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Northeast Florida Medicine, Vol. 69, No. 6, December 2018

Medicare: Past, Present, and Future Directions

UF Health Family Medicine and Pediatrics

Address Correspondence to:

Ross Jones, MD, MPH, FAAFP
1155 E. 21st Street, Jacksonville, FL 32006

Date of Release: December 1, 2018
Date Credit Expires: December 1, 2020
Estimated Completion Time: 1 hour

The Duval County Medical Society (DCMS) is proud to provide its members with free continuing medical education (CME) opportunities in subject areas mandated and suggested by the State of Florida Board of Medicine to obtain and retain medical licensure. The DCMS would like to thank the St. Vincent’s Healthcare Committee on CME for reviewing and accrediting this activity in compliance with the Accreditation Council on Continuing Medical Education (ACCME). This issue of Northeast Florida Medicine includes an article, “Medicare: Past, Present, and Future Directions” authored by Ross Jones, MD, MPH, FAAFP, which has been approved for 1 AMA PRA Category 1 credit.TM For a full description of CME requirements for Florida physicians, please visit


Ross Jones, MD, MPH, FAAFP, Clinical Assistant Professor, University of Florida College of Medicine – Jacksonville.

Needs Assessment:

Given the significant changes in payments due to health policy legislation, understanding government-funded health programs is crucial in the current environment. As the population grows older, Medicare will continue to grow in importance due to cost and the number of beneficiaries covered by the program. However, many health care providers lack a fundamental understanding of Medicare and its components. This article hopes to address this paucity of understanding.


1. Understand the components of the various parts of Medicare and which parts of Medicare are responsible for which payments.
2. Describe how historical trends and policy changes have resulted in the current state of Medicare programs.
3. List the current challenges to control spending in the Medicare program.

CME Credit Eligibility:

A minimum passing grade of 70% must be achieved. Only one re-take opportunity will be granted. If you take your test online, a certificate of credit/completion will be automatically downloaded to your DCMS member profile. If you submit your test by mail, a certificate of credit/completion will be emailed within 4 weeks of submission. If you have any questions, please contact the DCMS at 904-355-6561 or 

Faculty Disclosure:

Ross Jones, MD, MPH, FAAFP reports no significant relations to disclose, financial or otherwise, with an commercial supporter or product manufacturer associated with this activity.

Disclosure of Conflicts of Interest:

St. Vincent’s Healthcare (SVHC) requires speakers, faculty, CME Committee and other individuals who are in a position to control the content of this educational activity to disclose any real or apparent conflict of interest they may have as related to the content of this activity. All identified conflicts of interest are thoroughly evaluated by SVHC for fair balance, scientific objectivity of studies mentioned in the presentation and educational materials used as basis for content, and appropriateness of patient care recommendations.

Joint Sponsorship Accreditation Statement:

This activity has been planned and implemented in accordance with the Essential Areas and policies of the Accreditation Council for Continuing Medical Education through the joint sponsorship of St. Vincent’s Healthcare and the Duval County Medical Society. St. Vincent’s Healthcare designates this educational activity for a maximum of 1 AMA PRA Category 1 credit.TM Physicians should only claim credit commensurate with the extent of their participation in the activity.

The Centers for Medicare and Medicaid Services (CMS), which administers Medicare and Medicaid, is the single largest payor in the U.S. healthcare system. Currently, Medicare is divided into four parts that cover services across the spectrum of care. Medicare was initially created to address the high number of uninsured elderly during the 1930s, 1940s, and 1950s. Since its inception, Medicare has seen changes in eligibility and payment structure. In an attempt to control cost, there have also been changes to the Medicare payment structure. Recently, Medicare has shifted from a traditional fee for service to a payment structure based on value. In the coming years, Medicare will face challenges due to rising costs caused by demographic changes among Medicare beneficiaries and the complexity of Medicare financing. The program will continue to be a focus among policy makers. Potential solutions for the Medicare program range from privatization to simplification of the current program.

In 2015, CMS spent $585.7 billion on Medicare beneficiaries.1 During that year, Medicare was responsible for providing healthcare for over 55 million Americans. That number is expected to grow to over 70 million by 2025 as baby boomers continue to enroll in the program.2

Currently, Medicare is divided into four distinct parts. Part A of Medicare covers inpatient hospital admissions, skilled nursing facility stays, home health, and hospice care. Part B covers outpatient services, preventive services, and home health visits. Part C is responsible for the Medicare advantage programs, which allow Medicare beneficiaries to enroll in private health plans such as health maintenance organization (HMOs) and preferred provider organizations (PPOs). Part D covers outpatient prescription drugs through private plans, either as stand-alone prescription drug plans or as a part of Medicare Advantage drug plans. 

