Chapter 2: An Introduction to the Medicare Program

       Introduction and Goals of the Chapter

       An Introduction to the Medicare Program

       What is Medicare?

       Medicare Enrollment and Eligibility

       What Is Covered by Medicare?

       What Is Not Covered by Medicare?

       The Mechanics of Medicare

       Chapter Summary

Introduction and Goals of the Chapter

      This chapter presents an introduction to the Medicare program and is designed to prepare the SAS programmer for using Medicare administrative data. As stated in Chapter 1, the guiding principle of this book is that research questions about the Medicare program can only be answered with a solid understanding of the fundamentals of Medicare data. In turn, Medicare data can only be understood when the user achieves a solid grasp of the fundamentals of the Medicare program. Indeed, as is true with most types of administrative data, it is the requirements of the program that drive the content of the files. In that spirit, the goal of this chapter is to establish a foundation for understanding and using Medicare data by learning the basics of the administration of the Medicare program. We define Medicare, discuss enrollment, eligibility, and coverage, and provide a very simple sketch of how Medicare pays for services. We also briefly discuss how this information about Medicare influences the content of the data files we will use throughout the remainder of this book. Looking forward, we will build on the information presented in this chapter by discussing more specifics of Medicare data files, as well as how to request, obtain, and use these files. We will use the data in these files to address the research questions posed by our example project described in Chapter 1.

It is very important to note that Medicare coverage is extremely complex and subject to change over time. We do not attempt to cover every detail of the Medicare program in this text. You will encounter many questions throughout the course of your career using Medicare data that will require you to dig deeply through reference material. To that end, the intent of this chapter is to provide a foundation for understanding the Medicare program for your future work. My hope is that the reader finishes this chapter with a basic understanding of the Medicare program, including history, types of coverage, and administration. When confronted with more advanced research questions, the reader can then leverage this understanding in conjunction with available reference materials. Some of the most commonly used sources of information are CMS’s Research Data Assistance Center (ResDAC), CMS, and the Kaiser Family Foundation.1 In fact, these sources were heavily relied upon in the writing of this chapter!

      An Introduction to the Medicare Program

What is Medicare?

Medicare is a health insurance program for people age 65 or older, those under age 65 with certain disabilities, and those of any age with permanent kidney failure. The Medicare program protects beneficiaries from financial risk by covering costs for potentially large and unaffordable medical expenses incurred by seeking medical care. Generally, in order to be eligible for Medicare, beneficiaries must have entered the United States legally, paid Federal Insurance Contributions Act (FICA) taxes for 40 or more quarters (or be the spouse of someone who has), and lived in the United States for 5 years.2 Medicare is a social insurance program operated by the Centers for Medicare & Medicaid Services (CMS), a federal government agency that is part of the Department of Health and Human Services. Medicare provides participants (called beneficiaries) with an array of health insurance coverage, regardless of income or medical history. Medicare provides four types of coverage (Part A, Part B, Part C, and Part D) that are described in detail below.

Started in 1965 (did you know that President Harry Truman was the first person to enroll in Medicare?), the Medicare program we know today (and will describe below), had its genesis in President Lyndon Johnson’s War on Poverty. Because Medicare is a social insurance program, enrollment criteria and benefits are defined by legal statute. This means that Medicare coverage can differ from commercial health insurance in some fundamental ways. It also means that Medicare has changed over the years in response to changes in statute, often to expand or improve coverage or to attempt to control costs. Here are just some examples of how legislation has influenced the administration of the Medicare program: 3

      • In 1972, the Medicare program was expanded to include coverage for individuals with end-stage renal disease (ESRD) and some individuals under age 65 with long-term disabilities.

      • In the same year, coverage was also expanded to include speech, chiropractic, and physical therapy services.

      • In 1982, Medicare coverage was expanded to include hospice services for terminally ill individuals.

      • In 1997, the Balanced Budget Act attempted to control Medicare spending through the creation of prospective payment systems (PPS) for certain types of services (though inpatient prospective payment was first implemented in 1983), and established the Medicare+Choice program.

      • In 2001, Medicare initiated coverage for individuals with Lou Gehrig’s disease (ALS).

      • In 2003, The Medicare Prescription Drug, Improvement, and Modernization Act (MMA) established an outpatient prescription drug benefit that would take effect in 2006.

      • In 2005, coverage was expanded to include a physical and preventive screening to new Medicare beneficiaries.

      • In 2010, the Affordable Care Act (more commonly known as “health reform legislation”) initiated sweeping measures to control costs, most of which will take effect by 2014. For example, the law provides increased funding to combat waste, fraud, and abuse, takes measures to attempt to improve the quality of care provided to beneficiaries, and establishes free annual wellness visits for Medicare beneficiaries.

Medicare Enrollment and Eligibility

At the time of this writing, Medicare provided health insurance to about 47 million Americans.4 Most people think of Medicare as insuring the elderly, and that is certainly true; the majority of Medicare beneficiaries (about 39 million of them) are eligible for