Medicare Primer

March 10, 2009 – May 21, 2020 R40425

Medicare Primer
May 21, 2020
Medicare is a federal program that pays for covered health care services of qualified
beneficiaries. It was established in 1965 under Title XVIII of the Social Security Act to provide
Patricia A. Davis,
health insurance to individuals 65 and older, and has been expanded over the years to include
Coordinator
permanently disabled individuals under the age of 65. Medicare, which consists of four parts
Specialist in Health Care
(A-D), covers hospitalizations, physician services, prescription drugs, skilled nursing facility
Financing
care, home health visits, and hospice care, among other services. Generally, individuals are

eligible for Medicare if they or their spouse worked for at least 40 quarters in Medicare-covered
Cliff Binder
employment, are 65 years old, and are a citizen or permanent resident of the United States.
Analyst in Health Care
Individuals may also qualify for coverage if they are a younger person who cannot work because
Financing
they have a medical condition that is expected to last at least one year or result in death, or have

end-stage renal disease (permanent kidney failure requiring dialysis or transplant). The program
is administered by the Centers for Medicare & Medicaid Services (CMS) within the Department
Jim Hahn
of Health and Human Services (HHS) and by private entities that contract with CMS to provide
Specialist in Health Care
claims processing, auditing, and quality oversight services.
Financing

In FY2020, the program is expected to cover approximately 63 million persons (54 million aged
Suzanne M. Kirchhoff
and 9 million disabled) at a total cost of about $836 billion. Spending under the program (except
Analyst in Health Care
for a portion of administrative costs) is considered mandatory spending and is not subject to the
Financing
annual appropriations process. Services provided under Parts A and B (also referred to as

original or traditional Medicare) are generally paid directly by the government on a fee-for-
Paulette C. Morgan
service basis, using different prospective payment systems or fee schedules. Under Parts C and
Specialist in Health Care
D, private insurers are paid a monthly capitated amount to provide enrollees with required
Financing
benefits. Medicare is required to pay for all covered services provided to eligible persons, so long

as specific criteria are met.
Marco A. Villagrana
Since 1965, the Medicare program has undergone considerable change. For example, during the
Analyst in Health Care
111th Congress, the Patient Protection and Affordable Care Act (ACA; P.L. 111-148 and P.L.
Financing
111-152) made numerous changes to the Medicare program that modified provider

reimbursements, provided incentives to increase the quality and efficiency of care, and enhanced
Phoenix Voorhies
certain Medicare benefits. In the 114th Congress, the Medicare Access and CHIP Reauthorization
Analyst in Health Care
Act of 2015 (MACRA; P.L. 114-10) changed the method for calculating updates to Medicare
Financing
payment rates to physicians and altered how physicians and other practitioners will be paid in the

future.

Projections of future Medicare expenditures and funding indicate that the program will place
increasing financial demands on the federal budget and on beneficiaries. For example, the Hospital Insurance (Part A) trust
fund is projected to become insolvent in 2026. Additionally, although the Supplementary Medical Insurance (Parts B and D)
trust fund is financed in large part through federal general revenues and cannot become insolvent, associated spending growth
is expected to put increasing strains on the country’s competing spending priorities. As such, Medicare may be a high-priority
issue in the current Congress, and Congress may consider a variety of Medicare reform options ranging from further
modifications of provider payment mechanisms to redesigning the entire program.
This report provides a general overview of the Medicare program including descriptions of the program’s history, eligibility
criteria, covered services, provider payment systems, and program administration and financing. A list of commonly used
acronyms, as well as information on beneficiary cost sharing, may be found in the appendixes.

