The Medicare program is an integral component of the federal government’s commitment to the health
and welfare of the American people, which includes the Social Security system, the Medicaid program
(which is primarily administered by the states), and other programs. The Medicare program provides
affordable health insurance to (1) eligible individuals aged 65 and over; (2) certain individuals eligible for
disability benefits under the Social Security system; and (3) individuals with acute kidney failure (endstage
renal disease, or ESRD).Nearly all Medicare beneficiaries may access their insurance benefits through one of two health care
delivery systems: First, in all areas of the country, a beneficiary may enroll in the traditional Medicare program (the
Medicare FFS program) under which benefits are largely provided in keeping with an indemnity insurance model. That is, the beneficiary chooses his/her health care providers, the providers bill the appropriate Medicare claims administrator for their services, and the claims administrator pays the provider based on the eligibility, coverage, and payment rules of the Medicare Hospital Insurance (HI) and Supplementary Medical Insurance (SMI) programs. The federal government bears all financial
(underwriting) risk for the cost of program benefits and develops detailed administrative requirements and processes to support the claim administration process. This national entitlement program has a strong imperative to provide a common level of benefits and service in all areas of the country, while maintaining adequate flexibility to account for local and regional medical practices.
Second, in many areas of the country, beneficiaries have the option to enroll in one or more privately sponsored Medicare plans under the Medicare Advantage (MA, formerly Medicare+ Choice) program. These private Medicare plans may organize themselves in keeping with one of several health care delivery and payment models (health maintenance organizations, preferred provider organizations, etc.). These private Medicare plans are required to cover the same basic benefits that the traditional Medicare program offers, but they are given fairly broad responsibility and latitude to set up their
internal requirements and processes as they see fit.
The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) included
significant incentives to increase the participation in Medicare Advantage. However, for the next decade
at least, the majority of all Medicare beneficiaries will likely remain enrolled in the traditional FFS
Medicare program. FFS coverage in the Medicare program consists of two distinct parts: (1) HI, and (2)
SMI, which provide coverage for the professional medical services of physicians and certain other
licensed practitioners, as well as coverage for a variety of other services and items (ambulance, durable
medical equipment, etc.). In common usage, the HI program is known as “Medicare Part A,” although
both the Part A and B trust funds are used to reimburse institutional claims. The SMI program is known
as “Medicare Part B;” only the Medicare Part B trust fund is used to reimburse Part B claims.