1965 to 1980: Creation of Medicare and Expansion of Eligibility

Medicare was established after President Lyndon B. Johnson signed Title XVIII of the Social Security Act into law in 1965. This legislation was the result of the high number of uninsured elderly patients during the 1930s, 1940s, and 1950s.3 Prior to the initiation of Medicare, over 40 percent of U.S. citizens over the age of 65 did not have healthcare. To address this issue, Medicare was initially designed to provide health insurance to any person over the age of 65 regardless of income or past medical history.

Since the start of its operations, the Medicare program has seen changes in its eligibility criteria, services covered, and payment structure. In the 1970s, Medicare began to include persons with disabilities, in addition to the elderly. The expansion of coverage started in 1972 with the addition of patients with long-term disabilities and end stage renal disease. During the 1970s, Medicare also began to pay for additional services beyond traditional inpatient hospital care and routine office visits, such as physical and speech therapy.


1981 to 2000: Cost Controls and the Rise of Managed Care Plans

During the 1980s, the Medicare program underwent several significant changes. Hospice care became a permanent benefit in 1982. During this decade, the most radical changes were in the payment structure. Prior to the 1980s, Medicare payments were modeled after private insurance companies. Providers and hospitals billed Medicare according to reasonable and customary charges. In 1983, Medicare began paying for hospital admissions based on diagnosis related groups in place of the routine charge-based method. In 1989, Medicare established the Resource Based Relative Value Scale (RBRVS) to replace charge-based payments in both the inpatient and outpatient environments. By the end of the decade, RBRVS was the dominant payment model for the healthcare industry and it remains the predominant model for payment in healthcare today.

In the 1990s, the Medicare program shifted focus to controlling costs by starting and codifying a number of initiatives. HMOs were one way to control cost using the capitation model and had been gaining traction in the U.S. healthcare system since their inception in the 1960s. Prior to the 1990s, HMO involvement in the Medicare program was limited to a few demonstration projects. The inclusion of health maintenance organizations in the Medicare program was formalized when President Bill Clinton signed the Balanced Budget Act of 1997. The Balanced Budget Act of 1997 created Part C of Medicare. Part C allowed for the creation of Medicare+Advantage, later renamed Medicare Advantage plans. The Medicare+Advantage programs allowed Medicare beneficiaries to enroll in managed capitated-fee health plans such as HMOs in place of traditional Medicare plans. The Balanced Budget Act of 1997 also created one of the most contentious aspects of Medicare, the sustainable growth rate (SGR).

The SGR tied payment rates to providers to target expenditures in an attempt to ensure that Medicare spending did not exceed growth in the gross domestic product. The SGR adjusted physician payments based on two factors: 1) how total expenditures from the previous year matched cost targets based on the number of Medicare beneficiaries and 2) changes in the real gross domestic product (GDP). The SGR often called for decreased payments to providers as actual costs often exceed target values. In 2014, the SGR required for Medicare reimbursements to be reduced by 16 percent.4 Congress was called on numerous occasions to modify or to prevent these cuts in so-called “doc fixes.”


2001 to Current: Efforts to Increase Access and Coverage

In 2003, President George W. Bush spurred the passage of the Medicare Modernization Act of 2003 (MMA) that added prescription drug coverage to Medicare. The MMA allowed Medicare beneficiaries to enroll in private plans for prescription drug coverage. As of 2015, more than 39 million Medicare beneficiaries were enrolled in Medicare Part D prescription drug plans.5

The passage of the Patient Protection and Affordable Care Act (ACA) in fall of 2015, under President Barack Obama, sought to alter the landscape of healthcare in the U.S. by expanding the number of Americans with healthcare coverage. The ACA and supporting legislation represented the most significant changes in access to healthcare since the creation of Medicare. While leaving the structure of Medicare largely intact, the ACA hoped to increase savings in the Medicare program by reducing the amount of waste and fraud, in the system, along with reduced payments to Medicare advantage plans. The ACA allowed for innovative payment and delivery systems such as accountable care organizations (ACO) and bundled payments. The ACA also expanded coverage for preventive service and increased prescription drug benefits for Medicare beneficiaries.

