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How Medicare Works

Medicare is the primary federal health care program for people over age 65 or people under 65 with certain disabilities. It runs according to a set of complicated financial calculations, but, in essence, Medicare will pay most health-care costs in the case of catastrophic illness. Medicare is funded primarily from mandatory payroll and self-employment taxes in a manner similar to Social Security. Unlike Social Security, for which a person needs to apply at the appropriate age, Medicare coverage is automatic. Just like Social Security, funding and other financial problems plague the system, often making Medicare a “hot” political issue.

Medicare terminology as popularly used refers to certain “parts” of the program:

  • Medicare Part A helps cover inpatient care in hospitals, care in skilled nursing facilities, hospice, and home health care.
  • Medicare Part B helps cover doctors’ services, hospital outpatient care, and home health care, as well as certain preventive health services.
  • Medicare Part C is an optional “Advantage Plan” giving greater coverage, but requiring payment of additional premiums. Eligible persons may switch to Medicare Part C from standard Medicare, or back, during a short period of enrollment early in each calendar year.
  • Medicare Part D helps cover the cost of prescription drugs.

A number of private insurers offer policies to cover expenses not covered by Medicare.

The Centers for Medicare & Medicaid Services (CMS), a branch of the U.S. Department of Health and Human Services, administers the Medicare program. This organization has a web site and many publications that explain the workings of the system, but probably the best place to find reliable information will be your local senior center or public library.

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