Social Security

The Medicare Program provides basic HEALTHCARE benefits to recipients of Social Security and is funded through the Social Security Trust Fund. President HARRY S. TRUMAN first proposed a medical care program for the aged in the late 1940s, but it was not enacted until 1965, when Medicare was established as one of President Lyndon B. Johnson's GREAT SOCIETY programs (42 U.S.C.A. § 1395 et seq.).

The Medicare Program is administered by the Health Care Financing Administration (HCFA). The federal government enters into contracts with private insurance companies for the processing of Medicare claims. To qualify for Medicare payments for their services, healthcare providers must meet state and local licensing laws and standards set by the HCFA.

Medicare is divided into a hospital insurance program and a supplementary medical insurance program. The Medicare hospital insurance plan is funded through Social Security payroll taxes. It covers reasonable and medically necessary treatment in a hospital or skilled nursing home, meals, regular nursing care services, and the cost of necessary special care.

Medicare's supplementary medical insurance program is financed by a combination of monthly insurance premiums paid by people who sign up for coverage and money contributed by the federal government. The government contributes the major portion of the cost of the program, which is funded out of general tax revenues. Persons who enroll pay a small annual deductible fee for any medical costs incurred above that amount during the year and also a regular monthly premium. Once the deductible has been paid, Medicare pays 80 percent of all bills incurred for physicians' and surgeons' services, diagnostic and laboratory tests, and other services, but does not pay for routine physical checkups, drugs, and medicines, eyeglasses, hearing aids, dentures, and orthopedic shoes. Doctors are not required to accept Medicare patients, but almost all do.

Medicare's hospital insurance is financed by a payroll tax of 2.9 percent, divided equally between employers and employees. The money is placed in a trust fund and invested in U.S. Treasury SECURITIES. The fund accumulated a surplus during the 1980s and early 1990s. It was projected that the fund would run out of money by the early 2000s as outlays arose more rapidly than future payroll tax revenues, but this proved not to be the case.