Medicare in the United States is health insurance in the public sector.
History of Medicare
Medicare was created in 1965 by the same legislation which created Medicaid. It covers most people over 65, some disabled people meeting specific requirements, and people with End Stage Renal Disease, or kidney failure. As part of the Social Security program, it is funded by current workers, in the form of the FICA tax. It is administered by the Centers for Medicare and Medicaid Services, or CMS.
In the several years immediately following the creation of the two programs, healthcare costs skyrocketed. The debates immediately began. Critics were quick to note that providers (doctors) had no incentive to keep costs down, since the government was paying the bill. There was also a tendency for the insured to overutilize the healthcare offered, or choose a doctor/specialist without thought to whether the rates that doctor provided were fair.
The process of looking for solutions to these problems spawned the first managed care organization, called a Health Maintenance Organization, or HMO. The idea behind the invention of the HMO was that a insurer which controlled both the healthcare provided and the financing of that healthcare would be much more effective at controlling costs.
Medicare consisted of two basic parts for many years, Part A and Part B. However, the Balanced Budget Act of 1997 created Part C, or Medicate+Choice, which offered several additional services to fill gaps many people were feeling in their coverage.
Part A: Hospital Insurance
Part A coverage is free if the insured person worked at least 10 years of Medicare-covered employment (i.e. a job where s/he had to pay the FICA tax). Otherwise, a premium is charged. The following services are provided under Part A coverage:
Part B: Supplemental Medical Insurance (SMI)
- Hospital Care: Up to 90 days of benefits are provided for hospital stays. Medicare pays for a patient's first 60 days in a hospital, less a deductible. After that, the patient is required to pay daily charge specified by Medicare for the hospital stay.
- Skilled Nursing Care: Benefits are provided for up to 100 days in a nursing facility. All costs are covered for 20 days, after which the patient pays a daily charge.
- Home benefits: Includes part-time nursing and physical, occupational, or speech therapy. A doctor must prescribe the home health care for the patient to be eligible.
- Hospice Care: Medicare will cover hospice care for individuals with a life expectancy of 6 months or less.
SMI covers physician's and surgeon's charges, wherever they are rendered. All insured persons much pay a premium ($54.00 monthly in 2002) if they wish to receive Part B coverage. Despite this premium, SMI is still covered 75% by the federal government. Patients are expected to pay a deductible; nothing is paid until this deductible has been met by the insured. After that, SMI pays 80% of the remaining expenses. An individual may have to pay even more out of pocket if the physician charges more than Medicare finds acceptable; if the physician opts to charge more, s/he is said to refuse assignment.
Part C: Medicare+Choice
Medicare Part C was a program that was hailed as a measure to "save Medicare." It was essentially a move to privatize the Medicare system, or place more of the system under the control of private industry and the persons being insured. Under Medicare+Choice, beneficiaries may elect one of three alternatives:
Medicare Supplement Policies
- Coordinated Care Plans: Include HMOs, PPOs, and PSOs (provider-sponsored organizations).
- Private Fee-for-Service: Beneficiaries are allowed to enroll in a private insurance plan which offers unrestricted use of participating providers. Providers are limited in how much they may charge, and beneficiaries are expected to pay the difference between cost of coverage and the Medicare payment.
- Medical Savings Account (MSA): Beneficiaries hold a savings account for medical expenses and are also required to carry a high-deductible castatrophic health insurance policy to supplement the account. The catastrophic plan must at least provide the same services offered by Medicare Parts A and B (after the deductible has been met). Funds taken from an MSA to pay medical expenses are not taxed, but if the funds are withdrawn for a non-medical reason, they could be subject to some hefty penalties.
60% of covered people purchase private insurance to supplement their Medicare coverage. The most common type of policy purchased is usually called a Medigap policy. These policies are offered by commercial insurers such as Blue Cross and Blue Shield, and specifically designed to help fill the gaps left by Medicare's deductible and coinsurance requirements.
What will Become of Medicare?
Most people, especially the Americans among us noder-types, know about Social Security and the problems it's been having lately. To put it briefly:
- In 1950, there were 13 workers for each beneficiary.
- In 2000, there were 3.3 workers for each beneficiary.
- In 2030, it is projected that there will be only 2.1 workers for each beneficiary.
People are living longer, beneficiaries are being paid more benefits (above and beyond inflation
increases), and more people qualify for benefits. It seems that every election
we have a brand new "Social Security crisis
" waiting for the candidates to bicker over. After a candidate wins, he passes some measure that will "save Social Security." The measures never work, and the crises keep occurring because they never go away. (Yes, I'm grossly generalizing, but this has been happening every four years since at least Carter
It is no different for Medicare. And, like Social Security, there are several prominent factions with different goals in mind. Grossly generalizing again, Republicans want very badly to privatize the system so they can control their benefits and play with their money. Democrats want to raise taxes to fund the benefits so they can hand out even more money for free.
Meanwhile, the federal government borrows from the trust funds of these programs, issuing government bonds in return. In effect, the government is borrowing from itself. Someday, probably prior to 2030, the bonds are going to be redeemed, and no one will have a clue where the money will come from.
Vaughan and Vaughan. Essentials of Risk Management
. 2nd ed. John Wiley & Sons, Inc.: New York, 2001.