An Overview of Medicare:

Medicare is the federal health insurance program created in 1965 for people ages 65 and over, regardless of income, medical history, or health status. The program was expanded in 1972 to cover certain people under age 65 who have a long-term disability. Today, Medicare plays a key role in providing health and financial security to 60 million older people and younger people with disabilities. The program helps to pay for many medical care services, including hospitalizations, physician visits, prescription drugs, preventive services, skilled nursing facility and home health care, and hospice care. In 2017, Medicare spending accounted for 15 percent of total federal spending and 20 percent of total national health spending.

Most people ages 65 and over are entitled to Medicare Part A if they or their spouse are eligible for Social Security payments, and do not have to pay a premium for Part A if they paid payroll taxes for 10 or more years. People under age 65 who receive Social Security Disability Insurance (SSDI) payments generally become eligible for Medicare after a two-year waiting period, while those diagnosed with end-stage renal disease (ESRD) and amyotrophic lateral sclerosis (ALS) become eligible for Medicare with no waiting period.

Characteristics of People on Medicare

Many people on Medicare live with health problems, including multiple chronic conditions and limitations in their activities of daily living, and many beneficiaries live on modest incomes. In 2016, nearly one third (32%) had a functional impairment; one quarter (25%) reported being in fair or poor health; and more than one in five (22%) had five or more chronic conditions, (Figure 1). More than one in seven beneficiaries (15%) were under age 65 and living with a long-term disability, and 12 percent were ages 85 and over. Nearly two million beneficiaries (3%) lived in a long-term care facility. In 2016, half of all people on Medicare had incomes below $26,200 per person and savings below $74,450. 

What Medicare Covers

Medicare covers many health services, including inpatient and outpatient hospital care, physician services, and prescription drugs (Figure 2). Medicare benefits are organized and paid for in different ways:

·       Part A covers inpatient hospital stays, skilled nursing facility (SNF) stays, some home health visits, and hospice care. Part A benefits are subject to a deductible ($1,364 per benefit period in 2019). Part A also requires coinsurance for extended inpatient hospital and SNF stays.

·       Part B covers physician visits, outpatient services, preventive services, and some home health visits. Many Part B benefits are subject to a deductible ($185 in 2019), and, typically, coinsurance of 20 percent. No coinsurance or deductible is charged for an annual wellness visit or for preventive services that are rated ‘A’ or ‘B’ by the U.S. Preventive Services Task Force, such as mammography or prostate cancer screenings.

·       Part C refers to the Medicare Advantage program, through which beneficiaries can enroll in a private health plan, such as a health maintenance organization (HMO) or preferred provider organization (PPO), and receive all Medicare-covered Part A and Part B benefits and typically also Part D benefits. Enrollment in Medicare Advantage plans has grown over time, with more than 20 million beneficiaries enrolled in Medicare Advantage in 2018, or 34 percent of all Medicare beneficiaries (Figure 3).

·       Part D covers outpatient prescription drugs through private plans that contract with Medicare, including stand-alone prescription drug plans (PDPs) and Medicare Advantage plans with prescription drug coverage (MA-PDs). In 2019, beneficiaries have a choice of 27 PDPs and 21 MA-PDs, on average. The Part D benefit helps pay for enrollees’ drug costs and provides coverage for very high drug costs. Additional financial assistance is available for beneficiaries with low incomes and modest assets. Enrollees pay monthly premiums and cost sharing for prescriptions, with costs varying by plan. Enrollment in Part D is voluntary; in 2018, 43 million people on Medicare were enrolled in a PDP or MA-PD. Of this total, roughly one in four receive low-income subsides.

Benefit Gaps and Supplemental Coverage

Medicare provides protection against the costs of many health care services, but traditional Medicare has relatively high deductibles and cost-sharing requirements and places no limit on beneficiaries’ out-of-pocket spending for services covered under Parts A and B. Moreover, traditional Medicare does not pay for some services that are important for older people and people with disabilities, including long-term services and supports, dental services, eyeglasses, and hearing aids. In light of Medicare’s benefit gaps, cost-sharing requirements, and lack of an annual out-of-pocket spending limit, most beneficiaries covered under traditional Medicare have some type of supplemental coverage that helps to cover beneficiaries’ costs and fill the benefit gaps (Figure 4).

 ·       Employer-sponsored insurance provided retiree health coverage to 3 in 10 (30%) of traditional Medicare beneficiaries in 2016. Over time, however, fewer beneficiaries are expected to have this type of coverage, since the share of large firms offering retiree health benefits to their employees has dropped from 66 percent in 1988 to 18 percent in 2018.

·       Medigap, also called Medicare supplement insurance, provided supplemental coverage to nearly 3 in 10 (29%) beneficiaries in traditional Medicare in 2016. These policies are sold by private insurance companies and fully or partially cover Part A and Part B cost-sharing requirements, including deductibles, copayments, and coinsurance.

·       Medicaid, the federal-state program that provides coverage to low-income people, was a source of supplemental coverage for more than 1 in 5 (22%, or 7.0 million) traditional Medicare beneficiaries with low incomes and modest assets in 2016 (not including 3.5 million beneficiaries who were enrolled in both Medicare Advantage and Medicaid). These beneficiaries are known as dually eligible beneficiaries because they are eligible for both Medicare and Medicaid. Most traditional Medicare beneficiaries who receive Medicaid (5.3 million) receive both full Medicaid benefits, including long-term services and supports, and payment of their Medicare premiums and cost sharing. Another 1.7 million beneficiaries do not qualify for full Medicaid benefits but Medicaid covers their Medicare premiums and/or cost sharing through the Medicare Savings Programs.

·       Nearly 1 in 5 (19%, or 6 million) Medicare beneficiaries with traditional Medicare had no supplemental coverage in 2016. These 6 million beneficiaries are fully exposed to Medicare’s cost-sharing requirements and lack the protection of an annual limit on out-of-pocket spending, unlike beneficiaries enrolled in Medicare Advantage.

·        

Medicare Advantage

In 2018, one-third of all beneficiaries were enrolled in Medicare Advantage plans rather than traditional Medicare, some of whom also have coverage from a former employer/union or Medicaid. Medicare Advantage plans are required to limit beneficiaries’ out-of-pocket spending for in-network services covered under Medicare Parts A and B to no more than $6,700, and may also cover supplemental benefits not covered by Medicare, such as eyeglasses, dental services, and hearing aids.

Medicare Beneficiaries’ Out-of-Pocket Health Care Spending

In 2016, beneficiaries in traditional Medicare and enrolled in both Part A and Part B spent $5,806 out of their own pockets for health care spending, on average (Figure 5). Nearly half (45%) of beneficiaries’ average total spending was for premiums for Medicare and other types of supplemental insurance, and 55 percent was for medical and long-term care services.