elderly is the lack of coverage for prescription drugs. While most adults indicate they have a health problem that requires medication on a regular basis, only 55% of those 50-64 years of age and 49% of those 65-70 years of age noted that their insurance covered prescription costs. The elderly, in particular, report high out-ofpocket costs that often compete with other expenses of daily living or prescription drugs.

Elderly women frequently live longer than men, have more chronic diseases, and are more likely to live alone (except for those over age 85 years). Therefore, Medicare is the primary medical benefit available for health care. Women’s contributed earnings are likely to be less than those of men, placing an increased burden for out-of-pocket medical expenses. For example, compared to a 65-year-old man retiring from work in 1990, the average man retiring at 65 in 2030 will require an additional 25 monthly payments of any promised benefit plan. In contrast, the average woman in the same example would require an additional 39 months. Women comprise the majority of nursing home residents, and will likely be the predominant users of Medicare. Thus, elderly women have vested interest in ensuring that specific measures are taken to close currently existing gender gaps in coverage.

The challenge for program officials is to keep the Medicare program efficient, effective, and equitable in providing coverage for a broad scope of services, while containing costs. Therefore, it is expected that the

Medicare program will continue to be at the heart of public policy debates.

SEE ALSO: Access to health care, Health insurance, Health maintenance organizations

Suggested Reading

  • Schoer, C., Simantor, E., Duchan, L., & Davis, K. (2000). Counting on Medicare: Perspectives and concerns of Americans ages, pp. 50-70. New York: Commonwealth Fund.
  • Kovner, A. R. (1990). Health care delivery in the United States. New York: Springer.
  • Novick, L. F., & Mays, G. P. (2001). Public health administration: Principles for population-based managements. Gaithersburg, MD: Aspen.
  • Raffel, M. W., & Raffel, N. K. (1994). The U.S. health care system: Origins and functions. Albany, NY: Delmar.

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