Monday Medicare Series Part 1 : What is Medicare?

Written by Alex M. Hendler, Founder, Ontolawgy, LLC

This is the first part of a 4-part series about Medicare. This part gives a very general overview of the program. Parts 2, 3 and 4 describe who can get Medicare coverage, what Medicare covers, and how much coverage and health care can cost a patient under Medicare.

There are links throughout these posts to some of the laws and policies that dictate how Medicare works. You don’t have to follow those links to understand what’s going on, but they may help you to understand why it can be difficult to get a straight answer about what Medicare does and doesn’t do, and how much it could cost you.

What is Medicare?

Medicare is a health insurance program offered by the U.S. Government for certain people living in the U.S. People who are enrolled in the Medicare program are typically called “Medicare beneficiaries”, so Medicare helps Medicare beneficiaries pay for some their health care bills.

What is Health Insurance?

Just so everyone is on the same page about what “health insurance” is, generally, it can help you pay for some of your health care, but in exchange, you have to pay premiums (think of them as a membership fee), you are typically responsible for paying for a minimum amount of care each year before the insurance will help out (a deductible), and after that, you may be responsible for coinsurance (a percentage of your health care costs) or a copayment (a fixed fee for each health care service you receive).

Medicare is a very large government program—it spent more than $500 billion (PDF) in 2009 alone—so there is a complex body of statutes, regulations, and policies (and some more policies here and here) that controls how Medicare works to help the government limit how much it spends on health care and limits the amount of waste and fraud (see also here and here) that take money out of the program. These laws and policies describe everything from what a hospital needs to do to get paid by Medicare to what a doctor can’t do without risking going to prison, to how much a Medicare beneficiary has to pay for a wheelchair.

How the government funds Medicare

Medicare is funded by a combination of payroll taxes and income taxes that are collected from everyone in the country (everyone who pays taxes, that is), plus premiums that some Medicare beneficiaries pay for certain types of coverage.

How Medicare pays for health care

Medicare pays for health care through four different types of Medicare coverage: Part A, Part B, Part C, and Part D, named after the “Parts” of Title XVII of the Social Security Act that describe how those programs run.

Generally, the Centers for Medicare and Medicaid Services (CMS), the government agency responsible for running Medicare, does not directly make payments or review claims for payments.

Instead, CMS writes rules, regulations, and policies for administering the program (including complex formulas for calculating how much to pay health care providers), sets nationwide payment policies for certain health care services, and hires contractors to review and pay claims in different regions as well as issue local payment policies on certain health care services because customs and standards of medical practice may differ in different parts of the country.

Next Monday Part 2 will be posted: Who Can Get Medicare?

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