Exploring Medicare benefits in 2016 and 2017
As a federal health insurance program, Medicare stands out among the examples of successful social programs if for no other reason than the fact that it has survived for the past five decades with few significant modifications. In order to understand how Medicare affects your life as an American citizen, you need to appreciate that that the program was an unprecedented measure in its day. Today, it continues to fulfill a vital need for senior citizens and those with certain disabilities or illnesses. In the following sections, we’ll discuss the history of Medicare, its impact as a social program on the country and what it means to you as an individual.
The History of Medicare
Like any social program, Medicare traces its roots back far beyond the law that put it into place in the mid-1960s. In the early years of the 20th century, the United States government worked with state governments, lobbyists, union representatives and others to form programs that would later evolve into the various social programs we know today.
Healthcare has been the subject of national debate for nearly a hundred years, dating back to lawmakers during the Prohibition years. It has long represented a perceived need among certain sectors of the population. Social Security programs were put into practice during President Franklin D. Roosevelt’s terms, owing primarily to the need for economic growth following the Great Depression.
Despite the push for Social Security programs and the implementation of the Social Security Act in 1935, there was still a large gap in coverage for people, specifically older Americans. As we age, we tend to need more medical care and more extensive medical coverage to pay for things, like hospital care, medical treatments, prescription drugs and therapy.
Unfortunately, seniors living in the early- to mid-20th century would often see spikes in their premiums or be denied coverage based on pre-existing conditions. The gap in social security coverage for older Americans was palpable. It became a prime focus in the 1960s when Lyndon Johnson took office. President Johnson made creating affordable health insurance for seniors a priority. A year and a half after he took office, Medicare was signed into law, on July 30, 1965, along with Medicaid. However, the path to Medicare wasn’t always smooth sailing. A bill for socialized healthcare was first introduced in 1957, and it took eight years for Medicare to become law.
The Johnson administration and lawmakers at the time debated extensively on the concept. How would Medicare help senior citizens? What would such a program look like in reality? How much would it cost? Where would the funding come from? They faced a challenge not only in the construction of the law but in its implementation and how the country would respond.
Despite these concerns, Medicare was adopted in 1965 as a way to help older Americans get the medical insurance that they needed to offset the high cost of senior care. Lawmakers and proponents of the plan sought to achieve their goal of affordable senior health insurance by combining appropriate healthcare procedures, insurance and health economics into one program of social responsibility. In essence, United States citizens would have access to better insurance options as they aged by paying into the system during their working years.
There have been few actual amendments to the original Medicare law because the subject was so heavily debated prior to its implementation. We’ll discuss the major changes in a later section.
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Medicare has operated under the direction of the Social Security Administration (SSA) since its beginning in 1965. Over the last 51 years, the SSA has grown to accommodate the massive undertaking that Medicare poses. In 1977, the Centers for Medicare & Medicaid Services (CMS) was established to administer both social programs, but people still apply for both programs through the Social Security Administration. In the following sections, we’ll go over how this unprecedented social program evolved into a vital part of modern American health insurance.
Medicare as Social Insurance for the Country
As a program funded primarily through taxes, Medicare can be considered a social welfare program as well as a social insurance program. The word “social” conjures up different images to people depending on where they fall along the political spectrum. Conservatives tend to believe in the power of individual responsibility, equating government programs with unnecessary handouts. Liberals typically support social programs on the basis that these programs are designed to enhance society in some way.
Wherever you fall along the political spectrum, you’re probably aware that Medicare operates as a social program unlike other government programs. Serving a specific need and doling out only what beneficiaries pay into the system, Medicare offers healthcare coverage for seniors. In many ways, this idea can be seen as a positive use of socialization.
Medicare isn’t just for the elderly. In certain cases, people with disabilities also gain the benefit of more affordable health insurance than they might otherwise receive from private sources. Insurance companies have a long history of denying coverage to people with medical problems or raising premiums for people with terminal illnesses. They do this because of the perceived risk in terms of cost. But the practice doesn’t always seem fair, especially when loved ones can’t get the right treatment. Medicare assumes all risks. In other words, people with terminal illnesses, such as amyotrophic lateral sclerosis (AML, or Lou Gehrig’s disease), gain appropriate insurance options that eliminate at least one source of stress.
