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World Health Systems Facts

Medicare: Coverage

Overview
Eligibility
Enrollment
Coverage

Expenditures
Financing
History
Future


“Medicare consists of four distinct parts:

  1. “Part A (Hospital Insurance, or HI) covers inpatient hospital services, skilled nursing care, hospice care, and some home health services. Most persons aged 65 and older are automatically entitled to premium-free Part A because they or their spouse paid Medicare payroll taxes for at least 40 quarters (about 10 years) on earnings covered by either the Social Security or the Railroad Retirement systems. Part A services are paid for out of the Hospital Insurance Trust Fund, which is mainly funded by a dedicated 2.9% payroll tax on earnings of current workers, shared equally between employers and workers.
  2. “Part B (Supplementary Medical Insurance, or SMI) covers a broad range of medical services, including physician services, laboratory services, durable medical equipment, and outpatient hospital services. Enrollment in Part B is optional, but most beneficiaries with Part A also enroll in Part B. Part B benefits are paid for out of the Supplementary Medical Insurance Trust Fund, which is primarily funded through beneficiary premiums and federal general revenues.
  3. “Part C (Medicare Advantage, or MA) is a private plan option that covers all Parts A and B services, except hospice. Individuals choosing to enroll in Part C must be enrolled in Parts A and B. About one-third of Medicare beneficiaries are enrolled in MA. Part C is funded through both the HI and SMI trust funds.
  4. “Part D is a private plan option that covers outpatient prescription drug benefits. This portion of the program is optional. About three-quarters of Medicare beneficiaries are enrolled in Medicare Part D or have coverage through an employer retiree plan subsidized by Medicare. Part D benefits are also paid for out of the Supplementary Medical Insurance Trust Fund and are primarily funded through beneficiary premiums, federal general revenues, and state transfer payments.”

Source: Ryan J. Rosso. Medicare and Budget Sequestration. CRS Report R45106. Congressional Research Service: Washington, DC. March 29, 2022.


“Medicare Parts A, B, and D each cover different services, with Part C providing a private plan alternative for all Medicare services covered under Parts A and B, except hospice.”

Source: Patricia A. Davis, et al. Medicare Primer. CRS Report R40425. Congressional Research Service: Washington, DC. Updated May 21, 2020.


“Part A provides coverage for inpatient hospital services, posthospital skilled nursing facility (SNF) services, hospice care, and some home health services, subject to certain conditions and limitations. Approximately 20% of fee-for-service enrollees use Part A services during a year.31“

Source: Patricia A. Davis, et al. Medicare Primer. CRS Report R40425. Congressional Research Service: Washington, DC. Updated May 21, 2020.


“Medicare Part B covers physicians’ services, outpatient hospital services, durable medical equipment, and other medical services. Initially, over 98% of the eligible population voluntarily enrolled in Part B, but in recent years the percentage has fallen to about 91%.45 About 89% of enrollees in original (FFS) Medicare use Part B services during a year.46 The program generally pays 80% of the approved amount (most commonly, a fee schedule or other predetermined amount) for covered services in excess of the annual deductible ($198 in 2020). The beneficiary is liable for the remaining 20%.

“Most providers and practitioners are subject to limits on amounts they can bill beneficiaries for covered services. For example, physicians and some other practitioners may choose whether or not to accept assignment on a claim. When a physician signs a binding agreement to accept assignment for all Medicare patients, the physician accepts the Medicare payment amount as payment in full and can bill the beneficiary only the 20% coinsurance plus any unmet deductible. The physician agrees to accept assignment on all Medicare claims in a given year and is referred to as a participating physician. There are several advantages to being a participating provider, including higher payment under the Medicare fee schedule, a lower beneficiary co-payment, and automatic forwarding of Medigap claims.”

Source: Patricia A. Davis, et al. Medicare Primer. CRS Report R40425. Congressional Research Service: Washington, DC. Updated May 21, 2020.