Building on the ACA’s effort to increase access, the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) strengthened access to Medicare by improving physician payments, incentivizing physician participation in risk sharing payments, and by repealing the SGR. The legislation also aimed to improve patient care by moving payment from a fee for service model to one based on value and quality. MACRA combined quality programs within the Medicare program and changed providers’ payments to be based on their relative performance among Medicare providers. 

Current Challenges and Potential Solutions

Despite the numerous changes Medicare has undergone since its inception, the program still faces substantial challenges. The primary challenge facing Medicare will be the rising cost to changes in demographics.6,7 In the U.S., life expectancy continues to increase. Between 2010 and 2050, the number of people over the age of 80 in the U.S. is expected to triple.8 It is estimated that 81.8 million people will be eligible for Medicare by the year 2030.8 According to some projections, Medicare spending will double by the year 2027 to $1.2 trillion in order to provide adequate care for these newly eligible patients.

The disjointed nature of the Medicare program is also a challenge.6,7 Each of its four parts is funded by a different source. As a result, the Medicare system can be difficult to navigate for patients and healthcare providers as each service has different required copays, deductibles, and regulatory requirements. Additionally, many low-income Medicare beneficiaries may forego care, as they cannot afford the various copays and premiums required.

Given the significant amount of federal spending on Medicare, the program will continue to be a focus for consumers, health providers, and policy makers for the near future. Stakeholders will continue to explore methods to improve Medicare. Proposals for potential comprehensive Medicare reform are focused on two models: 1) premium support and 2) restructuring traditional Medicare programs.6,7 Advocates of premium support believe that Medicare beneficiaries should be given subsidies to help purchase traditional Medicare plans or private plans with a defined set of benefits. Supporters of this approach think premium support will lower cost due to increased competition among plans, and efficiencies that result from this competition. Some potential drawbacks of this approach are decreased ability of private plans to drive down costs, lack of information about the quality of the plans offered, and decision fatigue among Medicare beneficiaries given the number of choices for healthcare plans.8

Others have proposed restructuring traditional Medicare to reduce the complexity and fragmentation of the current program.8 The various parts of Medicare could be combined into one program with a single set of deductibles, copays, and regulations. Medicare could also reduce the out of pocket cost for services to reduce the burden on low-income beneficiaries. With this option, the program could continue to focus on cost savings by increasing efficiency through value-based reimbursements and risk sharing payment models such as ACOs.

As Americans continue to live longer, the Medicare program will continue to grow in importance given the number of citizens it covers and its cost. The success of the Medicare program will hinge on the ability of policymakers to contend with changing demographics and increasing expenditures due to the rise in the prevalence of chronic diseases such as diabetes and hypertension. While policymakers contend with these challenges, it is paramount that stakeholders, including physicians and patients, collaborate and add their voices to the discussion to ensure older Americans continue to have access to high value care. 

1. Blumenthal D, Davis K, Guterman S. Medicare at 50--origins and evolution. N Engl J Med. 2015 Jan 29;372(5):479-86.

2. The Henry J. Kaiser Family Foundation. An Overview of Medicare [Internet]. 2016 Apr 1 [cited 2017 Jul 15]. Available from:

3. DeNavas-Walt C, Proctor BD, Smith JC. Income, poverty, and health insurance coverage in the United States: 2010. Washington (DC): U.S. Government Printing Office; 2011 Sep. 95 p.

4. Clemens MK. Estimated Sustainable Growth Rate and Conversion Factor, for Medicare Payments to Physicians in 2015. 2014 Nov [cited 2017 Jul]. Available from:

5. Hoadley J, Cubanski J, Neuman, T. Medicare Part D at ten years: the 2015 marketplace and key trends, 2006-2015. Menlo Park (CA): The Henry Kaiser Family Foundation; 2015 Oct. 63 p.

6. Ginsburg PB, Rivlin AM. Challenges for Medicare at 50. N Engl J Med. 2015 Nov 19;373(21):1993-5.

7. Blumenthal D, Davis K, Guterman S. Medicare at 50--moving forward. N Engl J Med. 2015 Feb 12;372(7):671-7.

8. Cubankski J, Neuman T. 10 Essential Facts About Medicare’s Financial Outlook [Internet]. 2017 Feb 2 [cited 2017 Jul]. Available from: