Medicare and Medicaid

Although private health insurance in the United States dates back to the 1860s, the modern era of health insurance in this country did not begin until 1929 when a group of schoolteachers contracted with Baylor Hospital in Dallas, Texas, to provide room, board and specified medical services at a predetermined monthly rate.

Congress' establishment of government-financed healthcare for elderly Americans (Medicare) in 1965 spurred tremendous growth in geriatric, or elderly, care efforts and its associated costs. Medicare now provides hospital and medical benefits to persons age 65 and older and to some others. The original Medicare Plan has two parts, Part A for hospital services and Part B for physicianservices, with certain eligibility restrictions. Part A covers the hospitalcosts, and care in skilled nursing facilities, psychiatric hospitals, and hospice care. Although Part A is free if an individual qualifies for Medicare (see below), it can also be purchased as a separate plan. Part B covers doctor's fees, laboratory tests, X-rays, some outpatient services, certain ambulanceservices, home health care, and in-home use of durable medical equipment. Part B is automatically part of the Medicare plan unless the subscriber declines it. With Medicare, the government pays its share of the bill and the subscriber pays the balance. The plan participant may choose to go to any doctor, hospital, or other health care provider that accepts Medicare payment.

Medicare and supplemental insurance pay major amounts of the medical bills for acute medical care for up to 95 percent of all older Americans. An individual qualifies for Medicare if he or she is eligible for Social Security or Railroad Retirement benefits, though some younger adults may also qualify if they are disabled.

Medicare applications are handled by the subscriber's local Social Security office. If an individual is eligible for benefits, he or she is generally automatically enrolled in the Medicare program upon turning 65. A local Social Security office can answer questions about the policy of automatic enrollment.

Although Medicare covers most health-care expenses, it does not cover most nursing-home care, long-term care in the home, or prescription drugs to be taken outside the hospital. Other types of care that Medicare does not cover include the following:

  • Unskilled custodial care
  • Most care outsidethe United States
  • Most dental care
  • Most routine checkups andtests
  • Most immunizations
  • Most outpatient prescription drugs
  • Routine foot care
  • Eyeglasses, hearing aids, and tests for same
  • Items for personal comfort, such as a private telephones in a hospital room

There are, however, a variety of private insurance policies that can be purchased to supplement the provisions of Medicare. These include

  • Medigapinsurance to cover some of the charges that Medicare does not pick up;
  • Coordinated care plans that provide health-care service for a fixed monthlypremium;
  • Retirement policies from former employers;
  • Nursing-home and long-term care policies;
  • Hospital indemnity policies that pay a per-diem amount for inpatient hospital services; and
  • Policies tocover treatment for specific ailments.

In the 1980s, Medicare Health Maintenance Organizations (HMOs) became available in some parts of the country, and beginning in 1999, Preferred Provider Organizations (PPOs) and Provider Sponsored Organizations, and other insuranceoptions like Private-Fee-For Service Plans and Medicare Medical Savings Accounts became available in selected parts of the country. It is worth noting, however, that many subscribers to Medicare HMO plans have been disappointed with the amount of information provided to them by their HMOs. (Medicare, whichis intended to cover short-term acute medical conditions, rather than long-term, chronic conditions requiring custodial care, is administered by the Social Security Administration.)

In 1965, Congress established health coverage known as Medicaid for the poorof all ages whose income and resources are insufficient to pay for healthcare. Medicaid is state-administered and financed by both the states and federalgovernment through the Social Security Administration. Thus, the Medicaid program varies considerably from state to state, as well as within each state over time. In 1995, Medicaid served the following populations: 18.7 million children; 7.6 million adults who care for these children; 4.4 million elderly; and 5.9 million blind and disabled. When family financial resources are exhausted, it is usually Medicaid rather than Medicare that covers the costs of caring for patients who require long-term nursing services, for example those diagnosed with Alzheimer's disease.

Medicaid has proven to be, however, something of a mixed blessing for the elderly who require long-term care. For many seniors, it provides the much needed support for long-term nursing care. And unlike Medicare, it covers many non-specialized treatments, without requiring the high premiums of private health insurance. But in order to qualify for Medicaid, an individual must use uphis or her savings and assets, i.e., become impoverished, before he or she can qualify for benefits. So if the individual is married and qualifies for Medicaid, and if the individual's spouse is not institutionalized, the spouse may be left with very few assets and a very small income.

Surveys have shown that most Americans believe that some type of Medicare reform is necessary, even though they do not always agree on the nature of the changes. One concern that many Americans share is that Medicare may face bankruptcy in the twenty-first century. Noting that the number of elderly U.S. citizens in the year 2040 will range anywhere from 288 million to 458 million people, a variance of nearly 200 million (based on U.S. Census Bureau projections), some have questioned whether the working population will be able to support such a massive federally assisted medical program for the elderly. Many analysts believe, however, that Medicare will survive: their conclusion is based on the observation that although the population over 65 has doubled since1960 and is expected to do so again over the next 35 years, the nation's income more than tripled since 1960. They also point out that between 1980 and 1998, almost as many babies were born in the U.S. (72 million) as were born between 1946 and 1964 (76 million).

In 1999, the federal government's annual bill for healthcare spending was $3,925 per person, which is much higher than in other nations, largely due to the fact that in the U.S. physicians' salaries and hospital costs are higher, and advanced medical technology is more widely used here. But the transfer offunds among federal and state Medicare and Medicaid programs has been anotherimportant component of national healthcare spending.

Rural health care providers treat a higher percentage of Medicare and Medicaid patients than do urban providers. (There is actually more poverty in ruralareas than in urban ones, according to a 1996 study by the Department of Agriculture.) Reimbursement to health-care providers has been complicated by thefact that Medicare sets the payment rates for Medicaid, and Medicare reimbursements to health care providers have been scheduled for a $115 billion reduction (over a five-year period) by President Clinton's Balanced Budget Act of 1997. Because 75 to 95 percent of the patients in rural areas are on Medicareor Medicaid (compared to only 40 to 50 percent of the patients in cities), rural hospitals have been hit harder than urban ones by these budget cuts. Consequently, as medical technology continues to explode, rural hospitals find themselves at a disadvantage when it comes to investing in those new technologies.

Despite the fact that most the largest percentages of Medicare and Medicaid patients reside in rural areas, many rural hospital administrators have foundthat they have little opportunity to influence national health care policy, because the absolute numbers of constituents in rural areas are not large enough to influence legislators in Washington.

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