Medicare: U.S. Health Insurance Policy Overview

Overview and Purpose of Medicare

Medicare in the United States was established in 1966 and is defined as a national social insurance program whose administration is vested in the federal government. The policy is dispensed through 30 private insurance organizations in the country. Medicare provides health insurance to Americans aged 65 years and older who have worked and paid into the national system (Nadeau, Belanger & Petry, 2014). The policy also provides health insurance benefits to younger people with amyotrophic lateral sclerosis, disabilities, and end-stage renal disease.

Medicare provided health insurance to close to 47 million residents in 2010. Of these, 40 million were aged 65 years and above, while 7 million were younger individuals with disabilities. The policy was the primary payment source for close to 15.4 million inpatient cases in 2011, accounting for $182.7 billion (47.2 percent) of aggregate inpatient costs in United States hospitals. Medicare was established to serve a larger population of disabled and elderly individuals. The average Medicare coverage represents close to 48.3 percent of all health care charges among enrolled individuals (Barr, 2011). Enrollees must cover the remainder of charges through supplemental insurance and alternative out-of-pocket coverage forms. Out-of-pocket charges vary according to the health care needs of a Medicare enrollee. The program does not cover hearing, dental, long-term care, and vision services, for which supplemental insurance is required (Nadeau, Belanger & Petry, 2014).

In 1965, Medicare provisions expanded to include benefits for physical therapy, chiropractic therapy, and speech pathology. In 1972, Medicare introduced different payment options through health maintenance organizations, a structure that continued into the 1980s. In the 1990s, Congress expanded Medicare eligibility to include younger people with permanent disabilities who received Social Security Disability Insurance payments (Almgren, 2013). This category also includes people with end-stage renal diseases. Toward the end of the 1990s, the HMOs framework was formalized through President Clinton's health policy initiatives in 1997. In 2003, the Medicare program expanded to include prescription drug coverage, as authorized by President George W. Bush, with implementation beginning in 2006 (Nadeau, Belanger & Petry, 2014).

Historical Development and Policy Changes

Medicare financing operates through several distinct dimensions. Part A financing is funded through revenue from a payroll tax of 2.9 percent levied on workers and employers, with each paying approximately 1.45 percent. This structure was established in 1993 when legislation set maximum compensation amounts for Medicare taxes, imposed yearly. The approach paralleled Social Security tax methodology in the United States. In 1994, compensation limits were removed. Self-employed individuals were required to pay the full 2.9% tax based on net earnings from self-employment. This applies because self-employed individuals function as both employer and employee. However, they could deduct half of the tax charges from income in calculating income taxes (Moniz & Gorin, 2013).

Beginning in 2013, the Part A 2.9% tax applied to income exceeding $200,000 for individuals or $250,000 for married couples filing jointly. The rate increased to 3.8% on income above these thresholds, with the additional revenue partially funding subsidies. Parts B and D were partially funded through premiums that Medicare enrollees paid, as well as general fund revenues. In 2006, surtax additions within Part B premiums included higher-income variables and partial financing for Part D. The 2010 legislation increased surtax provisions applied to Part D premiums, with higher income categories partially funding the system (Almgren, 2013).

Financing Mechanisms

Medicare eligibility operates under different circumstances with specific qualifying criteria. Part A premiums can be waived entirely for certain individuals (Moniz & Gorin, 2013). Individuals qualify for the policy upon reaching age 65 years. Other participants include U.S. citizens with permanent legal residence for a period of at least five consecutive years, along with spouses and qualifying ex-spouses who have paid all Medicare taxes within the past decade. Another category includes individuals under age 65 with disabilities (Nadeau, Belanger & Petry, 2014). This includes those receiving Railroad Retirement Board disability or Social Security SSDI benefits. Individuals must receive these benefits for approximately 24 months from the entitlement date. The reference point is eligibility for the initial disability payment before increasing eligibility for Medicare enrollment (Holtz, 2008). Additionally, individuals requiring continuing dialysis for end-stage renal disease and those requiring kidney transplants qualify for the policy. Finally, people eligible for Social Security Disability Insurance and those with amyotrophic lateral sclerosis (Lou Gehrig's disease) are good candidates for the program (Nadeau, Belanger & Petry, 2014).

