What do you really know about Medicare?

Since Mitt Romney selected Paul Ryan as his Vice Presidential candidate there has been a lot of talk in the media about Medicare and Medicaid. A lot of what is being said about these federal programs is wrong. This is a very basic overview of one of the more complex programs that is administered by the government. Most people who do not use the program have no idea how it works. In this brief primer I will try to provide some facts which may make these programs easier to understand. I hope this will also help to refute some of the more inane arguments against these programs that are sure to be trotted out in the coming months.

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Medicare and Medicaid fall under the authority of the Department of Health and Human Services (DHHS). The specific agency responsible for overseeing the two programs is the Centers for Medicare and Medicaid Services (CMS). For Fiscal Year ending September 30, 2011 CMS had outlays of approximately 767 billion dollars (total expenses for 2011 exceeded 817 billion), or, approximately 21% of total Federal outlays. As of 2011 49 million beneficiaries were enrolled in Medicare and 56 million people were enrolled in Medicaid. The total Federal outlays for Social Security in 2011 were 787 billion.

What is the difference between Medicare and Medicaid?
In 1965 Medicare was created as a supplemental program to Social Security. Generally, Medicare covers people aged 65 or older. While the majority of Medicare beneficiaries are 65 or older, the program has been expanded to provide coverage to several other categories. People who are experiencing End Stage Renal Disease are eligible for Medicare. Individuals who qualify for Social Security Disability will qualify for Medicare 24 months after they are awarded disability status. The most recently added category has been for individuals who have been diagnosed with Lou Gehrig’s disease. People with Lou Gehrig’s disease are eligible for Medicare one month after they are awarded disability.

Medicaid is a means tested program that is run by each individual state but jointly funded with State and Federal dollars. The eligibility rules vary by state, but basically, Medicaid is for those individuals with incomes below 15 thousand dollars.

What is Medicare Part A, B, C and D?
There are four separate parts to the Medicare program. These are defined in general terms as follows: Medicare Part A covers inpatient hospitalization, Medicare Part B covers outpatient procedures, Medicare Part C is a Medicare Advantage plan (generally offering expanded benefits at a higher premium) which is run by a private company that has been approved by Medicare, and Medicare Part D is the prescription drug plan that was introduced in 2003.

How much does each part cost the beneficiary?
A person (or their spouse) needs 40 eligible work credits to be entitled to free Medicare Part A. A person can only earn 4 work credits a year. In 2012 a person earned one credit for each 1130 of total earnings per quarter. If a person has not earned enough lifetime work credits to be eligible for free Medicare Part A then they can purchase Part A coverage. For 2012 a person with 30-39 quarters will be charged 248 dollars a month for Part A, less than 30 quarters will cost 451 dollars a month. Medicare Part B is voluntary. Generally, everyone enrolled in Part B must pay a monthly premium. For the year 2012 the amount is 99.90. Medicare Part C and Medicare Part D are both administered by private companies that are approved by the government. Therefore, the premiums vary from plan to plan. It should be understood that both Part A and Part B have annual deductibles. The deductible for Part A is a little complex to calculate, but it is basically 1156 for the year. Medicare Part B is an 80/20 plan (Medicare will pay 80% of approved procedures with the beneficiary being billed the remaining 20%) with a 140 dollar deductible for 2012.

How many people work for Medicare?
There are approximately 5000 federal employees and roughly 30000 non-federal employees who administer the Medicare program.

How many claims are processed every year?
In 2011 more than 1 billion claims were processed by Medicare.

What is Medicare’s overhead?
The federal program operates with less than a 3% overhead margin.

My apologies if anyone found this too detailed. These are complex programs which serve a very vital role in today’s society. The importance of these programs cannot be over emphasized. Most of those who are talking about changing, or eliminating, these programs simply have no concept of what they actually do. When one considers the number of people enrolled in both programs one realizes that these programs cannot simply be eliminated. While there is always fraud committed by Medical providers, the low overhead margin of these programs indicates that there is very little administrative waste. Thanks for reading.