Medicare

Key facts

Administered by

Centers for Medicare & Medicaid Services (CMS), part of HHS

Legal basis

Title XVIII of the Social Security Act

Enacted

1965; coverage began July 1, 1966

Eligibility

Age 65 or older, 24 months of disability benefits, ESRD or ALS

Parts

A (hospital), B (medical), C (Medicare Advantage), D (drugs)

What is Medicare?

Medicare is a federal health insurance program created in 1965 under Title XVIII of the Social Security Act and administered by the Centers for Medicare & Medicaid Services (CMS). Unlike Medicaid, eligibility does not depend on income. Most people become eligible at age 65, and those who, or whose spouses, paid Medicare payroll taxes for about 10 years get Part A without a premium.

Younger people qualify after receiving Social Security Disability Insurance (SSDI) for 24 months. People with end-stage renal disease (ESRD) or amyotrophic lateral sclerosis (ALS) can qualify without that 24-month wait.

Part A is financed mainly by payroll taxes through the Hospital Insurance trust fund. Parts B and D are financed through the Supplementary Medical Insurance trust fund, mostly from federal general revenue plus beneficiary premiums.

How Medicare is structured

Medicare has four parts. Beneficiaries get coverage through one of two main routes: Original Medicare (Parts A and B, often paired with a stand-alone Part D drug plan and a Medigap supplemental policy) or a private Medicare Advantage plan.

• Part A (Hospital Insurance): inpatient hospital stays, skilled nursing facility care, hospice and some home health care.
• Part B (Medical Insurance): physician services, outpatient care, preventive services, durable medical equipment and many drugs given in a clinic.
• Part C (Medicare Advantage): private plans paid by Medicare to provide Part A and Part B benefits, usually with drug coverage included.
• Part D (prescription drug coverage): outpatient prescription drugs through private stand-alone or Medicare Advantage plans.

Why Medicare matters

Medicare is the largest single purchaser of health care in the United States, and its data is the most detailed public view of U.S. health care activity:

• CMS publishes provider-level utilization and payment files for Part B services and Part D prescriptions, identified by NPI, which analysts use to size markets and find high-volume physicians.
• Hospital cost reports, provider enrollment files and quality ratings describe facilities in ways no private source makes public.
• Medicare fee schedules and coverage decisions are common reference points for commercial contracts, which are often negotiated as a percentage of Medicare rates.
• Since the Inflation Reduction Act of 2022, Medicare negotiates prices for selected high-spend drugs, which directly affects forecasts for those products.

Medicare vs Medicaid

Medicare is a federal program based mainly on age or disability, with national rules. Medicaid is a joint federal and state program based mainly on low income, with eligibility and benefits that vary by state. People enrolled in both are called dual eligible beneficiaries.