Not sure which Medicare plan works for you? Use our easy tool to shop, compare, and enroll in plans from popular carriers.
Is Medicare a state or federal program?
Just the Essentials...
Medicare is a federal program.
Originally, the U.S. Congress authorized Medicare in 1965.
Medicare funds come from federal taxes, consumer payments, and premiums.
The Centers for Medicare and Medicaid Services (CMS) administers Medicare.
Unlike Medicare, Medicaid is a state-run program with partial federal funding.
Medicare is the federal health services program for American seniors and those of any age with disabilities. Divided into several focused parts, Medicare provides preventive and diagnostic medical care, prescription drugs, and hospital stays.
In short, Medicare provides the same nationwide coverage regardless of which state you live in. The doctors, hospitals, and other healthcare providers under Medicare participate in a network that spans all states and U.S. territories.
When it comes to Original Medicare, the federal government bears the responsibility of handling health insurance claims. Because Medicare pays claims on a rule of medical necessity, it covers services for the prevention, diagnosis and treatment of illness or injury to eligible Americans.
Within each state, however, Medicare health plans like Medicare Advantage offer benefits using local providers according to your county or zip code. To find the right plan for you, enter your zip for free quotes in your area.
Medicare: The Federal Health Insurance in Parts
Medicare began as an amendment to the Social Security Act. The Original Medicare program encompassed the Medical Insurance of Part B and the Hospital coverage of Part A.
Listed below are the major parts of Medicare:
Original Medicare Part A – Inpatient Hospital Insurance.
Original Medicare Part B – Medical Insurance.
Medicare Part C – Medicare Advantage that include at least the coverage of Parts A and B, and many include Part D as well.
Medicare Part D – Prescription Drug coverage.
Medigap supplemental policies – Gap insurance which helps pay out-of-pocket costs for Medicare-covered services.
Beginning with Federal Original Medicare
Medicare Parts A and Part B comprise the Original Medicare program. Later, Congress added the Prescription Drug benefit called Part D and the privately managed health insurance called Part C, or Medicare Advantage.
The Original Medicare is a government run program for medical services and hospital care. Users are free to select among doctors and hospitals that agree to accept Medicare assignment. In that arrangement, Medicare providers receive agreed-upon payment amounts for specific medical services.
On the consumer side, patients must pay the difference directly to the provider, which is usually 20% of the Medicare-approved fee charged for a particular service.
Further, Original Medicare operates without specialist referrals. Rather, users choose which medical providers they see as long as the provider accepts Medicare.
Original Medicare Uses Regional Administrators with Federal Contracts
Without a doubt, the massive undertaking to insure a diverse national population requires technical expertise and consistency. Essentially, the Centers for Medicare and Medicaid Services (CMS) hires several private contractors to process health claims and maintain records for large areas of the U.S.
Across each of 12 general regions, these government-contracted administrators work closely with medical providers to make sure payments are made on time for services rendered.
The Centers for Medicare and Medicaid approves plans presented by private insurers for Medicare Advantage. These plans must cover at least the benefits of Original Medicare, but they can do more in various ways. The insurers can devise methods for saving costs in some areas and reducing out of pocket expenses in another area.
Given that private insurers have established certain efficiencies when it comes to processing health claims, the federal government leverages these cost-saving operations with Medicare Advantage. As opposed to massive regional organizations to handle the workload, the private insurance carriers more effectively divide and conquer. Moreover, these private entities could offer benefits beyond the rules of medical necessity under Original Medicare.
For the first time, benefits like dental, vision, and hearing could accompany Medicare coverage through Part C.
In effect, a competitive market of Medicare Advantage plans began when Congress authorized Medicare Part C in the 1990’s.
Types of Managed Care in Medicare Advantage
Overall, the private insurance plans in Medicare Advantage offer a wide variety of choices for consumers. Beyond the choice between Original Medicare and Medicare Advantage, another level of choice is the network type.
