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Medicare and Medicaid

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Medicare and Medicaid, federally sponsored health insurance programs, cover low-income Americans for medical expenses. The programs were implemented in 1965 by the Health Care Finance Administration, which is part of the Department of Health and Human Services. Although the U.S. Government offers health coverage to a number of groups, including federal employees, veterans, and Native Americans, Medicare and Medicaid account for the majority of federal government health care expenditures.

With the rapid rise in healthcare costs, the cost of administering these programs has risen dramatically. The amount of federal spending used to support Medicare or Medicaid has increased dramatically over the years. It went from 5 percent in 1970, to 20 percent in 2005. This is likely to continue rising and will exceed 25 percent by 2010. Add to the already high cost of the new Medicare prescription drug program, which will be effective in 2006, and the price tag goes up even more. Many experts believe that Americans will no longer be able to rely on these programs in the long term for their health care needs. These statistics show that self-employed people and small-business owners are less likely than their employers to have health insurance. This highlights the importance of planning ahead to obtain private insurance to supplement Medicare.


Medicare, the nation's most popular health insurance program, provided coverage for 41 million Americans aged 65 and older. Medicare coverage is divided into four parts, Parts A-D.

Part AThe majority of Medicare's funding comes from Social Security taxes. These services are covered by the Medicare program:

For "spells of illness", inpatient hospital services for up to 90 days

After a 3-day hospital stay, skilled nursing facility services are available for up to 100-days per "spell"

After a 3-day hospital stay, home health care can be provided up to 100 times per "spell"

Hospice care

Inpatient psychiatric treatment, up to 190 days in a beneficiary's life

Blood (after the beneficiary has paid for the first three pints in a year)

Part BIt is funded by premiums that are paid by participants who pay extra for its services.

Services of a physician, which include office visits and a once-off physical exam for new beneficiaries

Durable medical equipment (e.g. wheelchairs, oxygen, etc.) and supplies

Services in an Outpatient Hospital

Outpatient mental health services

Clinical laboratory (e.g. blood tests, some screening test, etc. Diagnostic tests and clinical laboratory

Outpatient occupational, speech, and physical therapy

Home health care that is not preceded or accompanied by a hospital stay, and visits exceeding the 100-day Part B limit

Some preventive services, such as mammograms and diabetes screening, are available.

Blood (after the beneficiary has paid for the first three pints in a year)

Part CRefers to the Medicare Advantage program (formerly called Medicare+Choice), which provides Medicare benefits to eligible beneficiaries through private plans.

Part DThe new Medicare prescription drug program is now available to all Medicare beneficiaries, regardless of their income, resources, current prescription drug costs, and health status. Two ways can you get Medicare prescription drug coverage. You can join a Medicare prescription plan or a Medicare Advantage Plan that offers drug coverage. The plan, regardless of which option you choose, is designed to help you pay for brand-name and generic medications.

Participants must pay a monthly premium and an annual deductible. They also have to pay a copayment, which is a percentage of the price of any drugs they purchase. Participants with limited incomes may be eligible for assistance. It is made up of a complex mix of competing and private insurance companies policies. Each policy has a list of medications covered and a different premium structure. Critics focus on the program's complexity and high cost. They also point out that the plan does not allow for any negotiation with pharmaceutical companies to lower their prices. After the program is in operation for some time, evaluations of its effectiveness will likely be done and possible amendments to be made.

By completing an application at the local Social Security Administration office, qualified people can sign up for Medicare. Important to remember that once an employee is eligible for Medicare, the owner of a small business is no longer required by law to provide continuation coverage for his or her health insurance under the Consolidated Omnibus Budget Reconciliation Act. Many insurance companies offer Medicare Supplemental Insurance, also known as Medigap coverage. This is because Medicare doesn't cover all the costs of an elderly person or disabled person's healthcare. Medigap policies often cover co-payments or over-limit expenses in return for a small premium. Experts recommend that people shop carefully for this type coverage due to past issues with unreliable Medigap providers.


Medicaid, the nation's 2nd-largest insurance program, provided medical assistance for 52 million Americans with low income in 2004. Title XIX, the Social Security Act 1965, established Medicaid to cover the costs of health care for those in society who otherwise would not be able to afford it. While the federal and state governments jointly fund the program, each state administers it according to broad federal guidelines. Medicaid recipients can be adults, children, families, elderly, blind, or disabled people who have low incomes and are eligible for public assistance. Medicaid also covers those who are "medically in need", or whose incomes have been significantly affected by high medical expenses.

Medicaid covers all costs of many medical services including doctor visits, laboratory tests, Xrays, nursing home care, family planning and preventative medicine. The majority of Medicaid recipients are elderly or disabled and therefore qualify for Medicare. Medicaid pays Medicare premiums, co-payments, deductibles and deductibles in these cases.


According to the American Association of Retired Persons, although many Americans intend to rely on Medicare later in their lives to cover their health insurance needs, it covered only half of the average senior citizen's medical expenses in 2000. Medicare doesn't cover vision, hearing, or dental care. It also does not cover nursing home care in 97 percent of cases. The program will face significant challenges as the baby-boom age group reaches retirement.

According to the United States' Congressional Budget Office (CBO), the Medicare program will have a cumulative deficit of $5.8 trillion over the 2003-2026 period. This excludes the transfer that the trust fund receives form the general fund. This means that revenues will not be sufficient to cover the costs of paying out. In its report The Effect of Medicare and Social Security on the Federal Budget, the CBO sums up the situation. The looming fiscal strains will not be temporary and are not caused by the retirement of post-1942 baby boomers. These are a result of a growing imbalance, as well as strong demographic trends that could have serious unfavorable effects on the economy. It is better to make changes to Social Security and Medicare programs earlier than later. Future beneficiaries will have more time to prepare and the revisions may be less severe. The changes could also boost economic growth.

It is not a question of whether changes will be made, but rather when and how they will affect future retirees. Every American should include some type of contingency plan for post-retirement health care coverage in their retirement planning. Individuals can also benefit from the same advice the CBO gives our legislature about the importance of planning early. The quicker one acts to plan for the future the shorter it will take and the more dramatic it may be.


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