Medicaid and Medicare
Abstract and Keywords
In 1965, Titles XVIII and XIX of the Social Security Act were passed, creating Medicare and Medicaid and laying the foundation for US healthcare policy. Medicare was originally created to meet the specific medical needs of adults age 65 and older. Currently, individuals with end-stage renal disease, amyotrophic lateral sclerosis (ALS), and other disabilities may also receive Medicare, regardless of age. Medicaid was established to provide a basic level of medical care to specific categories of people who are poor, including pregnant women, children, and the aged. As part of the Affordable Care Act (ACA), states are provided with the opportunity to expand Medicaid to close the coverage gap for public health insurance. This entry provides explanations of Medicaid and Medicare and associated social healthcare programs in the United States. An overview of significant programming developments and current issues of legislative consideration are also provided.
In 1965, Titles XVIII and XIX of the Social Security Act were passed, instituting Medicare and Medicaid and establishing a foundation for US health policy. Medicare was initially developed to meet the specific medical needs of adults 65 years of age and older. Medicaid was initially established to provide a basic level of medical care to specific categories of low-income adults, including pregnant women, children, older adults, and individuals with disabilities. With the implementation of the most recent federal healthcare legislation, the Patient Protection and Affordable Care Act of 2010, commonly referred to as the Affordable Care Act (ACA), Medicaid programming was expanded to provide healthcare coverage to all individuals at or below 133% of the federal poverty level (FPL), regardless of categorical need. Medicare programming was expanded to provide preventive and comprehensive treatment and drug coverage to older adults and individuals with disabilities. The following sections of this entry include explanations of Medicare and Medicaid and associated social healthcare programs in the United States. An overview of historical legislature and programming developments in the Medicaid and Medicare programs is provided. A brief discussion of current legislative issues is also given.
Medicare is a federal health insurance program for Americans aged 65 years and older who have been employed and have contributed to the Medicare system through payroll taxes for a specified period of time. Medicare also provides coverage to individuals younger than 65 years of age who receive Social Security Disability Insurance (SSDI) or are diagnosed with end-stage renal disease or amyotrophic lateral sclerosis (ALS), also known as Lou Gehrig’s disease. Prior to the establishment of Medicare, half of all people age 65 and older lacked health insurance. Medicare finances medical treatment services, including prevention services, for more than 55.5 million aging and disabled beneficiaries. In 2015, Medicare accounted for 20% of national health spending (Centers for Medicare and Medicaid Services, 2017c; Cubanski & Neuman, 2016).
American citizens and permanent residents (i.e., a noncitizen who has been lawfully admitted to the United States for permanent residence and has been residing in the United States for at least five years prior to filing an application for Medicare insurance) (Centers for Medicare and Medicaid Services, 2017c) are usually eligible for premium-free Medicare Part A under one of the following conditions (SSA, 2016c):
1. They reach age 65 and they or their spouse (living or deceased, including divorced spouses) has contributed payroll taxes to Social Security for 40 quarters (10 years), as established by the Social Security Amendments of 1965 (P.L. 89-97).
2. They are under 65 years of age and have received SSDI or Railroad Retirement Board disability payments for 24 months, as established by the Social Security Amendments of 1972 (P.L. 92-603).
3. They are the child, widow, or widower age 50 or older (including a divorced widow or widower) of an individual who has worked for a specified period (10 years or less, depending on the deceased age of death), paid Medicare taxes, and meet the requirements of the SSDI program.
4. They are diagnosed with end-stage renal disease, requiring dialysis or kidney transplant, as established by the Social Security Amendments of 1972 (P.L. 92-603).
5. They are diagnosed with ALS, as established by the Consolidated Appropriations Act of 2001 (P.L. 106-554).
6. They are the dependent parent of a fully insured deceased child who has contributed to Medicare, and are at least 62 years of age. (For parents to qualify as dependents, the child must have provided at least half of their financial support.)