One of the primary benefits of Medicare as a social program is that the financial risk is distributed across the working population. This means that the nation as a whole assumes financial risk for factors that might raise someone’s premiums substantially. For instance, older people with diabetes need significantly more medical care and equipment than do older people without diabetes. Prior to the implementation of Medicare, diabetics might not have even received the coverage they needed from private insurers. If they did get coverage, costs may have been substantially higher. But Medicare spreads out the cost to the populace, which allows everyone to get more affordable care.
Medicare works on the basis that people pay into the system throughout their working years so that they can retire and still get health insurance. Like other social programs, the Medicare system operates on widespread distribution of funds. Unlike other social welfare programs, most, if not all of the beneficiaries have contributed in a substantial way prior to receiving the benefits of the system.
Successful social programs encourage the development of other useful programs. People are willing to support good ideas no matter which political party introduces them. But it hasn’t always been easy to generate cooperation at the federal level. Medicare offers a lesson on how social programs might work long-term.
Funding Behind Medicare
While Medicare is funded primarily through taxes, there are actually several sources of funding. It’s important to understand the financing behind Medicare because the future of the program largely depends on continued funding from individual taxes and other sources. Social programs only succeed in light of their perceived benefit versus the amount of money it takes to sustain them. These programs fail when they lose financial and moral support. In this section, we’ll give you a basic overview of how Medicare is funded so that you’re familiar with its impact on the economy and the healthcare industry as a whole.
Medicare comprises several parts: Part A, Part B, Part D and Medicare Advantage (Part C). Medicare Part A is funded primarily through payroll taxes; there is a fund set up for Part A called the Hospital Insurance Trust Fund. Part A is also funded through sources such as interest earned on the trust fund itself. You may have noticed that your paychecks reflect a portion of taxes that go toward Social Security and Medicare. For people who work for an employer, the employer pays half of the Medicare tax while the worker pays the other half.
The Medicare tax rate is 2.9 percent, which means that an employer pays 1.45 percent while the remaining 1.45 percent is deducted from the employee’s wages. Self-employed individuals don’t have an employer to pay half of the Medicare tax, so people who work for themselves – like freelance photographers or real estate agents – pay the full amount on their federal tax returns or during quarterly tax periods throughout the year.
Starting in 2013, the Medicare tax rate increased to 3.8 percent for people who earn more than $200,000 per year as an individual or $250,000 per year as a couple filing joint taxes. This increase helped offset the cost of the new requirements set forth by the Affordable Care Act (ACA).
Medicare Parts B and D have their own trust fund, labeled the Supplementary Medical Insurance Trust Fund. These portions of Medicare are funded through three primary sources: premiums paid by beneficiaries for Parts B and D, funds approved by Congress and interest accrued on the account itself.
Medicare Part C isn’t funded through the federal government or either of Medicare’s accounts. This is because Medicare Part C is technically a private portion of Medicare operated and administered by private insurers. Also referred to as Medicare Advantage, Part C combines elements of Parts A, B and D to create a comprehensive package of health insurance. We’ll discuss the evolution of these parts in greater detail below.
The trust funds set up for Medicare can only be used for their respective portions. In other words, the Hospital Insurance Fund could not be used to cover medical expenses for a Medicare Part B beneficiary. The trusts also provide funding for administrative costs associated with administering Medicare benefits and protecting consumers against Medicare fraud. The Kaiser Family Foundation reported that Medicare covered 55 million people and made up about 14 percent of the federal budget in 2014. While costly, Medicare helps to lessen the strain on the healthcare industry as a whole.
The Evolution of Medicare
Social programs inevitably change over time to meet evolving needs of the communities that they support. It’s true that Medicare hasn’t evolved significantly since its creation. But the program has seen a few substantial changes over the years that helped make it more viable to more people.
Healthcare in America has long been the subject of debate among politicians. Inflated premiums, minimally regulated standards of care and the high cost of specialty medical treatments make healthcare difficult to understand and navigate. Nowhere is this idea truer than in the realm of senior care. In response to various needs, Medicare was modified to reflect the changing culture of senior healthcare.
Seven years after the passage of the Medicare bill, an amendment was added to the law that allowed for coverage of physical therapy, speech therapy and chiropractic care. These forms of care help seniors, particularly those with disabilities, to achieve alternate forms of medical treatments. In some instances, physical therapy may reduce the need for expensive prescription drugs. Another example is that chiropractic care may help alleviate stress and neuromusculoskeletal (involving the nerves, muscles and skeleton) conditions.
