Understanding Medicare: How It Works

Understanding Medicare

Most Americans have at least heard of Medicare. If they have not been requested regarding their status in a health facility, then they’ve heard of it in congress. So then, what is Medicare, and how does it work? Here is a discussion covering key aspects of the program to get you up to speed and help you understand what is Medicare Advantage.


In the 1960s, Lyndon B. Johnson’s government faced critical social problems. One of them was healthcare. Especially its coverage and equal access by all Americans. When he put into law the Social Security Amendments in 1965, Medicare’s foundation, anchored on health insurance and medical insurance, was engrained into America’s health system. Its focus then was on senior citizens, who most needed such services.

With this came two programs, Medicare and Medicaid. They were established to serve two different groups of people. While Medicaid was for low-income earners, Medicare was designed specifically for seniors 65 years and older, regardless of their financial backgrounds. Also, those with disabilities were and are still eligible for Medicare. Though different in design, the two programs have been jointly run by the state and federal governments since their conception.

Legislations Regarding Medicare

Many bills have been discussed and legislation passed since the signing of H.R. 6675. They have shaped Medicare into what it is today. Here is a list of the most influential legislations on the program:

  • In 1972, the Nixon administration signed into law The Medicare-Medicaid Amendments. This act extended coverage to those under 65 with specific disabilities and people of all ages with end-stage renal disease (ESRD). Permanent renal failure, often known as ESRD, calls for dialysis or a surgery.
  • In 1980, the Carter administration enacted The Medicare Catastrophic Coverage Act. The act was designed to help seniors with the cost of outpatient services and prescription drugs not already covered by Medicare.
  • In 1997, the Clinton administration passed The Balanced Budget Act. This bill had several effects on Medicare, including the introduction of managed care plans and a limit on hospice days, among other things.
  • In 2003, the Medicare Prescription Drug, Improvement, and Modernization Act took effect after being signed by the Bush administration. The act was established to extend Medicare’s coverage for prescription medications. It also allowed seniors to choose from different types of health plans known as Medicare Advantage Plans.
  • In 2010, the Obama administration passed The Patient Protection and Affordable Care Act (PPACA). The act made several changes to Medicare, including free preventive services and closing the donut hole.
  • In 2015, the Medicare Access and CHIP Reauthorization Act (MACRA) came into force after being signed by the Obama admin. The sustainable growth rate formula used to determine how much doctors get paid for their services was superseded by MACRA.


As was stated earlier, Medicare is available to those 65 years and older regardless of their financial backgrounds. However, with time it has extended to cover younger people with disabilities and those with ESRD. To be eligible, you must:

  • Be a citizen or legal resident of the United States
  • Have been employed and was paying Medicare taxes for a minimum of ten years
  • Be presently registered in Social Security or Railroad Retirement Board benefits

Note: You may qualify for Medicare regardless of not working enough years to be eligible.

Registration Process

You can sign up online at medicare.gov by calling their customer service number at 1800-MEDICARE (1800-363-429) or in person at your local Social Security office.

Regardless of whether you feel ready to retire, you should enroll in Medicare three months prior to turning 65. You might be required to pay a late registration fine if you wait for longer. You can also enroll during the seven-month period that begins the month after you leave your job or lose your health insurance coverage.

You will need the following information when you sign up:

  • Your Social Security digits
  • When you want your insurance to begin.
  • If you wish to register for Medicare Easy Pay, you will need your bank account details and routing number.

Who pays for Medicare?

The program is funded by general revenue, payroll taxes, and surtaxes on beneficiaries. In 2013, these sources contributed the following amounts:

  • General revenue: 42 percent
  • Payroll taxes: 35 percent
  • Surtaxes on beneficiaries: 23 percent

Other sources, such as interest on the trust fund’s assets and recoveries from third-party payers, contributed the remaining one percent.

What Does Medicare Cover?

Medicare provides coverage for a variety of medical treatments and products. It doesn’t, however, cover everything. What Medicare Part A and Part B cover is listed below:

  • Hospital inpatient admissions, skilled nursing unit care, hospice care, and home health services are all covered in Part A.
  • Doctor’s appointments, preventative medicine, long-lasting medical equipment, and outpatient treatment are all covered by Part B.

What does Medicare Not Cover

There are certain things that Medicare does not cover. Below is a list of some of the things that Medicare does not cover:

  • Long-term care (also known as custodial care)
  • Dental implants 
  • Eye exams related to prescribing glasses
  • Cosmetic surgery
  • Acupuncture

Is It Compulsory To Register For Medicare?

No, you are not required to enroll in Medicare when you turn 65. However, if you don’t sign up for Medicare when you first become eligible and don’t have any other health insurance that qualifies, you can be charged a late enrollment fee.

Emerging issues on Medicare

One of the most debated issues surrounding Medicare is its solvency. The hospital insurance trust fund for the Medicare program will run out by 2026, based on the most recent analysis by the Medicare Trustees. It means that, unless changes are made, there will only be enough money to pay for 87 percent of Medicare hospital costs at that time.