Eligible persons have the option of enrolling in the original Medicare plan (Parts A and B), which is administered by the federal government. If an individual elects to enroll in Parts A and B, she or he may enroll in a Medicare Advantage plan (Part C) as well, which is administered by private insurers approved by the federal government to provide equivalent coverage to the original Medicare plan. An individual enrolled in Part A or B may elect to enroll in prescription drug coverage (Part D), which also is administered by federally approved private insurers. Table 1 provides descriptions of each of these plans.
Table 1. Medicare Parts A, B, C, and D: Eligibility, Benefits, and Cost
Prescription Drug Insurance
Individuals who are eligible for Medicare benefits and receive Social Security benefits are automatically enrolled in Part A without having to pay a premium. Those who are eligible for Medicare but do not receive Social Security benefits are required to enroll through the Social Security Administration.
In certain cases, noneligible individuals (i.e., individuals with no or limited labor force attachment) can pay a monthly premium to enroll in Medicare Part A, which then allows them to be eligible for Parts B, C, and D. Medicare Part B insurance premiums are income-contingent, meaning that premium costs are determined by beneficiaries’ incomes. Individuals that do not enroll in Part B when they are first eligible are required to pay enrollment penalties for the duration of their enrollment as Part B beneficiaries. Enrollment in Part C is voluntary and replaces Parts A and B for Medicare beneficiaries who choose to enroll. Enrollment in Part D is also voluntary, except for individuals who are eligible for both Medicare and Medicaid. Individuals eligible for both public health insurance programs are known as dual eligible [the Specified Low-Income Medicare Beneficiary eligibility group, as established by the Omnibus Budget Reconciliation Act of 1990 (P.L. 101-508)]. Individuals who are dual eligible are automatically enrolled in a Medicare Part D prescription drug plan if they do not choose one on their own (Centers for Medicare and Medicaid Services, 2017c).
The original Medicare insurance plan, as established by the Social Security Amendments of 1965, consists of two primary components: hospital and medical insurance. Hospital insurance (Medicare Part A) provides coverage for inpatient care in hospitals and skilled nursing facilities (following a three-night hospital stay), certain home healthcare services (i.e., intermittent skilled nursing care and physical, speech, and occupational therapies), and hospice care (SSA, 2016a). Medical insurance (Medicare Part B) provides coverage for physical and mental health services from doctors and other healthcare providers (e.g., physical, occupational, and speech therapists, chiropractors, and clinical social workers); laboratory tests and X-rays; emergency ambulance services; preventive services and screenings (e.g., HIV and chronic disease screenings and flu and Hepatitis B vaccines); home healthcare; medical equipment; partial hospitalization services in community mental health centers; nutritional counseling; and hospice care. Part B deductibles and coinsurance for preventive services were discontinued in 2011 [per the Medicare Improvements for Patients and Providers Act of 2008 (P.L. 110-275)]. Medigap insurance plans, as established by the Social Security Disability Act of 1980 (P.L. 96-265), can also be purchased by Medicare Part A and B beneficiaries to supplement their cost-sharing. Current information regarding premiums, deductibles, and copayments is available on the Centers for Medicare and Medicaid Services website.
Medicare Advantage (Medicare Part C), which was initially established as the Medicare + Choice Program by the Balanced Budget Act of 1997 (P.L. 105-33), is offered in many states by government-approved private insurance providers. Medicare Part A and Part B beneficiaries can elect to receive all their health services through a single health plan provider under Part C. Medicare Advantage plans include managed care plans, preferred provider organization plans, private fee-for-service plans, and specialty plans.
Prescription drug coverage (Medicare Part D), as authorized by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (P.L. 108-173), initiated in 2006, provides partial coverage for prescription costs. The drug benefit is delivered through two types of private plans: (a) Medicare Advantage plans (i.e., managed care plans) that cover prescription drug, hospital, and outpatient costs under Medicare Part C; and, (b) independent prescription drug plans offered to beneficiaries in the traditional Medicare fee-for-service program. Medicare-approved prescription drug plans vary in their benefits offered and utilization review requirements, such as quantity limits and prior approval for prescriptions.
