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A Public Dialogue on Health Care: The Future of Medicare
The League of Women Voters Education Fund

What Is Medicare?

  • Medicare is the nation’s health insurance program for the elderly and disabled. Medicaid is the nation’s health insurance program for people with low incomes.
  • Medicare provides coverage to 39 million people (1 in 7 Americans): 35 million senior citizens (65 and older) and 4 million disabled citizens
  • Before Medicare, about half of all elderly American had health insurance
  • It is expected to cover over 72 million beneficiaries by 2027

Number of Medicare Beneficiaries
Fiscal Years 1967-2027

Bar chart of Medicare beneficiaries

Elderly and Disabled. Includes beneficiaries whose eligibility is based solely on end-stage renal disease (96,000 in 1997). SOURCE: Health Care Financing Administration, Office of the Actuary, April 1998

Characteristics of Medicare


  • Age
    • 10% Age 85 or older
    • 78% Age 65 to 84
    • 12% Under age 65 and disables
  • Poverty
    • 43% of Medicare beneficiaries have annual incomes less than 200% of poverty (less than $20,000 per couple in 1995)
  • Health
    • 29% report fair or poor health status
    • 23% have problems with mental functioning
  • Medicare
    • 17% admitted to hospital care each year
    • 77% use prescription drugs regularly

Benefits Covered

  • Medicate “Part A” covers about 56% of total benefits.
    • Coverage Includes:
      • Inpatient Hospital Services
      • Limited Skilled Nursing Care
      • Home Health Benefits following hospital or nursing home stay
      • Hospice Care
    • Beneficiaries pay:
      • $764 deductible for each episode of hospital inpatient care
      • Daily coinsurance after a 60-day hospital stay
      • Daily coinsurance days 21-100 in a skilled nursing facility
  • Medicare “Part B” accounts for 29% of benefit spending.
    • Coverage Includes:
      • Physician Services
      • Outpatient Hospital Services
      • Home Health Visits not covered under Part A
      • Lab Procedures and Medical Equipment
    • Beneficiaries pay:
      • Monthly Part B premium ($43.80 in 1998)
      • $100 annual deductible
      • 20% coinsurance for most services
  • The Balanced Budget Act of 1997 added annual mammography and other cancer screening benefits
  • Medicare does not cover outpatient prescriptions and long-term care

How Is Medicare Paid For?

  • Medicare consists of:
    • Hospital Insurance (Part A
      • Funded mainly by a 1.45% Payroll Tax on both workers and their employers. The revenue from this tax is deposited in the Hospital Insurance Trust Fund
    • Supplementary Medical Insurance (Part B)
      • Funded through Beneficiary Premiums ($43.80 per month in 1998) and general revenues paid by taxpayers
      • Premiums cover about 25% of Part B costs

Where Does the Money Go?

Excludes Administrative Expenses

Pie chart of Medicare Expenditure

SOURCE: CBO, The Economic and Budget Outlook, Fiscal Years 1999-2008, January 1998

Medicare Facts

  • Covers about HALF of the elderly’s medical expenses
  • In general, less generous than health plans offered by large employers
  • Relatively high deductibles for inpatient hospital care ($764 in 1998)
  • No cap on out-of-pocket expenditures
  • No outpatient prescription drug coverage
  • In 1996, beneficiaries spent an average $2,605 of their own money (over 20% of their average household income) for health services, premiums, deductibles and cost-sharing
  • Two thirds of all beneficiaries buy supplemental health insurance coverage. This is either in the form of individual health insurance policies known as “Medigap” or employer-sponsored plans or retiree insurance to fill in the gaps in Medicare coverage
  • More than 15% of beneficiaries receive supplemental coverage from Medicaid

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