Medicare Overview

July 29, 2017


Social Security beneficiaries receiving benefits based on their own disability are entitled to Medicare benefits beginning in the 25th month of entitlement. Medicare was implemented in 1966, providing medical benefits to complement the monetary benefits of Social Security retirees. In 1973, Medicare benefits were extended to disabled workers after a 24-month waiting period. Medicare is funded mainly through Hospital Insurance payroll contributions; additional sources of funding include general revenues, premiums, and a portion of the income taxes collected on Social Security benefits.

Until recently, Medicare had two parts: Part A (Hospital Insurance) and Part B (Supplementary Medical Insurance). In 1997, a third part, Part C, was added to Medicare, known as Medicare Advantage. Part C offers beneficiaries options for participating in private-sector health plans. In 2003, a fourth part, Part D, offering prescription drug coverage was added and Part B was modified. Part D was implemented in 2006. Modifications to Part B will take effect in 2007.

Part A, Hospital Insurance (HI), covers the cost of in-patient hospital care and is generally provided free to persons eligible for Medicare. It is paid out of the HI trust fund. There are deductibles and copayments under HI.
Part B, Supplementary Medical Insurance (SMI), covers doctors and other services. It requires a premium, which for most people is equivalent to 25 percent of the average expenditure for the aged for this coverage ($88.50 per month in 2006), to be paid by the beneficiary or on the beneficiary’s behalf. The balance comes from the Treasury as general revenue contributions. SMI also requires deductibles and coinsurance payments. Beginning in 2007, under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, beneficiaries with higher modified adjusted gross income ($80,000 or more for individuals, $160,000 or more for married couples) will pay a higher monthly premium based on a sliding scale that will be phased in over 3 years.
Part C, Medicare Advantage, expands beneficiaries’ options for participation in private-sector health care plans. Coverage and cost vary by plan. Part C receives funding from the HI and SMI trust funds and beneficiary premiums.
Part D, Prescription Coverage, became effective on January 1, 2006. Beneficiaries pay a premium that varies by income level and involves deductibles and copayments. The Part D subsidy benefit is also available to assist low-income beneficiaries who meet certain income and resource requirements.