A Primer on Medicare: Key Facts About the Medicare Program and the People it Covers

What is Medicare?

Medicare was established in 1965 under Title XVIII of the Social Security Act to provide health insurance to people age 65 and older, regardless of income or medical history.

The program was expanded in 1972 to include people under age 65 with permanent disabilities receiving Social Security Disability Insurance (SSDI) payments and people with end-stage renal disease (ESRD). In 2001, Medicare eligibility expanded further to cover people with amyotrophic lateral sclerosis (ALS, or Lou Gehrig’s disease).

Medicare benefits are divided into four parts:

• Part A, also known as the Hospital Insurance (HI) program, covers inpatient hospital, skilled nursing facility, some home health visits, and hospice care. Part A is funded by a tax of 2.9 percent of earnings paid by employers and workers (1.45 percent each), along with an additional 0.9 percent paid by higher-income taxpayers (wages above $200,000/individual and $250,000/couple). An estimated 55 million people are enrolled in Part A in 2015.¹
• Part B, the Supplementary Medical Insurance (SMI) program, helps pay for physician, outpatient, some home health, and preventive services. Part B is funded by general revenues and beneficiary premiums. Beneficiaries who have higher annual incomes (more than $85,000/single person, $170,000/married couple) pay a higher, income-related monthly Part B premium; the Affordable Care Act (ACA) froze the income thresholds at 2010 levels from 2011 through 2019. An estimated 51 million people are enrolled in Part B in 2015.²
• Part C, also known as the Medicare Advantage program, allows beneficiaries to enroll in a private plan, such as a health maintenance organization (HMO) or preferred provider organization (PPO), as an alternative to traditional Medicare. These plans receive payments from Medicare to provide all Medicare-covered benefits, including hospital and physician services, and in most cases, prescription drug benefits. In 2014, 15.7 million beneficiaries were enrolled in Medicare Advantage plans.³
• Part D, the outpatient prescription drug benefit, was established by the Medicare Modernization Act of 2003 (MMA) and launched in 2006. The voluntary benefit is delivered through private plans that contract with Medicare: either stand-alone prescription drug plans (PDPs) or Medicare Advantage prescription drug (MA-PD) plans. Part D plan enrollees generally pay a monthly premium and cost sharing for prescriptions (varying by plan). In 2015, an estimated 42 million beneficiaries are enrolled in Part D.⁴