For some senior citizens and people with terminal disabilities, medical care evolves over time to include care at an end-of-life level. Today, hospice organizations provide end-of-life care for people with advanced illnesses or age who need care beyond normal hospital procedures; however, this wasn’t always the case. In 1982, Congress amended the Medicare bill on a short-term basis to include hospice care for Medicare beneficiaries. Two years later, the amendment became permanent so that patients who needed care at this level could gain access to the coverage they needed. This amendment reflected not only the need to care for people with end-stage diseases but also the growing awareness of longer life spans.
Additional amendments in the 1980s helped strengthen the impact and reach of Medicare while making it easier for beneficiaries and providers to communicate. Lawmakers approved the cooperation between Medicare and health maintenance organizations (HMOs). HMOs act as liaisons between healthcare providers and beneficiaries.
People who subscribe to HMO plans usually have to go to a select list of providers that has been approved by the HMO administrators. But they gain the benefit of having their healthcare managed by professionals. While the concept of Medicare’s participation with HMOs got started in the 1980s, President Clinton formalized the connection between the two entities in 1997.
One of the changes that had the biggest impact on Medicare was the decision to include people with certain disabilities as beneficiaries of the program. People with end-stage renal disease (ESRD) or Lou Gehrig’s disease can receive Medicare benefits if they also receive Social Security Disability Insurance. People with these conditions don’t have to meet the age requirement of being 65 or older. For these beneficiaries, portions of Medicare may not cost anything whereas many seniors must pay a premium for coverage.
Today, you might associate Medicare with coverage for medical care that includes routine visits to the doctor, hospital treatments and prescription drug coverage. However, prescription drug coverage wasn’t actually part of Medicare until relatively recently. In 2003, President Bush signed into law the Medicare Prescription Drug, Improvement and Modernization Act. This law made it easier for seniors to get the medicine they needed as the law covered most prescription drugs. The law didn’t go into effect for another three years, but in 2006, it officially became part of the Medicare program. Now, seniors and those with certain disabilities have the option to purchase an affordable drug plan along with their insurance coverage.
Medicare: A Social Program for All
If Medicare is considered a public necessity and you pay into the system through your employment taxes, then you probably want to know how Medicare benefits you as an individual. We’ve discussed how this comprehensive social insurance program impacts and affects the United States as a whole. In this section, we’ll discuss the specific portions of Medicare and how each benefits and affects individuals. After all, social programs work best when more people benefit from their services. As a unique enterprise, Medicare functions as both a social project and an individual one. Primarily, it helps to offset the cost of your medical care by giving you back a portion of the funds you paid into the system while you worked.
Medicare Parts A and B go hand-in-hand, but only Part A is premium-free for most people. Part A covers hospital care and services relevant to hospital care on a limited basis. Part B covers medical care, such as doctor’s visits and routine treatments. Unless you earn an income that’s higher than the standard threshold, you get Part A for free once you qualify for Medicare. The standard monthly premium for Part B in 2016 is $121.80 a month. This rate applies to new enrollees. In 2017, the standard premium is expected to hit $149 a month. Still, these are much cheaper options for health insurance than you’re likely to find in the private sector. Plus, you can add drug coverage and supplemental insurance to make your plan work better for your needs.
If you need coverage that goes beyond these basics, then you can look into a Medicare Advantage plan. These plans are outsourced through private companies but fall within the jurisdiction of Medicare. The CMS offers an annual report on different Advantage plans to help patients choose one that works for them. Medicare Advantage combines elements of A, B and D to act as a more comprehensive plan. The benefits of choosing an Advantage plan include greater flexibility in providers and potentially lower out-of-pocket costs.
As mentioned above, Medicare Part D covers most prescription drugs. You’re likely to need a variety of prescriptions as you age. This portion of Medicare can help you manage your out-of-pocket expenses by providing drug coverage at an affordable rate. If you’re enrolled in Medicare Part D, you may fall into the “donut hole, which is a situation that happens when you’ve reached your coverage limit for the year but still need medication. Most Medicare Part D beneficiaries don’t fall into the donut hole very often. Unless you take several expensive name brand prescriptions each month, you should be able to use Part D coverage for a majority of your monthly prescriptions without issue. The “donut hole” is discussed in greater detail in a later section.
