Is Medicare An Entitlement Program?
Medicare is a federal program providing health care coverage to people who are age 65 and older, people with disabilities, and people with end-stage renal disease. Medicare is financed by a combination of beneficiary premiums, general revenue, and beneficiary coinsurance. The program is administered by each U.S. state's Medicare agency, but it is governed by federal law.
Medicare is considered a federal entitlement program. This means that people who meet the eligibility requirements of the program receive benefits. The level of benefits, however, does not vary based on the cost of care in any given area. In contrast, people who qualify for the Medicaid program are entitled to a specific level of services that varies based on their circumstances.
The following chart compares eligibility and benefit rules for the two programs.
Eligibility rules for Medicare and Medicaid
Medicare Medicaid Who is eligible for Medicare?
People 65 and older.
People with disabilities
People with end-stage renal disease Who is eligible for Medicaid?
Application varies by state, but generally: People with disabilities.
People with low income and assets
Children and pregnant women
Low-income elderly (partial-benefit states) Who determines beneficiary eligibility?
Federal government, through the Social Security Administration Medicaid agency, through a state agency Is coverage automatic?
Yes No If a person meets eligibility criteria, is enrollment required?
No Yes What is the actuary value of the benefit package?
The benefit package includes: Inpatient hospital and skilled nursing care.
Outpatient hospital and physician services
Home health services
Personal care services through a home health agency
For more information about the basic structure of Medicare, see the chart below.
Key features of Medicare
How Medicare is paid for
The Medicare program is financed through a combination of beneficiary premiums, general revenue, and beneficiary coinsurance.
Medicare Part A
Part A is funded by a 2.9 percent tax on wages that employers and employees pay, in equal portions, on earnings. Self-employed individuals pay the entire tax. This tax also applies to taxable fringe benefits, such as employer-paid health insurance premiums, life insurance proceeds, and disability insurance benefits.
Medicare Part B
Part B is funded through general federal revenue. This cost is partially offset by monthly premiums paid by beneficiaries and a general revenue appropriation. The monthly premium is set at a level that produces about 25 percent of Part B's costs in the program's current-law financing structure.
Medicare Part C
Medicare Part C (Medicare Advantage) is funded by Medicare Advantage plans and the Medicare Part C program. Medicare Advantage plans pay all Part A and Part B premiums. Plans also pay a monthly premium to the Medicare Part C program. Medicare Part C pays plans their monthly premiums plus an additional amount to cover the cost of providing Part A and Part B benefits.
Medicare Part D
The Medicare Part D program is funded by the Part D plan sponsors, general revenue, beneficiary premiums, and state payments to the Part D plan sponsors. Part D plans offer prescription drug coverage. Beneficiaries who enroll in a Part D plan have a premium-free choice of plans. The monthly premium is set by the Part D plan sponsor, which gets a capitated payment from Medicare.
How is care provided?
Medicare has a two-track delivery system. The first track provides health care under the Medicare fee-for-service program. The second track provides health care through Medicare-approved private Medicare health plans.
Medicare fee-for-service pays for health services that are provided directly to Medicare beneficiaries by doctors, hospitals, home health agencies, hospices, and other health-care providers.
Medicare Advantage is a health plan an individual can choose. The plan is run by a private health-care company that contracts with Medicare to provide Part A and Part B benefits. In return, the plan pays a monthly premium to Medicare. It also receives a capitated payment from Medicare for the cost of providing Part A and Part B benefits.
The Medicare program has an important quality-of-care role in protecting beneficiaries. Quality of care is one of the most important issues that Medicare is working to improve. The Quality Improvement Organization (QIO) network is the part of the program responsible for monitoring the quality of care provided to beneficiaries. The QIO program is in the process of expanding to cover most Medicare beneficiaries.
The QIO program is the Medicare quality-of-care watchdog
The QIO program evaluates whether health-care providers are providing quality care, the effectiveness of new technologies, and the availability of new drugs and treatments. The QIO program has the authority to conduct surveys and on-site visits of providers to assess the quality of their services.
The QIO program helps improve the quality of care
The QIO program provides reports to the Centers for Medicare & Medicaid Services (CMS) on the quality of care provided to beneficiaries. The data from these reports are used by CMS to identify areas where the quality of care needs to be improved. The QIO program also uses the data to determine whether it is appropriate to pay bonuses to the top-performing providers.
How Medicare is administered
Medicare is administered by the Centers for Medicare & Medicaid Services (CMS). CMS is an agency within the U.S. Department of Health and Human Services (HHS).
Medicare operates through the use of contractors. These contractors perform a variety of administrative functions, such as processing applications for enrollment, claims, and appeals. CMS works to ensure that Medicare contractors provide a high level of service. The agency does this by monitoring the contractors' performance and, where necessary, taking action if significant problems arise.
For more information, see Medicare and the Questionable Quality of Doctors in the