Medicare 101: What Every American Needs To Know

No matter what your age, Medicare affects you or someone you know. It is our national insurance program for Americans aged 65 and older, and younger people with certain disabilities. A significant portion of our taxes paid to the United States government are used to fund Medicare. Check your pay stub—you will notice a deduction for Medicare tax. All working Americans pay into the program- which is funded with 15% of the federal budget—that’s a big slice of the pie, totaling $498 billion. It is predicted that by 2020, this will increase to 17%.

Medicare was created by Congress under the leadership of President Lyndon B. Johnson in 1965. It was designed to provide health insurance to people 65 and older, regardless of income or medical history. Before its creation, just under 70% of people 65 years of age and older had health insurance. Coverage was often unavailable or financially out of reach to the rest, because older adults were forced to pay more than three times as much for their insurance as compared to younger people. Upon its inception, Medicare payments were made to health care providers conditional upon racial desegregation, thus leveling the playing field for all citizens. Like many new government programs, there were mixed reactions from American citizens to this program. Many thought it was unreasonable and would never stand the test of time.

Since its inception almost 50 years ago, Medicare has undergone several changes. Provisions have been extended to include speech, occupational and physical therapy, and chiropractic care. With advances in health-care technology, the human life expectancy has extended, thus necessitating the need for health care through hospice care services. These services were covered initially on a temporary trial basis in 1982, and became a permanent benefit in 1984. Eight million people under the age of 65 are covered by Medicare due to certain disabilities. Adults of any age with end-stage renal disease, as well as people with amyotrophic lateral sclerosis (ALS, or Lou Gehrig’s Disease) are covered as well. As with any insurance program, Medicare spreads the risk of financial loss associated with illness across society to protect everyone. However, Medicare differs from for-profit insurers, who manage their risk by adjusting their pricing according to likely risk: everyone pays standardized amounts for Medicare.

In 2010, Medicare provided health insurance to 48 million Americans—40 million people aged 65 and over, and 8 million younger people with disabilities. 15.3 million inpatient hospital stays were paid primarily by Medicare in 2011, accounting for 47.2 percent of total inpatient costs in the United States. For those covered by Medicare, it pays approximately half of health care costs for enrollees. The costs that are typically not covered include long-term care, dental, vision and hearing coverage.

Currently, there are 3.7 workers for every one enrollee. In other words, there are 3.7 times as many people currently working and contributing as there are covered Americans. However, as longevity in America continues to increase, it is predicted that by 2030, this ratio will be reduced to 2.4 workers per every covered American. With this longevity comes more illness and disease, which will further weaken the system with the need for more health care.

By the year 2030, it is projected that enrollment will increase from 48 million to more than 80 million, and Medicare spending is expected to increase from $560 billion in 2010 to just over $1 trillion by 2022. As the Baby Boomers age it is estimated that 20% have 5 or more chronic conditions which will add to the future cost of Medicare. There are many recent proposals made by policymakers to reduce costs, and many screening and preventive measures are already covered by Medicare in an effort to limit future spending.

There are 4 components to Medicare

  • Part A is Hospital Insurance. It also covers up to 100 days of skilled care—nursing care, physical, occupational and speech therapy—home health for those who qualify, and hospice care. It DOES NOT cover long-term care after the period of skilled care.
  • Part B is Medical Insurance, covering outpatient visits and services.
  • Part C is a supplement plan comparable to other supplements. Essentially, it acts as a voucher.
  • Part D covers many prescription drugs, although some are covered by Part B. There is a list of covered medications called a formulary, with different tiers or levels of payment, dependent upon the drug.

PREMIUMS:

Part A: Most Medicare enrollees do not pay a premium for Part A, because they or a spouse have had 40 or more 3-month quarters in which they paid the necessary contribution taxes. For those who have not paid in enough, there is a premium.
Part B: Most Part B enrollees pay a premium of $104.90 per month, with higher amounts for those who have incomes above $85,000 per year, or $170,000 for married couples. The highest monthly premium charged for Part B is $319.70.
Parts C and D: Plans may or may not charge premiums, depending upon the plans’ design as approved by CMS (Centers for Medicare and Medicaid services).

CMS is located in Baltimore, Maryland. It is not in Washington, D.C. due to the restructuring of the system that took place in its early years, which placed it under the control of the Social Security Administration, which was headquartered in Baltimore.

MEDICARE REFORM:
As the number of taxpayers paying in to Medicare decreases relative to the number of people enrolled in Medicare, it is becoming obvious that the present trajectory of Medicare spending cannot functionally continue. The program is not perfect, but it provides medical insurance and coverage for Americans over 65 years of age, and those younger than 65 with certain disabilities. Without it, millions of people would struggle to receive adequate medical treatment.

There are many proposals for reform:

Premium support:
Currently, Medicare is a publicly run social insurance program with clearly defined benefits. The basic idea behind this proposal is to offer enrollees a set contribution toward a private plan offered by an insurer.

Raising the age of eligibility:
Due to the fact that the age at which an American can retire with full Social Security benefits is increasing to 67, it has been argued that the minimum age for Medicare eligibility should be raised to 67 as well. (Enrollees could still receive reduced benefits at age 62 as they currently can.)

Prescription drug price negotiation:
Medicare covers certain prescriptions through a Medicare Advantage Plan and Part D. Each plan negotiates the price it pays to drug manufacturers. However, each plan has a smaller pool than the entire Medicare program, thus reducing Medicare’s potential bargaining power with drug companies.

Dual-eligibility reform:
Approximately 9 million Americans are dually qualified for both Medicare and Medicaid. Most have particularly poor health and cost both systems significantly more money than single enrollees. Their care is split between both programs, and is generally poorly coordinated. They have higher rates of preventable hospitalizations, and because the two different programs cover different health care aspects , both have a financial incentive to shunt patients into the care of the other program.

Income-related premiums:
Currently, only 5 percent of enrollees pay an income-related premium due to their higher level of income. The primary concern regarding this proposal is that as a social medical insurance program, this method would decrease Medicare’s strength politically over the long-term.

Medigap—Medicare C—restrictions:
Some Medicare supplemental insurance plans cover all out-of-pocket expenses, guaranteeing financial security to individuals with significant health care needs. Many analysts believe this causes the insured to seek unnecessary and costly treatments, as they are guaranteed coverage. Many feel there should be incentives offered to seek the most cost-efficient alternatives.

There will not be a quiz, but if there were, this is what you should remember:

  • Medicare is a national health insurance program for persons 65 and older, and for those under 65 with certain disabilities.
  • All working adults pay into the program
  • Eligibility and premium amounts are determined by number of quarters—three month periods—each adult has worked and paid into the system.
  • In order to be eligible, a person must be a legal resident of the United States of America for at least 5 continuous years, AND, they or their spouse has paid Medicare taxes for at least 10 years.
  • Medicare was created in 1965 under the leadership of President Lyndon B. Johnson.
  • Medicare Part D (Drug plan) was signed into law by President George W. Bush in 2003.

Medicare can and does provide invaluable health-care coverage for a significant percentage of Americans, a number which will continue to increase as the Baby Boomers enter into eligibility in unprecedented numbers. This group of people will likely live longer as a group, as statistics show. They will continue to need increased health care as they age, and Medicare will take care of their needs, however perfect or imperfect the program may be.