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What is Medicare?

Michael March 1, 2012

Congress passed the Medicare Bill on July 30, 1965 under Title XVIII of the Social Security Act.  This granted health insurance to people aged 65 and over, regardless of their income or medical history.  Medicare brought about a drastic change in the US healthcare system, especially for its senior citizen population.  Prior to the implementation of Medicare, roughly half of senior citizens could afford or qualify for health insurance, leaving the other half without any coverage at all.  Senior citizens had to pay nearly three times their income for ensuring their health insurance.  Medicare was a revolutionary step that has changed the face of America’s healthcare policy.  Medicare is now the nation’s largest health insurance program, granting coverage for 41 million American citizens who were at least age 65 or had a disability, as of 2003.  Medicare also prompted the refurbishing and restructuring of medical facilities, raising their quality and standards in order to qualify to receive Medicare patients and their funds. 

Medicare went through its first major revamp in 1983 when the diagnosis-related grouping system, or “DRG,” entered the medical arena.  The DRG was an economic theory aimed at creating a new payment system in order to prevent overuse of medical resources by the hospitals for diagnosis and treatment of patients.  In the 90’s when America was battling rising medical costs, Congress brought about another change in the Medicare policy.  In 1992, Medicare adopted the resource-based relative value scale (RBRVS) to give physician procedures a relative value in order to control the healthcare expenditure.  This method of payment is based on the work, practice or treatment expenditures, rather than on historic charges.

Medicare was modified again in 2003, when Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act also known as Medicare Part D, which initiated a drug benefit for Medicare recipients.
It was not all smooth sailing for Medicare in the new millennium. Medicare Part A trust fund went bankrupt in the year 2008 due to the failure of the Balanced Budget Act of 1997 which had ensured solvency of the Medicare Part A trust fund for the next 10 years.

According to a study, it has been predicted that annual Medicare expenditures will climb to between $2.2 and $3 trillion by the year 2030, up from $207 billion in 2002.  This will increase Medicare’s share of the federal budget and affect the funding of other programs.  As Medicare funding is facing financial troubles, the beneficiaries have started facing higher out-of-pocket costs for healthcare.

The number new Medicare beneficiaries are rising sharply. There is a great need for strengthening the Medicare as there was a rise in demand of over 77 million Baby Boomers in the year 2011 itself.  Comprehensive healthcare reform legislation named Patient Protection and Affordable Care Act (PPACA), popularly known as Obamacare which was amended by the Health Care and Education Reconciliation Act of 2010, includes several provisions related to the Medicare program. The reconciliation bill would grant more generous subsidies to low- and moderate-income Americans to help them afford health coverage. The reconciliation measure would also close the coverage gap, called the “doughnut hole,” for Medicare beneficiaries enrolled in Part D drug plans. Seniors who hit the gap this year would receive a $250 rebate to help cover their medical expenses.  This Act would also create an independent 15-member board to recommend ways to rein in Medicare spending.

Click for more information about the Different Parts of Medicare

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