What Is Medicare?

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Medicare is a national health insurance program under the federal government. Its main intent is to provide medical coverage for people 65 or older. It's also available to people with permanent kidney failure, Amyotrophic Lateral Sclerosis, and anyone with disabilities that prevent them from working. It started in the 1960s, and has been expanded several times to increase its coverage and accessibility.

A doctor having a conversation with a woman.
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Medicare came to be in 1965 when President Johnson signed the Social Security Amendments. It signaled a government promise to improve a wide range of health and medical service for Americans. At that time, older Americans were finding it difficult to get affordable health insurance. The program's goal was to incorporate the best health insurance, economics and health care concepts. It included health and hospital plans and a supplementary medical insurance plan for physician services.

The original Medicare offers the same benefits as private insurance, but at a lower out-of-pocket cost. It includes Parts A and B. Part A is hospital insurance coverage, and it pays for hospital expenses, such as inpatient hospital stays, hospice and skilled nursing care. B is physician insurance coverage, and it pays for medical and preventive services. Beneficiaries eligible for Medicare automatically receive Part A coverage and generally don't pay premiums. Funding for Part A comes from sources such as payroll taxes and income tax on Social Security benefits. Conversely, Part B is optional, and beneficiaries fund it with monthly premium payments.

Another bill meant to expand Medicare benefits was passed in 1988. The Medicare Catastrophic Coverage Act capped out-of-pocket expenses and expanded skilled nursing facility and hospital benefits. It also offered outpatient prescription drug coverage. The elderly were to foot this bill by paying higher premiums. Public outcry forced Congress to repeal most of the 1988 plan, including the surtax, the cap on physician's bills and expanded nursing home benefits.

The Modernization Act of 2003 went into effect in 2006. It brought about Medicare Part D, a stand-alone prescription drug plan. The optional benefit is available to anyone with Part A and B, but does carry its own premium. D covers a percentage of the recipient's prescription drug coverage until the recipient reaches a fixed out-of-pocket threshold. At that point, that person must foot the full cost of his prescriptions. This coverage gap is sometimes called the donut hole. If his spending exceeds another fixed amount before the year ends, he is eligible for catastrophic coverage, where Medicare pays a large percentage of the costs.

The Affordable Care Act of 2010 expanded Medicare to include free annual checkups and preventative healthcare procedures. It also started a phase-out of the donut hole and called for recipients to get a 55 percent discount on Part D brand-name prescription drugs. The Medicare Trust fund was expected to run out of money by 2024, but Medicare changes under the 2010 plan extends the fund through at least 2029.

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