What’s the difference between having Medicare and having coverage through your employer or a private source? If you’re not planning to retire when you turn 65, then you may be tempted to just keep the insurance you have and forgo enrolling in Medicare. This could end up being a bad decision when you need to enroll later because you may face penalty fines for late enrollment. Also, Medicare can be less expensive than traditional plans, and it includes options that your work-based or private insurance may not offer.
You most likely get Part A for free, and Part B doesn’t cost much to keep. The implementation of the Affordable Care Act may raise premiums for some people, but the ACA doesn’t have the same effect on Medicare. Before deciding against Medicare, talk to your plan administrator for a breakdown of your actual costs. This will allow you to make a more informed decision.
The Impact of Baby Boomers on Medicare
We would be remiss if we didn’t point out some of the controversies or negatives surrounding Medicare. All social programs garner debate over time due to different factors. In Medicare’s case, expansion has led to questions about future funding and long-term viability of the program. An increasing number of enrollees – due to the retiring and aging Baby Boomer generation – adds fuel to the fire in the debate about Medicare’s future.
Baby Boomers, the generation of people born primarily during the decade following World War II, are aging into Medicare at a remarkable pace. According to Forbes, 10,000 new people enroll in the Medicare program every single day. Over the next 20 years, the total number of Medicare enrollees is expected to double. Baby Boomers not only work more physically demanding jobs, but they also live longer than their parents did. It’s a perfect storm of factors that could derail Medicare’s future.
Fortunately, improvements in medical science and access to better preventive care may help offset the cost of health insurance and medical care for Baby Boomers. The ACA, signed into law by President Obama, strives to help America get healthier. It also promotes early diagnosis by encouraging better preventive care for all insured people, including and especially seniors.
As a social insurance policy on the nation and on individuals, Medicare works on the premise that everyone who pays into the system will reap the benefits of affordable care. Obamacare was built on a similar premise. The new healthcare reform laws could have a huge impact on the Medicare program.
In addition to giving seniors better and more frequent access to preventive care, the ACA seeks to cut approximately $716 billion from Medicare over the next decade. This may seem like a negative, and many people have questioned the validity of the arguments that led to this decision. But cutting spending could help balance the Medicare budget. As mentioned above, Medicare is expensive to run and maintain. And the Baby Boomer generation will only add to the already-straining trust funds. By cutting funding where it isn’t needed and redistributing it throughout the program, lawmakers hope to increase Medicare’s sustainability.
One of the most obvious issues with Medicare as it currently stands is the “donut hole” or coverage gap created in Medicare Part D. Part D helps millions of seniors gain access to affordable prescriptions. But the program also allows some beneficiaries to fall into a coverage gap that effectively forces them to pay retail cost for certain prescriptions. The gap is created when people reach their limit for prescription coverage before reaching their out-of-pocket spending threshold. Until they reach the other side of the “donut,” they have to pay full cost for their medication. The ACA plans to close this donut hole by 2020, which could effectively eliminate this major issue.
Despite the negatives and controversies surrounding Medicare, the program remains one of the most successful social programs ever instituted in the United States. This is simply due to its perceived benefits versus its costs. Today’s lawmakers and leaders understand the challenge posed by Medicare as a social insurance program while recognizing its benefits.
In its relatively short history as a social program, Medicare has transformed the way that seniors and people with certain disabilities receive healthcare. Now, people who contribute to the system won’t need to worry about paying exorbitant hospital costs or spending their life’s savings on something as basic as medical care. As the ACA continues to reform healthcare in America at large, lawmakers will no doubt look for ways to improve the current Medicare system. This will be accomplished by finding ways to make it more financially stable for generations that follow the Baby Boomers.
The Future of Medicare
Given the growing rate of aging Baby Boomers and funding for new government programs under the Affordable Care Act, the future of Medicare remains unclear. The reduction in spending proposed by Obamacare may offset the high cost of care for beneficiaries. Funding may actually grow or at least remain steady over the next few decades.
As a vital social program, Medicare helps protect the elderly and disabled against situations that might worsen their medical condition, such as high prescription costs and astronomical hospital bills. Lawmakers will need to evaluate the direction of Medicare in order to ensure that the program remains a viable option for those who need it most in the future.