Medicare

Background

The enactment of Medicare in the United States followed several decades of debate over how best to meet the healthcare needs of vulnerable Americans. The program, modeled after the existing private health insurance market, was developed during Johnson's administration in the 1960s. Coinciding with the popular ideology of the Great Society and the War on Poverty, Medicare was designed as a non-means-tested program serving those considered to be worthy. As such, its configuration builds on the series of legislative efforts dealing with social insurance programs and entails sharing the costs across the population by raising funds through payroll withholdings contributed by both employers and employees.

Medicare was originally instituted to aid the elderly, officially defined as those people over 65 years old who are eligible for Social Security benefits. In 1972 the program was extended to include people less than 65 years old entitled to federal disability benefits for at least two years as well as those with end-stage renal disease.

Fundamentals of the Program

Medicare insures more Americans than any other healthcare program, serving one in seven Americans, representing 14 percent of the U.S. population in 2004. The $297 billion (2004 annual budget) program is administered by the Center for Medicare and Medicaid Services as part of the U.S. Department of Health and Human Services.

Medicare has four distinct parts; A, B, C, and D, each administered differently. Parts A and B, the two primary components, were established with the original passage of Medicare in 1965 while Part C was added in by the Balance Budget Act of 1997 and Part D was created by the Medicare Modernization Act of 2003.

Part A: Hospital Insurance covers inpatient hospital and postacute care and is currently the largest category of benefit expenditures. In 2004 approximately 46 percent of Medicare spending fell under Part A. Part A is financed via the Medicare hospital insurance trust fund, composed of contributions by current workers and their employers in the form of a regressive payroll tax. Enrollment is automatic for individuals who meet the eligibility requirement for Social Security.

Part B: Supplementary Medical Insurance covers physician services and outpatient tests and procedures. It is financed by a combination of general federal tax revenues and monthly premiums paid by beneficiaries. Enrollment in Part B is voluntary and is open to those individuals who are entitled to Part A. In 2004 roughly 36 percent of Medicare spending was for services covered by Part B.

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