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What is Medicare?

There are several publicly funded health services in various countries called Medicare:

  • Medicare (Canada) is a comprehensive, universal (for all the citizens and permanent residents in the country) public health financing system.
  • Medicare (Australia) is a similar comprehensive public health program, administered by Medicare Australia.
  • Medicare (United States) is a publicly funded health insurance program for the elderly and disabled only.


Medicare (United States)

Medicare is a health insurance program for the elderly and disabled in the USA. It was first passed on July 30, 1965 by President Lyndon B. Johnson as amendments to Social Security legislation.


The Centers for Medicare and Medicaid Services (CMS), a component of the Department of Health and Human Services (HHS), administers Medicare, Medicaid, the State Children’s Health Insurance Program (SCHIP), and the Clinical Laboratory Improvement Amendments (CLIA). Along with the Departments of Labor and Treasury, CMS also implements the insurance reform provisions of the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

Taxes imposed to finance Medicare

Medicare is partially financed by taxes imposed by the Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act of 1954. In the case of employees, the tax is equal to 2.9% (1.45% withheld from the worker and a matching 1.45% paid by the employer) of the wages, salaries and other compensation in connection with employment. Until December 31, 1993, the law provided a maximum amount of wages, etc., on which the Medicare tax could be imposed each year. Beginning January 1, 1994, the compensation limit was removed. In the case of self-employed individuals, the tax is 2.9% of net earnings from self-employment, and the entire amount is paid by the self-employed individual.


Generally, Medicare is available for people age 65 or older, younger people with disabilities, and people with End Stage Renal Disease (permanent kidney failure requiring dialysis or transplant). People under 65 and disabled must be receiving disability benefits from either Social Security or the Railroad Retirement Board for at least 24 months before automatic enrollment occurs. In 2003, Medicare provided health care coverage for 41 million Americans. Enrollment is expected to reach 77 million by 2031, when the Baby Boom generation is fully enrolled.

Medicare processes over one billion fee-for-service claims per year making it the nation’s largest purchaser of managed care. In 2003, Medicare accounted for almost 13 % of the entire Federal Budget. Based on the CMS projections, 33 cents of every dollar spent on health care in the US is paid by Medicare and Medicaid (including State funding). Looked at from three different perspectives, 61 cents of every dollar spent on nursing homes, 47 cents of every dollar received by U.S. hospitals, and 27 cents of every dollar spent on physician services is funded by Medicare or Medicaid.


Medicare has several parts:

Part A (Hospital Insurance), and Part B (Medical Insurance, helps cover doctors' services, outpatient hospital care, and some other medical services that Part A does not cover). Neither Part A nor Part B pays for all of a covered person's medical costs. The program contains deductibles and co-pays (payments due from the covered individual). Previously, certain medical needs such as drug prescriptions were excluded. Beginning in January 2006, Medicare Part D will provide coverage for prescription drugs through a complex coverage model.

Part A: (Hospital Insurance) Premium Most people do not pay a monthly Part A premium because they or a spouse has 40 or more quarters of Medicare-covered employment. Part A covers hospital stays. It will pay for nursing home stays if within certain amount of time after a hospital stay that lasted 72 hours with the count starting at the first midnight after admission and not counting any hours of the discharge date. The nursing home stay must be for something found wrong during the hospital stay or for the main cause of hospital stay. For instance, hospital stay for broken hip and then nursing home stay for physical therapy would be covered for 2 weeks. If patient refuses to eat or has some other ailment that requires constant nurse supervision then nursing home stay would be covered for longer period of time. This is Part A coverage that enrollees paid for the entire time they worked and paid in FICA taxes. For Medicare eligible members who do not have 40 or more quarters of Medicare-covered employment, Part A may be purchased for a monthly premium of: ($206.00 per month in 2005) for people having 30-39 quarters of Medicare-covered employment. ($375.00 per month in 2005) for people who are not otherwise eligible for premium-free hospital insurance and have less than 30 quarters of Medicare-covered employment.

Part B: (Medical Insurance) Premium Part B is optional coverage and may be deferred if the beneficiary or their spouse is still actively working. There is a lifetime penalty (10% per year) imposed for not taking Part B if not actively working. ($88.50 per month in 2006)

With regard to physicians, Medicare uses the Resource-Based Relative Value Scale (RBRVS) to determine how much money each doctor should earn, although it is criticized for not paying doctors enough because of the low conversion factor. Because of the nature of RBRVS, it is possible to pay all doctors more or less depending on how much money the person paying (CMS in this case) is willing to pay.

For institutional care such as hospital and nursing home care, Medicare uses prospective payment systems. A prospective payment system is one in which the health care provider receives a set amount of money for each episode of care provided to a patient, regardless of the actual amount of care used.

Medicare also covers medical devices, such as mobility scooters and power chairs for those with mobility impairments.

Part D: Medicare Part D went into effect on January 1, 2006. Anyone with Parts A and B is eligible for Part D. It was made possible by the passage of the Medicare Prescription Drug, Improvement, and Modernization Act.



All text of this article available under the terms of the GNU Free Documentation License (see Copyrights for details).

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