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Introduction
Medicare is a federal program that pays for covered health care services of qualified
beneficiaries. It was established in 1965 under Title XVIII of the Social Security Act to provide
health insurance to individuals 65 and older, and has been expanded over the years to include
permanently disabled individuals under 65. The program is administered by the Centers for
Medicare & Medicaid Services (CMS), within the U.S. Department of Health and Human
Services (HHS).1
Medicare consists of four distinct parts:
 Part A (Hospital Insurance, or HI) covers inpatient hospital services, skilled
nursing care, hospice care, and some home health services. The HI trust fund is
mainly funded by a dedicated payroll tax of 2.9% of earnings, shared equally
between employers and workers. Since 2013, workers with income of more than
$200,000 per year for single tax filers (or more than $250,000 for joint tax filers)
pay an additional 0.9% on income over those amounts.
 Part B (Supplementary Medical Insurance, or SMI) covers physician services,
outpatient services, and some home health and preventive services. The SMI trust
fund is funded through beneficiary premiums (set at 25% of estimated program
costs for the aged) and general revenues (the remaining amount, approximately
75%).
 Part C (Medicare Advantage, or MA) is a private plan option for beneficiaries
that covers all Parts A and B services, except hospice. Individuals choosing to
enroll in Part C must also enroll in Part B. Part C is funded through the HI and
SMI trust funds.
 Part D covers outpatient prescription drug benefits. Funding is included in the
SMI trust fund and is financed through beneficiary premiums, general revenues,
and state transfer payments.
Medicare serves approximately one in six Americans and virtually all of the population aged 65
and older.2 In 2020, the program will cover an estimated 63 million persons (54 million aged and
9 million disabled).3 The Congressional Budget Office (CBO)4 estimates that total Medicare
spending in FY2020 will be about $836 billion; of this amount, approximately $814 billion will
be spent on benefits.5 About 25% of Medicare benefit spending is for hospital inpatient and
hospital outpatient services (see Figure 1). CBO also estimates that federal Medicare spending

1 Appendix A provides a list of commonly used abbreviations in this report, including abbreviations for public laws.
Throughout this report, the term Secretary refers to the Secretary of the Department of Health and Human Services
(HHS).
2 The U.S. Census Bureau estimates the resident population for the United States, regions, states, and Puerto Rico to be
about 329 million people as of March 2020. See Census Bureau, “Population,” at https://www.census.gov/topics/
population.html.
3 HHS, Fiscal Year 2020 Budget in Brief, March 2019, p. 76, at https://www.hhs.gov/sites/default/files/fy-2020-budget-
in-brief.pdf.
4 Congressional Budget Office (CBO), “March 2020 Medicare Baseline,” March 19, 2020, at https://www.cbo.gov/
system/files/2020-03/51302-2020-03-medicare.pdf.
5 This estimate of benefit spending includes expected reductions in benefit payments due to sequestration under the
Budget Control Act of 2011 (BCA; P.L. 112-25) but does not include projected amounts paid to providers and later
recovered. If recoveries are included, total benefit spending in FY2020 is expected to be $826 billion.
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(after deduction of beneficiary premiums and other offsetting receipts) will be about $696 billion
in 2020, accounting for about 15% of total federal spending and 3.1% of GDP.6 Medicare is
required to pay for all covered services provided to eligible persons, so long as specific criteria
are met. Spending under the program (except for a portion of administrative costs) is considered
mandatory spending and is not subject to the appropriations process.
Figure 1. Projected Medicare Benefit Spending by Category, FY2020

Sources: Figure by the Congressional Research Service (CRS) based on data from the Congressional Budget
Office, “March 2020 Medicare Baseline,” March 19, 2020.
Note: Dollar amounts in billions. Totals may not add up to 100% due to rounding.
Medicare may be a high-priority issue in the current Congress. The program has a significant
impact on beneficiaries and other stakeholders as well as on the economy in general through its
coverage of important health care benefits for the aged and disabled, the payment of premiums
and other cost sharing by those beneficiaries, its payments to providers who supply those health
care services, and its interaction with other insurance coverage. Projections of future Medicare
expenditures and funding indicate that the program will place increasing financial demands on the
federal budget and on beneficiaries. In response to these concerns, Congress may consider a range
of Medicare reform options, from making changes within the current structure, including
modifying provider payments and revising existing oversight and regulatory mechanisms, to
restructuring the entire program. The committees of jurisdiction for the mandatory spending
(benefits) portion of Medicare are the Senate Committee on Finance, the House Committee on
Ways and Means, and the House Committee on Energy and Commerce. The House and Senate

