Medicare Primer

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Patricia A. Davis, Coordinator
Specialist in Health Care Financing

Scott R. Talaga, Coordinator
Analyst in Health Care Financing

Cliff Binder
Analyst in Health Care Financing

Jim Hahn
Specialist in Health Care Financing

Suzanne M. Kirchhoff
Analyst in Health Care Financing

Paulette C. Morgan
Specialist in Health Care Financing

Sibyl Tilson
Specialist in Health Care Financing

Medicareis a federal program that pays for covered health care services of qualified beneficiaries.It was established in 1965 under Title XVIII of the Social Security Act toprovide health insurance to individuals 65 and older, and has beenexpanded over the years to include permanently disabled individuals under65. Medicare, which consists of four parts (A-D), covers hospitalizations,physician services, prescription drugs, skilled nursing facility care, homehealth visits, and hospice care, among other services.

Generally, individuals are eligible for Medicare if they or their spouse workedfor at least 40 quarters in Medicare-covered employment, are 65 years old,and are a citizen or permanent resident of the United States. Individualsmay also qualify for coverage if they are a younger person with apermanent disability, have End-Stage Renal disease (permanent kidney failure requiringdialysis or transplant), or have amyotrophic lateral sclerosis (ALS, Lou Gehrig’s disease).The program is administered by the Centers for Medicare & Medicaid Services(CMS), and by private entities that contract with CMS to provide claimsprocessing, auditing, and quality oversight services.

In FY2013, the program will cover approximately 52 million persons (43 millionaged and 9 million disabled) at a total cost of about $606 billion,accounting for approximately 3.7% of GDP. Spending under the program(except for a portion of administrative costs) is considered mandatoryspending and is not subject to the appropriations process. Services providedunder Parts A and B (also referred to as “traditional Medicare”), aregenerally paid directly by the government on a “fee-for-service” basis,using different prospective payment systems or fee schedules. Under PartsC and D, private insurers are paid a monthly “capitated” amount to provideenrollees with at least a minimum standard benefit. Medicare is required to payfor all covered services provided to eligible persons, so long as specificcriteria are met.

Since 1965, the Medicare program has undergone considerable change. Forexample, during the 111th Congress,the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 and P.L. 111- 152)made numerous changes to the Medicare program that modify providerreimbursements, provide incentives to increase the quality and efficiencyof care, and enhance certain Medicare benefits. However, in the absence offurther congressional action, the Medicare program is expected to beunsustainable in the long run. The Hospital Insurance (Part A) trust fund hasbeen estimated to become insolvent in 2024. Additionally, although theSupplementary Medical Insurance (Parts B and D) trust fund is financed inlarge part through federal general revenues and cannot become insolvent,associated spending growth is expected to put increasing strains on the country’scompeting priorities. As such, Medicare is expected to be a high-priority issuein the 113th Congress, and Congress may considera variety of Medicare reform options ranging from further modifications ofprovider payment mechanisms to redesigning the entire program.


Date of Report: January 31, 2013
Number of Pages: 37
Order Number: R40425
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