A network type that meets the needs of one person may not work as conveniently for another. In short, a network recruits certain local providers like doctors, hospitals, and pharmacies to participate in a plan.
The use of networks means a difference in the price for services depending on whether a provider participates. In some networks, going out of network means the patient pays 100% of the costs.
The below-itemized managed care types affect consumer choice in Medicare Advantage plans.
HMO is the health maintenance organization. They feature prevention and wellness programs in addition to a strict local network for medical services. HMOs prohibit use of doctors and other providers outside of that local network.
PPO is the preferred provider organization. These networks do not restrict users to in-network resources; however, outside resources typically cost more out-of-pocket. Distinctly, PPOs do not require referrals for specialists, nor does it require a primary care physician to oversee a patient’s care.
EPO is the exclusive provider network. It does not use outside resources. The EPO offers low prices to its members and full use of the network resources. The EPO does not use a primary care physician and does not require referrals.
HMO-POS is an HMO with a flexible option for outside services. This HMO type has a primary care doctor and requires referrals for using network services. The point of service (POS) option is that the primary care physician can make referrals to outside providers. The insurance will cover the outside referral but leaves more cost sharing to the patient than with network resources. Further, a provider
PFFS is the private fee for services organization. These networks can provide significant costs savings. They do not use outside resources, and all costs are negotiated terms. The consumer gets the costs sharing they wish and decide when to go to outside sources and pay the fees out-of-pocket.
States Give Requirements for Medigap Variety
Although Medicare is a federal program, states help regulate Medigap by licensing companies that offer Medigap insurance companies. In other words, states require that private insurance carriers offer a wide variety of Medigap insurance options.
Law standardizes each type of Medigap policy to cover specific Medicare-approved services in specific amounts, meaning that all Medigap plans of the same type only differ in terms of premium charged by the private carrier.
States mandate the availability of different Medigap options to account for wide medical needs and cost preferences, regardless of a person’s location.
The private companies that offer Medicare Supplements must offer an approved combination of plans. States require a combination of comprehensive plans along with any limited option plans.
Despite being subject to state rules for types of Medigap plans, the insurance companies offering the policies can assess a person’s medical history to determine whether to accept or reject applications.
Medicare Supplement requires Medicare Parts A, and B. Acceptance is guaranteed during open enrollments and the initial enrollment period.
States Run Medicaid Programs
Unlike Original Medicare, which is a federal health insurance program, Medicaid programs are specific to each state. The federal government sets the bar for the quality of care that states use when providing Medicaid assistance. In effect, each state program combines federal funds and state resources to meet federal quality standards.
Regardless of which state a person lives in, Medicare eligibility is based on U.S. citizenship, age, or disability status. On the other hand, Medicaid program eligibility is unique to each state, based on household income.
States set their own qualifications for their Medicaid program, sometimes putting them at odds with federal policy. The states formulate an upper limit on income to qualify for Medicaid which vary based on demographics taken from the individual states.
The U.S. Congress authorized an Expansion of Medicaid to give medical support those between the federal poverty line and about 138 percent of poverty income. In effect, state Medicaid programs further reduced the numbers of uninsured residents. This helped relieve the weight of unpaid bills that burden providers like hospitals and clinics. Nonetheless, some states turned down expansion of Medicaid coverage to their vulnerable residents.
Additionally, states administer the Children’s Health Insurance Program, offering Medicaid to minors. State and federal funds ensure a minimum of medical services for children and teens in low-income households.
Providing health and dental coverage, these programs are an integral part of the social safety net that protects the most vulnerable members of society.
Medicare is a Federal Program with State Cooperation
All-in-all, federal taxes, federal administration, and federal standards govern the largest healthcare system in the country.
Our free comparison tool gives you a convenient way to find the private plans offered through Medicare Advantage, Part D prescription policies, and comprehensive care in Medicare Advantage.