6 Total Medicare spending (without netting out premiums and offsetting receipts) is expected to represent about 3.8%
of GDP in FY2020. Congressional Research Service (CRS) calculations based on CBO publications, “March 2020
Medicare Baseline,” March 19, 2020, and “The Budget and Economic Outlook: 2020 to 2030,” January 28, 2020.
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Committees on Appropriations have jurisdiction over the discretionary spending used to
administer and oversee the program.
Medicare History
Medicare was enacted in 1965 (P.L. 89-97) in response to the concern that only about half of the
nation’s seniors had health insurance, and most of those had coverage only for inpatient hospital
costs. The new program, which became effective July 1, 1966, included Part A coverage for
hospital and posthospital services and Part B coverage for doctors and other medical services. As
is the case for the Social Security program, Part A is financed by payroll taxes levied on current
workers and their employers; persons must pay into the system for 40 quarters to become entitled
to premium-free benefits. Medicare Part B is voluntary, with a monthly premium required of
beneficiaries who choose to enroll. Payments to health care providers under both Part A and Part
B were originally based on the most common form of payment at the time, namely reasonable
costs for hospital and other institutional services or usual, customary and reasonable charges for
physicians and other medical services.7
Medicare is considered a social insurance program and is the second-largest such federal
program, after Social Security. The 1965 law also established Medicaid, the federal/state health
insurance program for the poor; this was an expansion of previous welfare-based assistance
programs. Some low-income individuals qualify for both Medicare and Medicaid.
In the ensuing years, Medicare has undergone considerable change. P.L. 92-603, enacted in 1972,
expanded program coverage to certain individuals under 65 (the disabled and persons with end-
stage renal disease (ESRD)),8 and introduced managed care into Medicare by allowing private
insurance entities to provide Medicare benefits in exchange for a monthly capitated payment.
This law also began to place limitations on the definitions of reasonable costs and charges in
order to gain some control over program spending which, even initially, exceeded original
projections.
During the 1980s and 1990s, a number of laws were enacted that included provisions designed to
further stem the rapid increase in program spending through modifications to the way payments
to providers were determined, and to postpone the insolvency of the Medicare Part A trust fund.
This was typically achieved through tightening rules governing payments to providers of services
and limiting the annual updates in such payments. The program moved from payments based on
reasonable costs and reasonable charges to payment systems under which a predetermined
payment amount was established for a specified unit of service. At the same time, beneficiaries
were given expanded options to obtain covered services through private managed care
arrangements, typically health maintenance organizations (HMOs). Most Medicare payment
provisions were incorporated into larger budget reconciliation bills designed to control overall
federal spending.

7 Also known as customary, prevailing and reasonable charges, this method based physician payments on charges
commonly used by physicians in a local community. The payment for a service was the lowest of (1) the physician’s
billed charge for the service, (2) the physician’s customary charge for the service, or (3) the prevailing charge for that
service in the community.
8 End-stage renal disease (ESRD) is a stage of kidney impairment that appears to be irreversible and permanent,
requiring a regular course of dialysis treatments or a kidney transplantation to maintain life.
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This effort culminated in the enactment of the Balanced Budget Act of 1997 (BBA 97; P.L. 105-
33).9 This law slowed the rate of growth in payments to providers and established new payment
systems for certain categories of providers, including establishing the sustainable growth rate
(SGR) methodology for determining the annual update to Medicare physician payments. It also
established the Medicare+Choice program, which expanded private plan options for beneficiaries
and changed the way most of these plans were paid. BBA 97 further expanded preventive services
covered by the program.
Subsequently, Congress became concerned that the BBA 97 cuts in payments to providers were
somewhat larger than originally anticipated. Therefore, legislation was enacted in both 1999
(Balanced Budget Refinement Act of 1999, or BBRA; P.L. 106-113) and 2000 (Medicare,
Medicaid, and SCHIP Benefits Improvement and Protection Act of 2000, or BIPA; P.L. 106-554)
to mitigate the impact of BBA 97 on providers.
In 2003, Congress enacted the Medicare Prescription Drug, Improvement, and Modernization Act
of 2003 (MMA; P.L. 108-173),10 which included a major benefit expansion and placed increasing
emphasis on the private sector to deliver and manage benefits. The MMA included provisions that
(1) created a new voluntary outpatient prescription drug benefit to be administered by private
entities; (2) replaced the Medicare+Choice program with the Medicare Advantage (MA) program
and raised payments to plans in order to increase their availability for beneficiaries; (3)
introduced the concept of income testing into Medicare, with higher-income persons paying
larger Part B premiums beginning in 2007;11 (4) modified some provider payment rules; (5)
expanded covered preventive services; and (6) created a specific process for overall program
review if general revenue spending exceeded a specified threshold.12
During the 109th Congress, two laws were enacted that incorporated minor modifications to
Medicare’s payment rules. These were the Deficit Reduction Act of 2005 (DRA; P.L. 109-171)
and the Tax Relief and Health Care Act of 2006 (TRHCA; P.L. 109-432). In the 110th Congress,
additional changes were incorporated in the Medicare, Medicaid, and SCHIP Extension Act of
2007 (MMSEA; P.L. 110-173)13 and the Medicare Improvements for Patients and Providers Act
of 2008 (MIPPA; P.L. 110-275).14
In the 111th Congress, comprehensive health reform legislation was enacted that, among other
things, made statutory changes to the Medicare program. The Patient Protection and Affordable
Care Act (ACA; P.L. 111-148), enacted on March 23, 2010, included numerous provisions
affecting Medicare payments, payment rules, covered benefits, and the delivery of care. The
Health Care and Education Affordability Reconciliation Act of 2010 (the Reconciliation Act, or
HCERA; P.L. 111-152), enacted on March 30, 2010, made changes to a number of Medicare-

9 For additional information on major legislative changes to Medicare from 1997 through 2014, see Chapter 2 of the
House Committee on Ways and Means 2014 Greenbook at https://greenbook-waysandmeans.house.gov/2014-green-
book. Major legislative changes in 2015 and 2016 are summarized in the 2016 Greenbook at https://greenbook-
waysandmeans.house.gov/2016-green-book.
10 For more information, see CRS Report RL31966, Overview of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003.
11 For more information, see CRS Report R40082, Medicare Part B: Enrollment and Premiums.
12 For more information, see CRS Report RS22796, Medicare Trigger.
13 For more information, see CRS Report RL34360, P.L. 110-173: Provisions in the Medicare, Medicaid, and SCHIP
Extension Act of 2007.
14 For more information, see CRS Report RL34592, P.L. 110-275: The Medicare Improvements for Patients and
Providers Act of 2008.
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related provisions in the ACA and added several new provisions.15 Included in the ACA, as
amended, are provisions that (1) constrain Medicare’s annual payment increases for certain
providers; (2) change payment rates in the MA program so that they more closely resemble those
in fee-for-service; (3) reduce payments to hospitals that serve a large number of low-income
patients; (4) create an Independent Payment Advisory Board (IPAB) to make recommendations to
adjust Medicare payment rates;16 (5) phase out the Part D prescription drug benefit doughnut
hole; (6) increase resources and enhance activities to prevent fraud and abuse; and (7) provide
incentives to increase the quality and efficiency of care, such as creating value-based purchasing
programs for certain types of providers, allowing accountable care organizations (ACOs) that
meet certain quality and efficiency standards to share in the savings,17 creating a voluntary pilot
program that bundles payments for physician, hospital, and post-acute care services,18 and
adjusting payments to hospitals for readmissions related to certain potentially preventable
conditions.
In the 112th and 113th Congresses, the American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-
240), the Continuing Appropriations Resolution of 2014 (P.L. 113-67), and the Protecting Access
to Medicare Act of 2014 (PAMA; P.L. 113-93) primarily made short-term modifications to
physician payment updates and payment adjustments for certain types of providers. PAMA also
established a new skilled nursing facility (SNF) value-based purchasing program and a new
system for determining payments for clinical diagnostic laboratory tests. The Improving Medicare
Post-Acute Care Transformation Act of 2014 (IMPACT; P.L. 113-185) required that post-acute
care providers—defined in the law as long-term care hospitals (LTCHs), inpatient rehabilitation
facilities (IRFs), SNFs, and home health agencies (HHAs)—report standardized patient
assessment data and data on quality measures and resource use. IMPACT also modified the
annual update to the hospice aggregate payment cap and required that hospices be reviewed every
three years to ensure that they are compliant with existing regulations related to patient health and
safety and quality of care.
In the 114th Congress, the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA;
P.L. 114-10) repealed the SGR formula for calculating updates to Medicare payment rates to
physicians and other practitioners and established an alternative set of methods for determining
the annual updates.19 MACRA also introduced alternatives to the current fee-for-service (FFS)
based physician payments by creating a new merit-based incentive payment system (MIPS) and
put in place processes for developing, evaluating, and adopting alternative payment models
(APMs). Additionally, MACRA reduced updates to hospital and post-acute care provider
payments, extended several expiring provider payment adjustments, made adjustments to income-
related premiums in Parts B and D, and prohibited using Social Security numbers on
beneficiaries’ Medicare cards. Among other changes, the Increasing Choice, Access, and Quality
in Health Care for Americans Act (Division C of the 21st Century Cures Act; P.L. 114-255) made
adjustments to LTCH reimbursement and modified the average length of stay criteria, which

15 For more information, see CRS Report R41196, Medicare Provisions in the Patient Protection and Affordable Care
Act (PPACA): Summary and Timeline.
16 See CRS Report R44075, The Independent Payment Advisory Board (IPAB): Frequently Asked Questions.
17 Groups of providers and suppliers who work together to manage and coordinate care for Medicare fee-for-service
beneficiaries. See CRS Report R41474, Accountable Care Organizations and the Medicare Shared Savings Program.
18 Post-acute care is the skilled nursing care and therapy typically furnished after an inpatient hospital stay. It is
provided in a variety of settings, including skilled nursing facilities, inpatient rehabilitation facilities, long-term care
hospitals, and in patients’ homes by home health agencies.
19 See CRS Report R43962, The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA; P.L. 114-10).
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determines whether a hospital qualifies as an LTCH. It also delayed payment reductions and
required the Secretary of Health and Human Services (the Secretary) to make changes to how
payments are determined for certain durable medical equipment, prosthetics, orthotics, and
supplies (DMEPOS). Lastly, it allowed beneficiaries with ESRD to enroll in MA beginning
January 1, 2021.20
In the 115th Congress, the Bipartisan Budget Act of 2018 (BBA 18; P.L. 115-123) made a number
of changes to federal health care programs, including Medicare.21 For example, BBA 18 included
provisions designed to expand care for beneficiaries with chronic health conditions, such as
promoting team-based care by providers, increasing the use of telehealth services, and expanding
certain MA supplemental benefits. In addition, BBA 18 extended for five years a number of
existing Medicare provisions that were set to expire (or that had temporarily expired), including
the Medicare dependent hospital program and add-on payments for low-volume hospitals, rural
home health services, and certain ambulance services. BBA 18 also specified payment updates for
the Medicare physician fee schedule, SNFs, and home health services; reduced payments for non-
emergency ambulance transports; and required modification of the home health prospective
payment system starting in 2020. In addition, the act provided for indefinite authority for MA
special needs plans, repealed limits on outpatient therapy services, and eliminated the IPAB.22
Starting in 2019, the act requires that pharmaceutical manufacturers participating in Medicare
Part D provide a larger discount on brand-name drugs purchased by enrollees in the coverage gap
and creates a new high-income premium category under Parts B and D.
Eligibility and Enrollment
Most persons aged 65 or older are automatically entitled to premium-free Part A because they or
their spouse paid Medicare payroll taxes for at least 40 quarters (about 10 years) on earnings
covered by either the Social Security or the Railroad Retirement systems. Persons under the age
of 65 who receive cash disability benefits from Social Security or the Railroad Retirement
systems for at least 24 months are also entitled to Part A. (Since there is a 5-month waiting period
for cash payments, the Medicare waiting period is effectively 29 months.)23 The 24-month
waiting period is waived for persons with amyotrophic lateral sclerosis (ALS, or Lou Gehrig’s
disease). Individuals of any age with ESRD who receive dialysis on a regular basis or a kidney
transplant are generally eligible for Medicare. Medicare coverage for individuals with ESRD
usually starts the first day of the fourth month of dialysis treatments. In addition, individuals with
one or more specified lung diseases or types of cancer who lived for six months during a certain
period prior to diagnosis in an area subject to a public health emergency declaration by the
Environmental Protection Agency (EPA) as of June 17, 2009, are also deemed entitled to benefits
under Part A and eligible to enroll in Part B.
Persons over the age of 65 who are not entitled to premium-free Part A may obtain coverage by
paying a monthly premium ($458 in 2020) or, for persons with at least 30 quarters of covered

