Created in 1965, Medicare is a public healthcare program for people over 65, as well as those enrolled in Disability Insurance and those with end-stage renal disease. Medicare began with two areas of coverage - hospital insurance (Medicare Part A) and medical insurance (Medicare Part B). In the 1980s, Medicare Part C, also known as Medicare Advantage, was added as an alternative to traditional Medicare. In 2006, outpatient prescription drug coverage was added under Medicare Part D.
In recent years, as the elderly population has increased, Medicare participation has grown to 18% of the population. However, for those not enrolled in the program, some aspects may be surprising.
Medicare enrollees have increased as the population has aged
Most Medicare enrollees pay monthly premiums. Premium amounts vary based on the income of a Medicare enrollee as well as the plan they select.
Employees and employers in the US each pay a 1.45% tax on employee income which goes to fund Medicare Part A. For those who have worked 40 quarters or more, hospital insurance through Part A is free. However, medical insurance through Part B has a premium, and the remaining costs of Part B are paid for from general federal government revenues.
Part A - free for most
Part B - $135.50 - $460.50
Part C - enrollment optional, premium varies by plan
Part D - enrollment optional, premium varies by plan
If an enrollee has less than $85,000 in yearly income, they pay the minimum premium amount, which in 2019 is $135.50 per month. The premium increases for higher incomes, up to a maximum of $460.50 per month. Most Medicare enrollees pay only the minimum amount.
If an enrollee elects to receive prescription drug coverage through Part D, they may have to pay an additional Part D premium, depending on the plan. The average Part D premium in 2019 is $32.50 per month.
People in poverty who are eligible for Medicare can access another government healthcare program, Medicaid, which pays their premiums and co-pay costs.
For more information, Medicare publishes a detailed cost sheet.
Medicare doesn't cover everything
Medicare doesn’t cover everything. Some of the coverage gaps are particularly relevant to an aging population, such as hearing aids, podiatry, dental and vision care, and nursing home care. In order to increase coverage for additional heathcare needs, some people choose to participate in a Medicare Advantage plan instead of traditional Medicare.
Medicare Advantage plans, offered through Medicare Part C, allow private insurers to offer alternatives to traditional Medicare. These plans must cover everything covered by Parts A and B. Medicare pays these plans a set amount per enrollee roughly equivalent to the value of Parts A and B coverage. Additional cost for expanded coverage is paid by the beneficiary.
Medicare Advantage plans are increasing in popularity. In 2019, 36.7% of Medicare eligible individuals are expected to enroll in a Medicare Advantage plan.
Individuals enrolling in Medicare have a big decision to make - whether to enroll in traditional Medicare or a Medicare Advantage plan. Medicare Advantage plans must cover everything that traditional Medicare covers. These private plans operate under a bidding process to offer their plans through Medicare. When they cost more than Medicare, the enrollee pays the difference. Generally, this difference between Medicare Advantage and other Medicare plans is a trade-off between paying higher prices for more coverage.
There are numerous Medicare Advantage plans and their availability varies depending on where an enrollee lives. The Kaiser Family Foundation’s analysis of Medicare data concluded that the average Medicare beneficiary has 24 Medicare Advantage plans to choose from. However, in one in five US counties, the number of plan options drops to five or fewer. In general, a Medicare beneficiary living in a metropolitan area has double the number of choices as those living outside of cities.
While the intention of Medicare Advantage was to both expand covered care and decrease costs for the Medicare program, an analysis at Harvard concluded that only the first goal has been achieved by the program.
In addition to selecting whether to enroll in traditional Medicare or a Part C plan, enrollees also decide whether to add prescription drug coverage through Medicare Part D. Much like Medicare Advantage, there are multiple Part D plans to choose from based on where an enrollee lives.
Some people take out secondary insurance
Some enrollees choose to pay for an additional private insurance plan, called a Medigap plan. It helps reduce their out-of-pocket costs in the event of a serious medical condition.
Medicare Part B has a 20% co-pay for all physician and equipment costs. Medicare Part A reduces coverage for hospital stays after 60 days. This means that in the event of a serious health condition, people could face significant out-of-pocket costs. In addition, there is no cap on out-of-pocket spending under traditional Medicare. Some people choose to pay for Medigap insurance in return for those expenses being covered in the event of a major health condition.
One in three Medicare enrollees also has a Medigap plan
While total costs for the program continue to rise as more people enroll in Medicare, the average cost per beneficiary has leveled off in recent years. Costs have not risen since 2009 when adjusting for inflation.
However, while costs have remained flat overall, the story changes when you look at the various parts of Medicare. Per person spending has leveled off under Part D and decreased under Part B. But the average cost per beneficiary for Part B has steadily increased.
Trends in average cost per beneficiary vary by part