Medicare U.S. National Health Insurance Program Enacted July 30, 1965; 61 years ago Administered by Centers for Medicare & Medicaid Services (CMS) Core Eligibility * Individuals aged 65 or older* Younger individuals with permanent disabilities (via SSDI)* Individuals with End-Stage Renal Disease (ESRD) or ALS Program Structure & Components The program consists of four distinct statutory components: Part A (Hospital Insurance): Covers inpatient hospital stays, skilled nursing, and hospice care. Part B (Medical Insurance): Covers outpatient services, doctor visits, and preventative care. Part C (Medicare Advantage): Private health plan alternatives that bundle Parts A, B, and usually D. Part D (Prescription Drugs): Private optional insurance plans covering outpatient prescription drugs. Primary Funding Mechanisms Payroll Taxes 2.9% baseline FICA tax (shared 50/50 by employee/employer). No wage cap. Surtax +0.9% Additional Medicare Tax on high earners (above $200k Single / $250k Joint) General Revenue Funds approximately 43% of total program spending (mostly Parts B and D) Baseline Financial Metrics (2026) Part A Premium $0 for most individuals (who have 40+ quarters of work history) Part B Premium Baseline monthly rate applies (subject to high-income surcharges via IRMAA)
Medicare is a federal health insurance program in the United States for people age 65 or older and younger people with disabilities, including those with end stage renal disease and amyotrophic lateral sclerosis (ALS or Lou Gehrig's disease). It started in 1965 under the Social Security Administration and is now administered by the Centers for Medicare and Medicaid Services (CMS).
Medicare is divided into four parts: A, B, C, and D. Part A covers hospital, skilled nursing, and hospice services. Part B covers outpatient services. Part C is an alternative that allows patients to choose private plans with different benefit structures that provide the same services as Parts A and B, usually with additional benefits. Part D is for self-administered prescription drugs.
In 2022, Medicare provided health insurance for 65.0 million individuals—more than 57 million people aged 65 and older and about 8 million younger people.2023 Annual Report of the Medicare Trustees (for the year 2022), March 31, 2023 According to annual Medicare Trustees reports and research by Congress' MedPAC group, Medicare covers about half of healthcare expenses of those enrolled. Enrollees cover most of the remaining costs by taking additional private insurance (medi-gap insurance), by enrolling in a Medicare Part D prescription drug plan, or by joining a private Medicare Part C (Medicare Advantage) plan. In 2022, spending by the Medicare Trustees topped $900 billion per the Trustees report Table II.B.1, of which $423 billion came from the U.S. Treasury and the rest primarily from the Part A Trust Fund (which is funded by payroll taxes) and premiums paid by beneficiaries. Households that retired in 2013 paid only 13 to 41 percent of the benefit dollars they are expected to receive.
Beneficiaries typically have other healthcare-related costs, including Medicare Part A, B, and D deductibles and Part B and C co-pays; the costs of long-term custodial care (which are not covered by Medicare); and the costs resulting from Medicare's lifetime and per-incident limits.
History
Originally, the name "Medicare" in the United States referred to a program providing medical care for families of people serving in the military as part of the Dependents' Medical Care Act, which was passed in 1956.Robinson, P. I. (1957). Medicare: Uniformed Services Program for Dependents. Social Security Bulletin, 20(7), pp. 9–16. President Dwight D. Eisenhower held the first White House Conference on Aging in January 1961, in which creating a health care program for social security beneficiaries was proposed.Tibbits C. "The 1961 White House Conference on Aging: it's rationale, objectives, and procedures". J Am Geriatr Soc. 1960 May. 8:373–77Mcnamara PAT, Dirksen EM, Church F, Muskie ES. The 1961 White House Conference on Aging: basic policy statements and recommendations / prepared for the Special Committee on Aging, United States Senate 87th Congress, 1st Session, Committee Print, May 15, 1961.
Various attempts were made in Congress to pass a bill providing for healthcare for the elderly, all without success. In 1963, however, a bill providing for both Medicare and an increase in Social Security benefits passed the Senate by 68–20 votes. As noted by one study, this was the first time that either chamber "had passed a bill embodying the principle of federal financial responsibility for health coverage, however limited it may have been." There was uncertainty over whether this bill would pass the House, however, as White House aide Henry Wilson's tally of House members’ votes on a conference bill that included Medicare “disclosed 180 “reasonably certain votes for Medicare, 29 “probable/possible,” 222 “against,” and 4 seats vacant.”Chronic Politics Health Care Security from FDR to George W. Bush, By Philip J. Funigiello, 2005, p. 133. Following the 1964 elections however, pro-Medicare forces obtained 44 votes in the House and 4 in the Senate.Crisis in Health Care, an Overview Hearing Before the Subcommittee on Health and Long-Term Care of the Select Committee on Aging, House of Representatives, Ninety-eighth Congress, First Session, May 5, 1983, Volume 4, By United States. Congress. House. Select Committee on Aging. Subcommittee on Health and Long-Term Care, 1983, p.186. In July 1965, under the leadership of President Lyndon Johnson, Congress enacted Medicare under Title XVIII of the Social Security Act to provide health insurance to people age 65 and older, regardless of income or medical history.See Health Insurance for the Aged Act, Title I of the Social Security Amendments of 1965, Pub. L. No. 89-97, 79 Stat. 286 (July 30, 1965), generally effective beginning with the month of July 1966. Section 321 of the Act amended section 1401 of the Internal Revenue Code to impose the Medicare tax. Johnson signed the Social Security Amendments of 1965 into law on July 30, 1965, at the Harry S. Truman Presidential Library in Independence, Missouri. Former president Harry S. Truman and his wife, former first lady Bess Truman, became the first recipients of the program.
