Medicare is a health insurance system that covers health care for everyone over the age of 65 in the United States. It is funded by taxes on the entire population and by premiums and copays. It is quite popular and appreciated by the elders who depend on it, but how did it come about, and why does it have various parts?
A brief history of health insurance
Health insurance started in Texas in the 1920s. A group of teachers got together and drafted an agreement with a hospital: if they each paid the hospital 50 cents per month, the hospital would provide them with any care that they needed. That agreement eventually turned into the Blue Cross health insurance company.
In the 1930s, companies in the lumber and mining industries got together and formed the Blue Shield company, which paid for private physician services for their employees. Blue Cross, which paid for hospital services, then merged with Blue Shield, which paid for out of hospital medical care, and the employer-based health insurance industry was born.
After World War II, Great Britain was struggling to repair the damage, both physical and emotional, inflicted on their country. One aspect of the damage was a large number of injured soldiers and civilians who needed medical care and in some cases were permanently disabled and unable to resume gainful employment. In response to this need, the country created the first-ever universal healthcare plan, abandoning the employer-based health insurance system forever.
Medicare is born
The United States emerged from Word War II relatively unscathed and continued its employer-based health insurance system. However, many people were noticing a problem with this system: it only provided health care to people who were healthy or young enough to work. Anyone who retired from their job was suddenly cut off from access to health care. In 1965, the US government finally acted to fix this glaring gap in health care by establishing Medicare.
The Medicare parts
The various Medicare parts reflect the basic organization of health care:
- Part A covers in hospital care
- Part B covers out of hospital care
- Part C allows private companies to provide insurance
- Part D covers medications
Parts A, B, and D are self-explanatory, but Part C is not. It is more commonly referred to as Medicare Advantage. It allows private insurance companies to take over from the government and provide health insurance to senior citizens. Any Part C plan has to provide equivalent or better health insurance than classic Medicare.
The advantages and disadvantages of Medicare Advantage
When people in the United States turn 65, they have to make a decision about their future health insurance. They may have up to five options:
- Continue to be covered by their employer’s plan
- Buy a private plan from the ACA marketplace
- Enroll in classic Medicare
- Enroll in a Medicare Advantage plan
Many people nowadays do not retire at age 65, and if they continue working, they can just continue with their employer’s plan or their ACA marketplace plan. There is one major downside to doing this: if you enroll in Medicare later, say when you are 78 and finally retire, you will be hit with a late enrollment fine.
If you enroll in classic Medicare, you can easily become very confused. You have to enroll in Parts A, B, and D, each with its different rules, premiums, copays, and coverage. In addition, since classic Medicare does not cover eyes, teeth, ears, or long-term care, and it has limitations in coverage, you also need to purchase Medigap insurance, dental insurance, vision insurance, and long-term care insurance. Now you have seven different insurance policies you have to keep track of.
If you opt for Medicare Advantage, a private health insurance company will give you one insurance policy with all of the parts rolled in together. Keep in mind that you will probably still have to buy a separate long-term care policy. The overwhelming convenience of Medicare Advantage versus classic Medicare is its major selling point.
On the other hand, Medicare is accepted everywhere. You can be a happily retired snowbird and migrate between two states and not worry about your health insurance being “out of network”. That does not happen with Medicare Advantage; they have networks, and rules about referrals and what specialists you can see.
A number of studies have compared the health care that classic Medicare and Medicare Advantage provide, and most conclude that the health care provided by Medicare Advantage is equal to or sometimes slightly better than the health care provided by classic Medicare. Whether classic Medicare plus its necessary add-on policies costs the same, less, or more than Medicare Advantage depends entirely on the individual’s circumstances and their income.
In closing
Unlike the rest of the world, the United States has opted for an employer-based health insurance system. However, that system only covers people who are healthy and young enough to be able to work. To cover this gap, the United States offers Medicare to provide health insurance to older individuals. Medicare is insanely complicated and comes in various parts and requires add-ons, but it does provide excellent health care.
