Medicare: What Is It?

LBJ signs Medicare into Law, enrolls Harry and Bess Truman during the signing ceremony. public domain image courtesy of the LBJ Library, photographer unknown.

Definition:

Medicare is a federal government program that provides health insurance to people in the United States aged 65 or older, or people who are disabled.

Background

Part of President Lyndon B Johnson’s Great Society reform package, Medicare was signed into law on July 30, 1965. During the signing ceremony, President Johnson enrolled the first two Medicare beneficiaries, former-President Harry S Truman and his wife, Bess Truman.

Medicare insurance coverage didn’t begin until nearly a year later, July 1, 1966. Between the time Medicare was enacted and the time coverage began, the government campaigned to encourage Americans to enroll. Encouragement was necessary since Medicare was opposed by the American Medical Association and conservative political groups. See newspaper clips from the era and read more about the preparation for Medicare’s launch and the push to enroll people here.

Although Medicare was initially run by the Social Security Administration, it is now run by the Centers for Medicare and Medicaid Services. CMS is part of the Department of Health and Human Services.

How Is Medicare Coverage Organized?

Medicare consists of several different types of health insurance, each covering different kinds of healthcare expenses.

  • Medicare Part A
    Medicare’s Hospital Insurance Program covers inpatient hospital stays, hospice, some short-term nursing home stays, and some types of home healthcare.
  • Medicare Part B
    Medicare’s Medical Insurance Program covers doctor’s fees, outpatient services, some types of home healthcare and some types of physical and occupational therapy.
  • Medicare Part C
    Medicare Advantage is a program Medicare recipients can choose instead of Medicare Parts A and B. Medicare Part C allows private health insurance companies to provide all of the standard benefits of Medicare Parts A and B within a managed care plan like an HMO or PPO. Medicare Advantage Plans usually provide prescription drug insurance and some may include extras such as gym memberships or vision insurance.
  • Medicare Part D
    Medicare’s prescription drug benefit allows private companies to provide prescription drug insurance to Medicare beneficiaries who pay a monthly premium.

How Does Medicare Get Its Money?

Medicare Part A is primarily funded through payroll taxes. During your working years, you and your employer each pay 1.45 percent as a Medicare payroll tax. You pay a bit more if you earn more than $200,000 per year. If you’re self-employed, you pay both your share and your employer’s share, the full 2.9 percent, when you pay your quarterly self-employment taxes.

These payroll taxes go into the Medicare Hospital Insurance Trust Fund and account for the bulk of Medicare Part A funding. A small amount of additional funding comes from interest on the money sitting in the trust fund and from monthly premiums that some Medicare beneficiaries pay for Medicare Part A.

Medicare Parts B and D are funded in part by the monthly premiums that Medicare beneficiaries pay for coverage, and in part from the nation’s general revenues.

Premiums for Medicare Parts B and D go into the Supplemental Medical Insurance Trust Fund.

How Are the Medicare Trust Funds Managed?

While the Medicare trust funds are held by the Department of the Treasury, they are maintained by a six-member board of trustees. These six people include the secretary of the Treasury, the secretary of Health and Human Services, the secretary of Labor, and the commissioner of Social Security. The remaining two trustees are private citizens appointed by the president and confirmed by the senate. These same six people also maintain Social Security’s two trust funds.

The trustees report to Congress annually on the status of the Medicare trust funds.

Who Gets Medicare?

You’re eligible for Medicare if you’re aged 65 or older and a citizen of the United States. Non-citizens may be eligible if they entered the United States legally, are permanent residents, have lived in the United States for five or more years, and are aged 65 or older.

If you’re less than 65 years old, you may be eligible for Medicare if you’ve been disabled for two years or more, or if you have end-stage renal disease and are on dialysis or have had a kidney transplant. People with amyotrophic lateral sclerosis are eligible for Medicare without a two year waiting period after becoming disabled.

You can determine your eligibility and get an estimate of your Medicare enrollment date here.

Do You Have to Pay for Medicare?

Most citizens don’t have to pay monthly premiums for Medicare Part A as long as they or their spouse paid Medicare payroll taxes for at least 10 years. Non-citizens and citizens who haven’t paid 10 years of Medicare taxes may have to pay monthly premiums for Medicare Part A.

Everyone who receives Medicare Part B must pay a monthly premium for it. However, some low income people may get assistance to help pay their Medicare Part B premium. See Medicare Premiums and Coinsurance Rates for information on the cost of monthly premiums.

Medicare Contact Information

  • 1-800-Medicare (1-800-633-4227)
  • TTY 1-877-486-2048
  • MyMedicare.gov if you’re a Medicare beneficiary
  • Medicare.gov if you’re not a Medicare beneficiary
  • Centers for Medicare & Medicaid Services 7500 Security Boulevard Baltimore, Maryland 21244-1850

Also Known As:

While there are no synonyms for Medicare, Medicare is frequently confused with Medicaid. Learn the difference between Medicare and Medicaid.

Australia's universal public health insurance program is also called Medicare. Additionally, Canadians refer to the 13 health insurance plans that make up their national health insurance program as Medicare.

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