Individuals aged 65 years and older choosing to participate in Part A of Medicare should pay monthly premiums to sustain enrollment if they or their immediate spouses have not made full payments of Medicare payroll taxes (Barr, 2011). People with disabilities receiving SSDI share eligibility for Medicare even as they receive SSDI payments. This means such individuals lose Medicare eligibility based on disabilities if SSDI benefit payments stop. A 24-month exclusion period means that disabled individuals must wait up to two years before receiving government medical insurance. The alternative is enrollment within specific disease categories. The 24-month period is determined from the date individuals become eligible for distinct SSDI payments. This dimension also eliminates the necessity of making initial payments upon actual benefit receipt (Moniz & Gorin, 2013). Most new SSDI recipients receive disability payments covering periods of approximately six months from disability onset through the first month of SSDI payment (Moniz & Gorin, 2013).

Medicare is divided into four parts. Part A is Hospital Insurance, while Part B is Medical Insurance. Part D provides prescription drug coverage, similar in structure and provisions to Part B. Part C, known as Medicare Advantage, offers an alternative way for Medicare beneficiaries to receive their benefits from Parts A, B, and D through private plans. Part C is considered a public supplement option compared with supplemental Medicare provisions from former employers or private Medigap insurance. Medicare benefits are subject to medical necessity determinations (Nadeau, Belanger & Petry, 2014). This means Medicare offers mechanisms through which the state continues taking portions of citizens' resources to guarantee financial and health security in their old age (Barr, 2011). For disabled individuals, Medicare helps address the enormous and unpredictable health care costs. The flexibility of Medicare allows for substantial differences between private insurers in decision-making authority. This diversification includes determining which individuals to include in coverage and what benefits to provide. The system manages risk pools and ensures that total costs do not exceed established premiums (Moniz & Gorin, 2013).

Eligibility Requirements

The federal government has a legal obligation to provide Medicare benefits to disabled and older Americans. However, it cannot lower costs through restricting benefits or eligibility except through difficult legislative processes (Nadeau, Belanger & Petry, 2014). Although lowering costs through benefit cuts remains difficult, the policy can achieve economies of scale based on health care prices and administrative expenses. The result is that private insurers' costs have grown by almost 60% compared to Medicare since 1970. Cost growth for Medicare is similar to GDP growth and is expected to remain below private insurance levels in the subsequent decade. The fact that Medicare provides statutorily determined benefits, payment rates, and coverage policies ensures that enrollees receive similar forms of coverage (Moniz & Gorin, 2013). Private insurance markets offer plans tailored to provide differential benefits to different customers, enabling individuals to reduce coverage costs and assume risks not directly related to health care. However, private insurers face fewer disclosure requirements compared to Medicare (Nadeau, Belanger & Petry, 2014).

The policy has drawn criticism on various grounds. The initiation of Medicare represented a shift from personal responsibility toward the view that health care represents an unearned entitlement provided at the expense of others. A primary obstacle in financing health insurance for elderly people has been the high costs of care for the aged combined with generally low incomes among retired populations (Holtz, 2008). Because retired older people utilize medical care services far more than younger employed individuals, insurance premiums relative to risk for older people must remain high. However, if high premiums must be paid during retirement when people's incomes are lower, it becomes nearly impossible for average people to afford coverage.

Medicare Structure and Coverage

In conclusion, the Medicare policy has operated in the United States for over fifty years. During this period, the policy has undergone significant changes. Medicare offers a distinct approach compared to private insurance available to working Americans and differs from traditional social insurance programs. Social insurance programs provide statutory guarantees and benefits to entire populations under certain circumstances, including unemployment or old age. The benefits are financed through substantial portions funded by universal taxes.

References

Cost Efficiency and Comparisons

Almgren, G. R. (2013). Health Care Politics, Policy and Services: A Social Justice Analysis. New York: Springer Publishing Company.

Barr, D. A. (2011). Introduction to U.S. Health Policy: The Organization, Financing, and Delivery of Health Care in America. New York: JHU Press.

Holtz, C. (2008). Global Health Care: Issues and Policies. New York: Jones & Bartlett Learning.