All Medicare financial operations are administered directly by the federal government through the Centers for Medicare and Medicaid Services. Financing is provided through a combination of the general funds of the federal government, payroll taxes, and beneficiary premiums. All financial operations for Medicare are handled through two social insurance trust funds: (a) the Hospital Insurance Trust Fund for Part A and (b) the Supplementary Medical Insurance Fund for Parts B and D (Office of Economic Policy, 2004). These trust funds are used exclusively to fund Medicare.
Medicare Part A is funded by the Hospital Insurance Trust Fund, which is currently subsidized by a 1.45% tax on earnings paid by the employee, as well as a matching 1.45% paid by the employer for each employee, interest earned on the Trust Fund, and premiums from Medicare Part A beneficiaries who are ineligible for premium-free Part A insurance (SSA, 2016b). The Medicare Hospital Insurance Trust Fund is currently managed by the Independent Payment Advisory Board, as established by the ACA (P.L. 111-148, 111-152).
Medicare Part B is funded by the Supplementary Insurance Trust Fund, which is subsidized by the US Treasury, interest earned on the Trust Fund, and premiums from Medicare Part B beneficiaries (Centers for Medicare and Medicaid Services, 2017c). Funding from the US Treasury provides the largest source of Part B income, as Medicare Part B beneficiary premiums currently finance 25% of Medicare program costs. Part B premiums were established by the Tax Equity and Fiscal Responsibility Act of 1982 (P.L. 97-248). Part B premiums are income-contingent, as determined by Modified Adjusted Gross Income (MAGI), the taxable income of the individual or family as reported to the Internal Revenue Service (IRS) on the most recent income tax forms (US Department of Health and Human Services, 2016); and beneficiaries with higher incomes pay higher monthly premiums. Medicare Part D is also financed through the Supplementary Insurance Trust Fund, interest earned on the Trust Fund, and beneficiary premiums. The Centers for Medicare and Medicaid Services website has the most current information on annual Medicare premiums by coverage area.
Federal spending for Medicare is regulated through predetermined Medicare fee schedules (i.e., predetermined payments) for preventive, treatment, and laboratory services, as well as physician and other medical provider services, which were initially established through the Social Security Amendments of 1983 (P.L. 98-21) and the Deficit Reduction Act of 1984 (P.L. 98-369). Modifications in these fee schedules are currently determined by the National Bipartisan Commission on the Future of Medicare and the Medicare Payment Advisory Commission, as established by the Balanced Budget Act of 1997 (P.L. 105-33). In addition, the Medicare Integrity Program, as established by the Health Insurance Portability and Accountability Act of 1996 (P.L. 104-191), dedicates funds for preventing fraud and service misuse within the Medicare program.
Medicaid is a federal government insurance program for individuals and families whose incomes and resources are considered to be insufficient to pay for healthcare. As the nation's largest public health insurance program, administered by individual states and the District of Columbia, Medicaid finances healthcare and long-term-care services for more than 72.5 million low-income Americans (Office of the Actuary, Centers for Medicare and Medicaid Services, 2014).
Medicaid is a means-tested program, and eligibility is contingent upon individual or family income. Federal law requires Medicaid coverage for low-income pregnant women and children, as established by the Social Security Amendments of 1965, Title XIX (P.L. 89-97), and individuals receiving Supplemental Security Income (SSI), as established by the Social Security Amendments of 1972 (P.L. 92-603). Individuals who are enrolled in the National Breast and Cervical Cancer Early Detection Program, children who have received adoption assistance, and young adults who were previously eligible for Medicaid as foster care recipients are also eligible for Medicaid coverage. In addition, in some states, individuals who have significant medical expenses that reduce their income below a certain level (i.e., the “medically needy”) may qualify for Medicaid coverage (Centers for Medicare and Medicaid Services, 2017b).
