Medicare and Medicaid

Medicare and Medicaid are health insurance programs sponsored by the federal government that cover medical expenses for elderly, disabled, and low-income Americans. Both programs took effect in 1965 and are administered by the Health Care Finance Administration (HCFA) which is part of the Department of Health and Human Services. The U.S. Government provides health care coverage to a variety of groups—including federal employees, military personnel, veterans, and Native Americans—but the Medicare and Medicaid programs account for the largest proportion of the federal government's health care expenditures.

The cost of administering the programs has increased dramatically over the years with the rapid escalation in health care costs. In fact, the portion of overall federal government spending that was spent to support Medicare and Medicaid increased from 5 percent in 1970 to 20 percent in 2005 and is expected to continue to rise, exceeding 25 percent by 2010. When the estimated costs of a new Medicare prescription drug program that will become effective in 2006 are added to this total, the already high price tag rises even more sharply. As a result, many experts predict that Americans will not be able to depend upon these programs for their long-term health care needs in the future. For self-employed persons and small business owners, who are less likely to be covered by an employer's health insurance program, these statistics highlight the need to plan on obtaining private health insurance coverage to supplement Medicare.

MEDICARE

Medicare is the nation's largest health insurance program, providing coverage in 2003 for 41 million Americans who were at least age 65 or who had a disability. Medicare coverage consists of four parts, labeled Parts A—D.

Part A of Medicare is financed largely through Social Security taxes. It provides for the following services:

• Inpatient hospital services up to 90 days per "spell of illness"
• Skilled nursing facility services for up to 100 days per "spell of illness" following a 3+ day hospital stay
• Home health care up to 100 visits per "spell of illness" following a 3+ day hospital stay
• Hospice care
• Inpatient psychiatric care, for up to 190 days during a beneficiary's lifetime
• Blood (after the beneficiary pays for the first 3 pints per year)

Part B is financed through premiums paid by those who choose to enroll in the program and pay an extra fee for its services, and provides:

• Physicians' services, including office visits and a onetime physical examination for new beneficiaries
• Durable medical equipment (e.g., wheelchairs, oxygen) and supplies
• Outpatient hospital services
• Outpatient mental health services

• Clinical laboratory (e.g., blood tests, some screening tests, etc.) and diagnostic tests
• Outpatient occupational, physical, and speech therapy
• Home health care not preceded by a hospital stay and visits over the 100-day Part A limit
• Some preventive services (e.g., mammograms, diabetes screening)
• Blood (after the beneficiary pays for the first 3 pints per year)

Part C refers to the Medicare Advantage program (formerly known as Medicare+Choice), under which private plans provide Medicare benefits to enrollees.

Part D is a new prescription drug program available as of January 2006 to everyone eligible for Medicare regardless of income and resources, health status, or current prescription drug expenses. There are two ways to get Medicare prescription drug coverage. One is to join a Medicare prescription drug plan, the other is to join a Medicare Advantage Plan or other Medicare Health Plans that offer drug coverage. Whichever is chosen, the plan is designed to help participants cover the cost of both brand-name and generic drugs.

Participants in the new program are required to pay a monthly premium, an annual deductible, and a percentage of the cost of the drugs they acquire (a copayment). The program does offer some assistance for participants who can prove that they have limited incomes. The program is a complicated patchwork of private and competing insurance company policies, each with a list of covered medications and each with a different premium structure. Critics of the plan focus on these complications in addition to its overall high cost as well as the fact that it does nothing to negotiate on the part of all participants for lower prices with pharmaceutical companies. Once the program has been operating for a period of time, assessments of its efficacy will likely be made and amendments to the program may be anticipated.

Qualified people can enroll in the Medicare program by completing an application at their local Social Security Administration office. It is important to note that, once an employee becomes eligible for Medicare, a small business owner is no longer required to offer him or her health insurance continuation coverage under the provisions of the Consolidated Omnibus Budget Reconciliation Act (COBRA). Since Medicare does not cover all of an elderly or disabled person's health care costs, many insurance companies offer Medicare Supplemental Insurance (also known as Medigap coverage) to fill in the gaps. Medigap policies commonly take care of co-payments and over-limit expenses, for example, in exchange for a small premium. Due to past problems with disreputable Medigap providers, experts recommend that individuals shop carefully for this type of coverage.

 1 | 2  NEXT