Before Medicare was created, approximately 60% of people over the age of 65 had health insurance (as opposed to about 70% of the population younger than that), with coverage often unavailable or unaffordable to many others, because older adults paid more than three times as much for health insurance as younger people. Many of this group (about 20% of the total in 2022, 75% of whom were eligible for all Medicaid benefits) became "dual eligible" for both Medicare and Medicaid (which was created by the same 1965 law). In 1966, Medicare spurred the racial integration of thousands of waiting rooms, hospital floors, and physician practices by making payments to health care providers conditional on desegregation., p. 17.
Medicare has undergone several major changes since 1965; provisions have expanded to include benefits for speech, physical, and chiropractic therapy in 1972.medicare.gov, 2012. In the 1970s the option of payments to health maintenance organizations (HMOs) was added and in 1982, hospice benefits to aid elderly people on a temporary basis, which was made permanent in 1984.
In 1972, Congress expanded Medicare eligibility to younger people with permanent disabilities who receive Social Security Disability Insurance (SSDI) payments and to those with end-stage renal disease (ESRD). Congress further expanded Medicare in 2001 to cover younger people with amyotrophic lateral sclerosis (ALS, or Lou Gehrig's disease).
The association with HMOs that began in the 1970s was formalized and expanded under President Bill Clinton in 1997 as Medicare Part C (although not all Part C health plans sponsors have to be HMOs, about 75% are). In 2003, under President George W. Bush, a Medicare program for covering almost all self-administered prescription drugs was passed (and went into effect in 2006) as Medicare Part D.
Administration
The Centers for Medicare and Medicaid Services (CMS), a component of the U.S. Department of Health and Human Services (HHS), administers Medicare, Medicaid, the Children's Health Insurance Program (CHIP), the Clinical Laboratory Improvement Amendments (CLIA), and parts of the Affordable Care Act (ACA) ("Obamacare"). Along with the U.S. Departments of Labor and Treasury, the CMS also implements the insurance reform provisions of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) and most aspects of the Patient Protection and Affordable Care Act of 2010 as amended. The Social Security Administration is responsible for determining Medicare eligibility, eligibility for and payment of Extra Help/Low Income Subsidy payments related to Parts C and D of Medicare, and collecting most premium payments for the Medicare program.
The Chief Actuary of the CMS must provide accounting information and cost-projections to the Medicare Board of Trustees to assist them in assessing the program's financial health. The Trustees are required by law to issue annual reports on the financial status of the Medicare Trust Funds, and those reports are required to contain a statement of actuarial opinion by the Chief Actuary."What Is the Role of the Federal Medicare Actuary?", American Academy of Actuaries, January 2002."Social Insurance", Actuarial Standard of Practice No. 32, Actuarial Standards Board, January 1998
The Specialty Society Relative Value Scale Update Committee (or Relative Value Update Committee; RUC), composed of physicians associated with the American Medical Association, advises the government about pay standards for Medicare patient procedures performed by doctors and other professionals under Medicare Part B. A similar but different CMS process determines the rates paid for acute care and other hospitals—including skilled nursing facilities—under Medicare Part A. The rates paid for both Part A and Part B type services under Part C are whatever is agreed upon between the sponsor and the provider. The amounts paid for mostly self-administered drugs under Part D are whatever is agreed upon between the sponsor (almost always through a pharmacy benefit manager also used in commercial insurance) and pharmaceutical distributors and/or manufacturers.
Financing Medicare has several sources of financing.
Part A's inpatient admitted hospital and skilled nursing coverage is largely funded by revenue from a 2.9% payroll tax levied on employers and workers (each pays 1.45%). Until December 31, 1993, the law provided a maximum amount of compensation on which the Medicare tax could be imposed annually, in the same way that the Social Security payroll tax operates.Title 26, Subtitle C, Chapter 21 of the United States Code. Beginning on January 1, 1994, the compensation limit was removed. Self-employed individuals must calculate the entire 2.9% tax on self-employed net earnings (because they are both employee and employer), but they may deduct half of the tax from the income in calculating income tax. Beginning in 2013, the rate of Part A tax on earned income exceeding $200,000 for individuals ($250,000 for married couples filing jointly) rose to 3.8%, in order to pay part of the cost of the subsidies to people not on Medicare mandated by the Affordable Care Act.
In 2011, Medicare spending was over $900 billion, near 4% of U.S. gross domestic product according to the Trustees Figure 1.1 and over 15% of total US federal spending. Because of the two Trust funds and their differing revenue sources (one dedicated and one not), the Trustees analyze Medicare spending as a percent of GDP rather than versus the Federal budget.