Financial eligibility is determined using MAGI. Assets of beneficiaries are not currently considered when determining Medicaid eligibility (as established by the ACA). As a result of the ACA, some states have expanded their Medicaid eligibility to include all adults, regardless of age, pregnancy, and parenting status, with incomes at or below 133% FPL. Expanded eligibility determinants differ from state to state.
To be eligible for Medicaid, individuals must also satisfy specific nonfinancial eligibility criteria determined by individual states and the District of Columbia. At the federal level, beneficiaries are required to be citizens of the United States or lawful permanent residents (Centers for Medicare and Medicaid Services, 2017b). In general, beneficiaries are also required to be residents of the state in which they are receiving Medicaid.
The two types of Medicaid coverage are community and long-term care (US Department of Health and Human Services, Health Care Financing Administration, 2000). Community Medicaid beneficiaries are those categorized as low-income and low-resource persons who have minimal or no medical insurance. Long-term-care Medicaid is provided to assist low-income older adults and disabled persons with residential facility care and community-based long-term-care services and support.
States and the District of Columbia establish and administer their own Medicaid programs and determine the type, amount, duration, and scope of services within broad federal directives. To receive matching federal funds, states are required to cover 10 essential benefits, which include ambulatory services (outpatient care, home health services, and hospice care); emergency services, including transport by ambulance; inpatient hospital services (care received from hospital staff, laboratory and other tests, medications, and room and board); maternity and newborn care (prenatal, labor, delivery, and postdelivery care and tobacco cessation services for pregnant women); mental health and substance use disorders services (inpatient and outpatient behavioral health treatment, counseling, and psychotherapy); prescription drug coverage; rehabilitation and habilitation services and associated devices; laboratory services, X-ray services, and preventive screenings (e.g., breast cancer screenings and prostrate exams); preventive services, wellness services, and chronic disease management; and pediatric Early and Periodic Screening, Diagnostic, and Treatment (EPSDT), which includes preventive and comprehensive corrective services for pediatric oral, dental, vision, and hearing, developmental, and behavioral health, as established by the Omnibus Budget Reconciliation Act of 1989 (P.L. 101-239). States can also elect to provide additional or optional benefits through the Medicaid program. These benefits may include corrective services for adult speech, hearing, language, oral, dental, and vision health; respiratory care services; podiatry services; prosthetics; case management; and personal care and private duty nursing services.
Children’s Health Insurance Program
In 1997, the Children’s Health Insurance Program (CHIP) was established, per the Balanced Budget Act of 1997 (P.L. 105-33) to provide comprehensive coverage to uninsured children whose families are low-income but above the federal poverty eligibility requirements for Medicaid (Rudowitz, Artiga, & Arguello, 2014). Although income eligibility rules vary by state, in most states, children 18 years old and younger with a yearly family income of $49,200 or less (200% FPL for a family of four in 2017) may qualify for Medicaid or CHIP (Centers for Medicare and Medicaid Services, 2017b). In 2013, 88.3% of eligible children were enrolled in Medicaid and CHIP programs (Medicaid and CHIP Payment and Access Commission, 2014). Nearly 9 million children are estimated to be insured through CHIP in 2017 (Centers for Medicare and Medicaid Services, 2017a).
Basic Health Program
The ACA allocates federal funds to each state that elects to establish a Basic Health Program, a health insurance program for low-income citizens and permanent residents who are ineligible for Medicaid, CHIP, or other minimally essential coverage (Centers for Medicaid and Medicare Services, 2017b). Income eligibility requirements are between 133% and 200% of FPL. In 2015, Minnesota and New York were the first two states to implement Basic Health Programs.
Medicaid spending in the 2016 fiscal year totaled $574.2 billion (Henry J. Kaiser Foundation, 2017a). The Centers for Medicaid and Medicare Services website has the most current information on annual Medicaid provisions by population.
