Trusted Insights for What’s Ahead™
Medicare is a vital Federal health insurance program for the elderly and individuals with disabilities, providing coverage for hospital care, outpatient care, health care provider services, and prescription drugs for almost 67 million Americans. In 2023, the Medicare program had over $1 trillion in total expenditures, making it the largest health insurance program in the United States. Nevertheless, Medicare faces challenging headwinds as an aging population and rising health care costs per beneficiary threaten its financial sustainability. These structural issues impact the Federal budget, the national debt, costs for beneficiaries, and reimbursement to providers as the Federal government, beneficiaries, and providers all struggle to adjust to imbalances in the current Medicare financing structure. Congress should act with urgency to ensure that scheduled benefits can be paid fully and that Medicare is available to meet the needs of its beneficiaries for generations to come.
This Explainer provides a description of the two Medicare Trust Funds and their current state; an overview of Medicare eligibility, benefits, supplemental coverage options, program revenues, and impact; a brief history of Medicare; and recent challenges and some recommendations for reform.
- Congress established the Medicare program in 1965 to provide health insurance to Americans 65 and older. In the ensuing decades, the program expanded eligibility, increased standardization and regulation, and added private health plan and prescription drug coverage to the program.
- Medicare benefits consist of three components: hospital insurance (Part A), medical insurance (Part B), and prescription drug coverage (Part D). After initial enrollment in Medicare, beneficiaries may choose to remain in Traditional Medicare to obtain Part A and/or Part B coverage or may opt to enroll in private Medicare Advantage (MA) plans (Part C) to obtain their Medicare benefits.
- The Federal government has established two Trust Funds to track Medicare expenditures and revenues: the Hospital Insurance Trust Fund pays for Part A benefits while the Supplementary Medical Insurance Trust Fund pays for Part B and Part D benefits.
- Medicare eligibility is generally open to individuals aged 65 or older, individuals with a disability who receive Social Security Disability Insurance benefits, and individuals with end-stage renal disease.
- Cost-sharing is an important aspect of Medicare, with beneficiaries often responsible for paying premiums, deductibles, copayments, and coinsurance. Because of these out-of-pocket costs, many Medicare beneficiaries choose to purchase supplemental coverage. Some MA plans are more comprehensive than Traditional Medicare and include other coverage.
- The primary revenue source for Part A coverage is a dedicated payroll tax on workers’ earnings. The main revenue sources for Part B and Part D coverage are contributions from the Federal government and premiums from beneficiaries.
- An aging population and rising health care costs per beneficiary threaten the financial solvency of the Hospital Insurance Trust Fund, with the Medicare Board of Trustees projecting the Fund’s insolvency in 2036. Government transfers and beneficiary premiums are also expected to rise to match rising Part B and Part D costs, putting pressure on Congress to enact reforms to restore the financial sustainability of the Medicare program.
Trusted Insights for What’s Ahead™
Medicare is a vital Federal health insurance program for the elderly and individuals with disabilities, providing coverage for hospital care, outpatient care, health care provider services, and prescription drugs for almost 67 million Americans. In 2023, the Medicare program had over $1 trillion in total expenditures, making it the largest health insurance program in the United States. Nevertheless, Medicare faces challenging headwinds as an aging population and rising health care costs per beneficiary threaten its financial sustainability. These structural issues impact the Federal budget, the national debt, costs for beneficiaries, and reimbursement to providers as the Federal government, beneficiaries, and providers all struggle to adjust to imbalances in the current Medicare financing structure. Congress should act with urgency to ensure that scheduled benefits can be paid fully and that Medicare is available to meet the needs of its beneficiaries for generations to come.
This Explainer provides a description of the two Medicare Trust Funds and their current state; an overview of Medicare eligibility, benefits, supplemental coverage options, program revenues, and impact; a brief history of Medicare; and recent challenges and some recommendations for reform.
- Congress established the Medicare program in 1965 to provide health insurance to Americans 65 and older. In the ensuing decades, the program expanded eligibility, increased standardization and regulation, and added private health plan and prescription drug coverage to the program.
- Medicare benefits consist of three components: hospital insurance (Part A), medical insurance (Part B), and prescription drug coverage (Part D). After initial enrollment in Medicare, beneficiaries may choose to remain in Traditional Medicare to obtain Part A and/or Part B coverage or may opt to enroll in private Medicare Advantage (MA) plans (Part C) to obtain their Medicare benefits.
- The Federal government has established two Trust Funds to track Medicare expenditures and revenues: the Hospital Insurance Trust Fund pays for Part A benefits while the Supplementary Medical Insurance Trust Fund pays for Part B and Part D benefits.
- Medicare eligibility is generally open to individuals aged 65 or older, individuals with a disability who receive Social Security Disability Insurance benefits, and individuals with end-stage renal disease.
- Cost-sharing is an important aspect of Medicare, with beneficiaries often responsible for paying premiums, deductibles, copayments, and coinsurance. Because of these out-of-pocket costs, many Medicare beneficiaries choose to purchase supplemental coverage. Some MA plans are more comprehensive than Traditional Medicare and include other coverage.
- The primary revenue source for Part A coverage is a dedicated payroll tax on workers’ earnings. The main revenue sources for Part B and Part D coverage are contributions from the Federal government and premiums from beneficiaries.
- An aging population and rising health care costs per beneficiary threaten the financial solvency of the Hospital Insurance Trust Fund, with the Medicare Board of Trustees projecting the Fund’s insolvency in 2036. Government transfers and beneficiary premiums are also expected to rise to match rising Part B and Part D costs, putting pressure on Congress to enact reforms to restore the financial sustainability of the Medicare program.
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