In the United States, Medicare is a national social insurance program, administered by the U.S. federal government since 1965, that guarantees access to health insurance for Americans aged 65 and older and younger people with disabilities as well as people with end stage renal disease (Medicare.gov, 2012) and persons with Lou Gehrig’s disease. As a social insurance program, Medicare spreads the financial risk associated with illness across society to protect everyone, and thus has a somewhat different social role from for-profit private insurers, which manage their risk portfolio by adjusting their pricing according to perceived risk.

Medicare offers all enrollees a defined benefit. Hospital care is covered under Part A and outpatient medical services are covered under Part B. To cover the Part A and Part B benefits, Medicare offers a choice between an open-network single payer health careplan (traditional Medicare) and a network plan (Medicare Advantage, or Medicare Part C), where the federal government pays for private health coverage. A majority of Medicare enrollees have traditional Medicare (76 percent) over a Medicare Advantage plan (24 percent). Medicare Part D covers outpatient prescription drugs exclusively through private plans or through Medicare Advantage plans that offer prescription drugs and in some cases are owned by pharmacies, including CVS which now owns SilverScript.

In 2010, Medicare provided health insurance to 48 million Americans—40 million people age 65 and older and eight million younger people with disabilities. Medicare serves a large population of elderly and disabled individuals. On average, Medicare covers about half (48 percent) of health care costs for enrollees. Medicare enrollees must cover the rest of the cost. These out-of-pocket costs vary depending on the amount of health care a Medicare enrollee needs. They might include uncovered services—such as long-term, dental, hearing, and vision care—and supplemental insurance.

Medicare has several sources of financing. Part A largely is funded by revenue from a 2.9 percent payroll tax levied on employers and workers (each pay 1.45 percent) established by the Federal Insurance Contributions Act (FICA) and the Self-Employment Contributions Act of 1954. Until December 31, 1993, the law provided a maximum amount of compensation on which the Medicare tax could be imposed each year. Beginning January 1, 1994, the compensation limit was removed. A self-employed individual must pay the entire 2.9% tax on self-employed net earnings (because they are both employee and employer), but may deduct half of the tax from the income in calculating income tax. Beginning in 2013, the 2.9% hospital insurance tax will continue to apply to the first US $200,000 of income for individuals or $250,000 for couples filing jointly and will rise to 3.8% on income in excess of those amounts. Parts B and D are funded by premiums paid by Medicare enrollees and general fund revenue. In 2011, Medicare spending accounted for about 15 percent of the federal budget, and this share is projected to increase to over 17 percent by 2020.

The retirement of the Baby Boom generation—which by 2030 is projected to increase enrollment from 48 million to more than 80 million as the number of workers per enrollee declines from 3.7 to 2.4—and rising overall health care costs pose substantial financial challenges to the program.

Medicare spending is projected to increase from $560 billion in 2010 to just over $1 trillion by 2022. Baby-boomers health is also an important factor: twenty percent have five or more chronic conditions which will further add to the future cost of health care (www.cms.gov, 2012). In response, policymakers recently have offered a number of competing proposals to reduce Medicare costs.

In general, all persons 65 years of age or older who have been legal residents of the United States for at least 5 years are eligible for Medicare.People with disabilities under 65 may also be eligible if they receive Social Security Disability Insurance (SSDI) benefits. Specific medical conditions may also help people become eligible to enroll in Medicare.

People qualify for Medicare coverage, and Medicare Part A premiums are entirely waived, if the following circumstances apply:
• They are 65 years or older and U.S. citizens or have been permanent legal residents for 5 continuous years, and they or their spouse has paid Medicare taxes for at least 10 years.

• They are under 65, disabled, and have been receiving either Social Security SSDI benefits or Railroad Retirement Board disability benefits; they must receive one of these benefits for at least 24 months from date of entitlement (eligibility for first disability payment) before becoming eligible to enroll in Medicare.

• They get continuing dialysis for end stage renal disease or need a kidney transplant.

• They are eligible for Social Security Disability Insurance and have amyotrophic lateral sclerosis (known as ALS or Lou Gehrig's disease).

Those who are 65 and older must pay a monthly premium to remain enrolled in Medicare Part A if they or their spouse have not paid Medicare taxes over the course of 10 years while working.

People with disabilities who receive SSDI are eligible for Medicare while they continue to receive SSDI payments; they lose eligibility for Medicare based on disability if they stop receiving SSDI. The 24-month exclusion means that people who become disabled must wait 2 years before receiving government medical insurance, unless they have one of the listed diseases. The 24-month period is measured from the date that an individual is determined to be eligible for SSDI payments, not necessarily when the first payment is actually received. Many new SSDI recipients receive "back" disability pay, covering a period that usually begins 6 months from the start of disability and ending with the first monthly SSDI payment.

Some beneficiaries are dual-eligible. This means they qualify for both Medicare and Medicaid. In some states for those making below a certain income, Medicaid will pay the beneficiaries' Part B premium for them (most beneficiaries have worked long enough and have no Part A premium), as well as some of their out of pocket medical and hospital expenses.

In 2008, Medicare provided health care coverage for 45 million Americans. Enrollment is expected to reach 78 million by 2030, when the baby-boomgeneration is fully enrolled.

Medicare has four parts: Part A is Hospital Insurance. Part B is Medical Insurance. Medicare Advantage plans, also known as Medicare Part C, are another way for beneficiaries to receive their Part A, B and D benefits. Medicare Part D covers prescription drugs. All Medicare benefits are subject to medical necessity.

The original program included Parts A and B. Part D was introduced January 1, 2006; before that, Parts A and B covered prescription drugs in a few special cases.