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Last Updated: 2017

Medicare, enacted in 1965, is a broad-based social insurance program administered by the federal government. State governments are largely out of the picture; however, there is some overlap in the programs. States pay Medicare care premiums for some low-income Medicaid eligible seniors, so-called dual eligible. The Medicare program provides insurance to people over 65 and eligible for Social Security (people with disabilities became eligible in 1972). Medicare Part A covers hospital costs and is mandatory. Medicare Part B covers physician services, is voluntary, and requires a premium. The program is administered by the federal government through the Centers for Medicare and Medicaid Services (CMS), which uses private intermediaries to implement Part A and private insurance carriers to implement Part B. Part C of Medicare provides options for beneficiaries to select a health care plan or managed care organization to provide their health benefits. These Medicare HMO options known as Medicare Advantage are becoming more popular. In 2000 just under 7 percent of enrollees were in such plans compared to 19 percent in 2017. Part D, as part of legislation signed into law in December 2003, provided a prescription drug benefit that was fully available in 2006.

The Medicare program is financed through three sources, a payroll tax people pay through work, funds Congress authorized, and beneficiary premiums and copayments. Payroll taxes go into the Medicare Trust Fund to pay for Part A hospital insurance. General revenue from the government and beneficiary payments finance Parts B and D. Funding is combined to finance Medicare Advantage plans.

The Medicare program does not provide long-term care services for its beneficiaries, although it does provide some home care services and skilled nursing home services associated with an illness of hospital stay. As mentioned above, certain low-income elders are eligible for both the Medicare and Medicaid program; they are called dual eligible. For these people, Medicaid pays Medicare premiums and other beneficiary out-of-pocket costs (copayments, co-insurance, and deductibles). Complex coverage and payment differences between the two programs, along with a lack of program coordination, make for dynamic intergovernmental relations. States want to limit Medicaid expenses and have Medicare pick up as much of the cost as possible, while Medicare administrators at CMS try to prevent this in the effort to keep federal costs down.

SEE ALSO: Health Care PolicyMedicaidPatient Protection and Affordable Care Act


Patricia Davis et. al., “Medicare Primer, Congressional Research Service Brief,” Library of Congress (August 2, 2017). Center for Medicare and Medicaid Services, How is Medicare Funded? (November 2017) .