“Medicare Advantage (MA) is an alternative way for Medicare beneficiaries to receive covered benefits. Under MA, private health plans are paid a per-person amount to provide all Medicare covered benefits (except hospice82) to beneficiaries who enroll in their plan. Medicare beneficiaries who are eligible for Part A, enrolled in Part B, and do not have ESRD are eligible to enroll in an MA plan if one is available in their area.83 Some MA plans may choose their service area (local MA plans), while others agree to serve one or more regions defined by the Secretary (regional MA plans). In 2020, nearly all Medicare beneficiaries have access to an MA plan and approximately a third of beneficiaries are enrolled in one.84 Private plans may use different techniques to influence the medical care used by enrollees. Some plans, such as health maintenance organizations (HMOs), may require enrollees to receive care from a restricted network of medical providers; enrollees may be required to see a primary care physician who will coordinate their care and refer them to specialists as necessary. Other types of private plans, such as private fee-for-service (PFFS) plans, may look more like original Medicare, with fewer restrictions on the providers an enrollee can see and minimal coordination of care.

“In general, MA plans offer additional benefits or require smaller co-payments or deductibles than original Medicare. Sometimes beneficiaries pay for these additional benefits through a higher monthly premium, but sometimes they are financed through plan savings. The extent of extra benefits and reduced cost sharing varies by plan type and geography. However, MA plans are seen by some beneficiaries as an attractive alternative to more expensive supplemental insurance policies found in the private market.

“By contract with CMS, a plan agrees to provide all required services covered in return for a capitated monthly payment adjusted for the demographics and health history of their enrollees. The same monthly payment is made regardless of how many or few services a beneficiary actually uses. In general, the plan is at-risk if costs, in the aggregate, exceed program payments; conversely, the plan can retain savings if aggregate costs are less than payments. Payments to MA plans are based on a comparison of each plan’s estimated cost of providing Medicare covered services (a bid) relative to the maximum amount the federal government will pay for providing those services in the plan’s service area (a benchmark).”

Source: Patricia A. Davis, et al. Medicare Primer. CRS Report R40425. Congressional Research Service: Washington, DC. Updated May 21, 2020.


“Medicare Part D provides coverage of outpatient prescription drugs to Medicare beneficiaries who choose to enroll in this optional benefit.86 (As previously discussed, Part B provides limited coverage of some outpatient prescription drugs.) In 2020, about 49 million (about 77%) of eligible Medicare beneficiaries are estimated to be enrolled in a Part D plan.87 Prescription drug coverage is provided through private prescription drug plans (PDPs), which offer only prescription drug coverage, or through Medicare Advantage prescription drug plans (MA-PDs), which offer prescription drug coverage that is integrated with the health care coverage they provide to Medicare beneficiaries under Part C. Plans must meet certain minimum requirements; however, there are significant variations among them in benefit design, including differences in premiums, drugs included on plan formularies (lists of drugs covered by the plan), and cost sharing for particular drugs.

“Part D prescription drug plans are required to offer either standard coverage or alternative coverage that provides at least actuarially equivalent benefits. In 2020, standard coverage has a $435 deductible and a 25% coinsurance for drug costs between $435 and $4,020. After this point, an enrollee enters the coverage gap (the doughnut hole), which continues until the enrollee incurs out-of-pocket costs of $6,350 (an estimated $9,719.38 in total spending) and reaches the catastrophic limit.88 While in the coverage gap under the standard benefit, enrollees pay 25% coinsurance. Once a beneficiary’s costs exceed the catastrophic limit, the program pays all costs except for the greater of 5% coinsurance or $3.60 for a generic drug and $8.95 for a brand-name drug. Most plans offer actuarially equivalent or enhanced benefits rather than the standard package, including alternatives such as reducing or eliminating the deductible, or using tiered cost sharing with lower cost sharing for generic drugs.89“

Source: Patricia A. Davis, et al. Medicare Primer. CRS Report R40425. Congressional Research Service: Washington, DC. Updated May 21, 2020.


Health Systems Facts is a project of the Real Reporting Foundation. We provide reliable statistics and other data from authoritative sources regarding health systems in the US and sixteen other nations.


Page last updated Jan. 27, 2023 by Doug McVay, Editor.

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