The Medicaid program was instituted as an expansion of the Ker-Mills Act of 1960 and the resulting Medical Assistance Program for the Aged, which provided states with the authority and matching federal funding to determine those persons with financial need for healthcare coverage. Accordingly, Medicaid is jointly funded by federal and state tax revenues. Although it is not federally mandated, all state governments have participated in the program since 1982. Federal funds are allocated, matching each state contribution to a specified percentage [Federal Medical Assistance Percentage (FMAP)], to aid in covering the costs of healthcare services for eligible persons. FMAP varies by state, is determined by state per-capita income (i.e., states with a lower per-capita income receive a higher subsidy), and is adjusted by the federal government for each state every three years. In addition, states are provided with 100% federal reimbursement for Medicaid services provided to Native Americans and Alaskan Natives in Indian Health Services and tribal healthcare facilities (Henry J. Kaiser Family Foundation, 2015; Centers for Medicare and Medicaid Services, 2017b), established by the Indian Healthcare Improvement Act of 1976 (P.L. 94-437), additional protections established by the American Recovery and Reinvestment Act of 2009 (P.L. 111-5), and the Indian Health Care Improvement Act of 2010 (P.L. 114-95).
The ACA expanded Medicaid eligibility and federal coverage financing in 2014 by establishing a national Medicaid minimum income eligibility level of 133% of FPL for most Americans under age 65. However, on June 28, 2012, the US Supreme Court ruled in National Federation of Independent Business v. Sebelius that states cannot be mandated to participate in the Medicaid expansion due to a potential undue financial burden. Accordingly, many states have opted not to participate in the expansion, continuing to receive previously established levels of federal funding and maintaining previous eligibility standards. For those states that have not elected to participate in the Medicaid expansion, the average federal contribution per state for Medicaid program expenditures is 57%, and ranges from 50% for states with higher per-capita incomes to 75% for states with lower per-capita incomes.
As of April 2017, 31 states and the District of Columbia have adopted the Medicaid expansion (the Families USA website offers an infographic of this information). State Medicaid profiles are available at the Center for Medicare and Medicaid Services website. For states that have opted into the Medicaid expansion, 100% of the cost was subsidized by the federal government through 2016. Should the ACA legislation remain unchanged, federal subsidization to states will decrease to 90% by 2020.
States may also elect to charge premiums and establish cost-sharing requirements for higher-income Medicaid enrollees (Centers for Medicare and Medicaid Services, 2017b). These costs may include copayments, coinsurance, deductibles, and associated charges. Costs are federally limited, and the following groups are exempt from cost-sharing: children under age 18, individuals who are institutionalized and contribute the entirety of their income to their care (minus a minimal amount for personal needs), individuals receiving hospice care, Native Americans who have ever received a service from the Indian Health Service, and women who are enrolled in the Breast and Cervical Cancer Treatment Program. In addition, emergency services, family planning services, pregnancy-related services (including smoking cessation), and pediatric preventive services are exempt from cost-sharing.
Current Legislative Issues for Medicare and Medicaid
Since the passage of Titles XVIII and XIX of the Social Security Act, both Medicare and Medicaid have expanded coverage to include larger populations of individuals who do not have access to health insurance for a variety of reasons (i.e., unemployment, disability, and low incomes). The ACA includes the most recent expansion of both programs. Given current legislative issues, continued sustainability and expansion of both programs is uncertain. These legislative issues include (a) ongoing attempts to repeal and replace the ACA; (b) maintaining the solvency of the Medicare Trust Funds as the “baby boomers” (i.e., those born between 1946 and 1964) enroll, since 10,000 Americans turn 65 years old every day and will continue to do so until 2029 (SSA, 2012); and (c) the increasing costs of Medicaid as more individuals enroll (one in 5 Americans are covered by Medicaid, and it is the second-largest line item in state budgets) (Henry J. Kaiser Family Foundation, 2017b). Although it is hard to predict what changes to Medicare and Medicaid will take place over the next decade, it is inevitable that at least some will occur.
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