A Study of Medicare—Demographics, Funding and Possible Alternatives to Reduce Costs over the Long Term

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What is Medicare?
Medicare is a federal program that pays certain health care expenses for people aged 65 or older, and individuals who are deemed disabled by the Social Security Administration. Enrolled individuals must pay deductibles and co-payments, but much of their medical costs are covered by the program. Medicare is less comprehensive than some other health care programs, but it is an important source of post-retirement health care. Medicare was created under Title XVIII of the Social Security Act in 1965 to provide health insurance to people age 65 and older, regardless of income or medical history (CMS.gov, 2011). During forty years in operation, Medicare was updated and changed several times to meet the changing needs of the US citizens and the political agendas resulting in reform and making Medicare more responsive to the needs of the elderly. Today, Medicare covers: people age 65 or older, people under age 65 with certain disabilities, and people of all ages with End-Stage Renal Disease (ESRD).

Medicare is not in a good position right now: rising costs are predicted to bankrupt the present system. The steady rise in costs due to technology and an aging population necessitate changes to Medicare. There are proposed alternatives to reduce costs of Medicare over the long run. The current health care system has to be more flexible, participant-controlled, and outcomes-oriented.

Different part of Medicare
The Medicare program has two components: Hospital Insurance (HI) or Medicare Part A, helps pay for hospitalizations, home health, skilled nursing facilities, and hospice care for the aged and disabled. Supplementary Medical Insurance (SMI) consists of Medicare Part B and Part D. Part B helps pay for physicians, outpatient hospital care, home health, and other services for the aged and disabled who have voluntarily enrolled. Part D provides subsidized access to drug insurance coverage on a voluntary basis for all beneficiaries and premium and cost-sharing subsidies for low-income enrollees. Medicare also has a Part C, which serves as an alternative to traditional Part A and Part B coverage. Under this option, beneficiaries can choose to enroll in and receive care from private “Medicare Advantage” and certain other private health insurance plans that contract with Medicare. These plans receive “prospective, capitated payments” for such beneficiaries from the HI and SMI Part B trust fund accounts (CMS.gov, 2012)

Medicare cost
Growing costs in the health care sector influence Medicare growing costs. Also, Medicare spending is growing because the number of people that the program covers is increasing due to an aging population and the economic downturn. From 2002 to 2009, Medicare spending grew by 4.6 percent per enrollee compared to private health insurance, which grew by 6.7 percent for similar benefits (Medicare.gov, 2012). Medicare spending is growing faster than the rest of the federal budget, and the government has to look for innovative solution to preserve program today and into the future.

Medicare Fund
The Centers for Medicare and Medicaid Services (CMS) is a part of the Department of Health and Human Services (HHS) system. In 2011, Medicare covered 48.7 million people. Total expenditures in 2011 were $549.1 billion. Medicare is paid by two trust fund accounts held by the U.S. Treasury (CMS.gov, 2012). Hospital Insurance Trust Fund is funded by payroll taxes paid by most employees, employers, and people who are self-employed. Other sources include income taxes paid on Social Security benefits, interest earned on the trust fund investments and Medicare Part A premiums from people who aren’t eligible for premium-free Part A. The money from this fund covers Medicare part A benefits: impatient hospital care, skilled nursing facility care, home health care, and hospice care, and Medicare Program administration, the costs for paying...
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