Medicare was enacted in 1965 as a national social insurance program to help people age 65 and older obtain and pay for necessary medical care. Before then, only about half of older Americans had health insurance, employers rarely provided health coverage for retirees, people seeking private insurance were often denied it on the basis of age or preexisting conditions, or coverage was unaffordable.
In 2015 Medicare served 55 million beneficiaries. Medicare covers nearly all Americans age 65 and older. Medicare also covers individuals younger than age 65 who have received federal disability benefits for at least two years, and individuals with end-stage renal disease.
Medicare beneficiaries obtain covered medical services from private physicians, hospitals, skilled nursing facilities, home health agencies, and other types of providers who meet Medicare’s requirements and agree to participate in Medicare. Medicare employs a number of different ways to pay health care providers. It has been a leader in testing and adopting payment methods to promote high-quality, cost-effective care.
Medicare beneficiaries may choose to obtain Medicare-covered services in one of two ways: through traditional fee-for-service Medicare (also called Original Medicare) or by enrolling in one of the Medicare Advantage (MA) private health care plans available in their location.
Beneficiaries in traditional Medicare may obtain covered services from any Medicare provider and are required to pay some portion of the cost (“cost-sharing”) for most types of care. Consequently, many Medicare beneficiaries purchase private Medicare supplement insurance (referred to as “Medigap” insurance) to help pay for these cost-sharing expenses. Beneficiaries in traditional Medicare may also choose to obtain prescription drug coverage by enrolling in a private drug plan that contracts with Medicare. Some Medicare beneficiaries with low incomes receive assistance with cost-sharing through a Medicare Savings Program or state Medicaid program.
Beneficiaries enrolled in MA plans typically receive all their care through their plan. Beneficiaries who obtain services from providers in the plan’s network typically have lower (or no) cost-sharing. Enrollees in MA plans pay a monthly premium (some plans offer premium-free enrollment), and those who want drug coverage usually obtain it through their MA plan.