What is Medicare, anyway?

April 9, 2018          About this Blog:  Click here

What is Medicare, anyway?

If you’re confused as to what Medicare is, congratulations!  You’re in good company.  Most people have little clue about it before they get on it.  Many are still baffled even after they’ve been on it for a while.

For most people, their 65th birthday marks when they start on Medicare.   Some people get on it before age 65, because of disabilities.

People easily confuse Medicare and Medicaid.  They sound almost alike, but they’re not.  The main thing they have in common is that the government enacted them in the same year, 1965.

If that’s not enough confusion, every state makes up its own name for its own Medicaid program.  In Minnesota, it’s called “Medical Assistance.”  In Wisconsin it’s called “BadgerCare.”

So for starts, let’s clear this up.  Medicare is the federal government program for people age 65 and up, and some people younger than 65, with disabilities.  Medicaid, in contrast, is the joint federal and state government program for people who are below or near poverty – no matter their age or health.

What a difference just two letters can make…..

If a person is over 65 and is also below poverty, then which program are they on?  The answer is: both.  Some people are on both Medicare and Medicaid at the same time.

How many, and which, people are on Medicare?

About 58 million Americans – which is 17%, or more than one out of every six, are on Medicare.    About 47 million are on Medicare alone, and 11 million are on both Medicare and Medicaid.

Of the 47 million number, about 38 million are people age 65 and older, and 9 million are people below age 65 and have disabilities.

Look at how this compares to other sources of health care coverage for Americans (2016 figures):

Coverage through an employer:  49%

Medicaid alone (without Medicare): 16%

Medicare alone (without Medicaid): 14%

No coverage at all:  9%

Individual or family insurance policies: 7%

Medicare AND Medicaid both: 3%

Military and Veterans Administration:  2%

So you see, Medicare is pretty important for a big chunk of the population.

 How does Medicare fit into health care, overall?

Even though Medicare only covers about 17% of the population, it pays for over 20% of the entire health care cost in the U.S.

That makes sense when you think about it, since the people on Medicare are elderly or disabled, and so they have more health care issues, treatments, and expense than other people.

In contrast, Medicaid (mostly younger, healthier people in comparison) covers almost 20% of the population, but only pays about 17% of the country’s health care bill.

Another big factor is that Medicare, being a national program, has broad purchasing power and leverage to get better prices for what it buys.

So, it stands to reason that Medicare is able to pay hospitals and doctors less than what insurance companies pay for the same exact treatments – and it does.   Up to 20% less, on average.

You know that Medicare is some sort of health insurance coverage, but just what kind of coverage is it?  To answer that, let’s first talk about what money Medicare has to work with ….. In other words, the payments going into it.

Payments to Medicare = Money coming in:

When you are on Medicare, you pay a monthly premium (called the Part B premium) to the government.  Most people, instead of sending a payment each month, have it automatically deducted from the government’s monthly Social Security payment to them.  Same difference.

It’s so invisible, some people either aren’t aware that the Medicare premium is being taken out of their Social Security; or they are aware, but aren’t sure just how much it is.

If you get on Medicare before you start collecting Social Security, then you’ll be writing a check to the government to pay your premiums, three months at a time.

For most people, especially those new to Medicare, the monthly premium is $134 per person.  Some  people pay less than that.  People with incomes above $85,000 a year for a single person or $170,000 for a couple pay more than the $134 amount.

There’s other money, too, going in to pay for Medicare coverage, that you don’t see.   There’s a small portion that came from the payroll taxes out of workers’ wages, and matched by their employers.  (Most of that payroll tax is for Social Security.)

Plus, there’s money from federal general tax revenue going into it, which Congress has to authorize.   That’s a big chunk of the total amount.

These extra sources of money explain why your Medicare premium – even when added to a second premium  that you pay for a supplement policy from an insurance company – is MUCH less than you’d pay for an insurance policy alone for the same benefits, if you weren’t on Medicare.

That’s why people look forward to getting on Medicare.   If they were paying for insurance on their own, instead of getting it from an employer, then what they have to pay each month for health coverage suddenly drops dramatically, perhaps by two-thirds or more.

Many people who are in their early 60’s are sweating it out, year by year, waiting for the day they hit 65 and enjoy a drastic drop in their health coverage expense.

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