20 See CRS Report R44730, Increasing Choice, Access, and Quality in Health Care for Americans Act (Division C of
P.L. 114-255).
21 See CRS Report R45126, Bipartisan Budget Act of 2018 (P.L. 115-123): Brief Summary of Division E—The
Advancing Chronic Care, Extenders, and Social Services (ACCESS) Act.
22 The Independent Payment Advisory Board (IPAB) was created by the Patient Protection and Affordable Care Act
(ACA; P.L. 111-148, as amended) but was never established.
23 For more information, see CRS Report RS22195, Social Security Disability Insurance (SSDI) and Medicare: The 24-
Month Waiting Period for SSDI Beneficiaries Under Age 65.
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employment, a reduced monthly premium ($252 in 2020).24 In addition, disabled persons who
lose their cash benefits solely because of higher earnings, and subsequently lose their extended
Medicare coverage, may continue their Medicare Part A enrollment by paying a premium, subject
to limitations.
Generally, enrollment in Medicare Part B is voluntary. All persons entitled to Part A (and persons
over the age of 65 who are not entitled to premium-free Part A) may enroll in Part B by paying a
monthly premium.25 In 2020, the monthly premium is $144.60; however, about 3% of Part B
enrollees pay less, due to a “hold-harmless” provision in the Social Security Act.26 Since 2007,
higher-income Part B enrollees pay higher premiums. (See “Part B Financing.”) Although
enrollment in Part B is voluntary for most individuals, in most cases, those who enroll in Part A
by paying a premium also must enroll in Part B. Additionally, ESRD beneficiaries and Medicare
Advantage enrollees (discussed below) also must enroll in Part B.
Together, Parts A and B of Medicare comprise original Medicare, which covers benefits on a fee-
for-service basis. Beneficiaries have another option for coverage through private plans, called the
Medicare Advantage (MA or Part C) program. When beneficiaries first become eligible for
Medicare, they may choose either original Medicare or they may enroll in a private MA plan.
Each fall, there is an annual open enrollment period during which time Medicare beneficiaries
may choose a different MA plan, or leave or join the MA program.27 Beneficiaries are to receive
information about their options to help them make informed decisions.28 In 2020, the annual open
enrollment period runs from October 15 to December 7 for plan choices starting the following
January. Since 2012, MA plans with a 5-star quality rating have been allowed to enroll Medicare
beneficiaries who are either in traditional Medicare or in an MA plan with a lower quality rating
at any time.
Finally, each individual enrolled in either Part A or Part B is also entitled to obtain qualified
prescription drug coverage through enrollment in a Part D prescription drug plan. Similar to Part
B, enrollment in Part D is voluntary and the beneficiary pays a monthly premium. Since 2011,
some higher-income enrollees pay higher premiums, similar to enrollees in Part B. Generally,
beneficiaries enrolled in an MA plan providing qualified prescription drug coverage (MA-PD
plan) must obtain their prescription drug coverage through that plan.29

24 CMS, “2020 Medicare Parts A & B Premiums and Deductibles,” Fact Sheet, November 8, 2019, at
https://www.cms.gov/newsroom/fact-sheets/2020-medicare-parts-b-premiums-and-deductibles.
25 For more information, see CRS Report R40082, Medicare Part B: Enrollment and Premiums.
26 CMS, “2020 Medicare Parts A & B Premiums and Deductibles,” Fact Sheet, November 8, 2019, at
https://www.cms.gov/newsroom/fact-sheets/2020-medicare-parts-b-premiums-and-deductibles. In 2020, about 3% of
Medicare Part B enrollees are protected by a hold-harmless provision in the Social Security Act that prevents their
Social Security benefits from being reduced as a result of an increase in Medicare Part B premiums. (The premiums of
those held harmless varies according to the dollar amount of the increase in their Social Security benefit from 2019 to
2020.)
27 In addition to the open enrollment period each fall, MA enrollees can switch to a different MA plan or disenroll from
MA and return to original Medicare (with or without Part D) during the first three months of the year. MA enrollees
also may switch plans during special enrollment periods, such as when an MA enrollee moves outside his or her plan’s
service area or if an enrollee’s MA plan is terminated.
28 In addition to the yearly Medicare & You Handbook (https://www.medicare.gov/medicare-and-you/medicare-and-
you.html), which is mailed to beneficiaries’ homes, beneficiaries can consult http://www.Medicare.gov to find
information such as the items and services covered under Medicare, cost-sharing requirements, participating medical
providers and private health plans, and nursing home quality scores.
29 If a Medicare beneficiary enrolls in a private fee-for-service (PFFS) plan that does not provide drug coverage, he or
she may enroll in a stand-alone Prescription Drug Plan (PDP). However, enrollees in other types of MA plans who
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In general, individuals who do not enroll in Part B or Part D during an initial enrollment period
(when they first become eligible for Medicare) must pay a permanent penalty of increased
monthly premiums if they choose to enroll at a later date. Individuals who do not enroll in Part B
during their initial enrollment period may enroll only during the annual general enrollment
period, which occurs from January 1 to March 31 each year. Coverage begins the following
July 1. However, the law waives the Part B late enrollment penalty for current workers who have
primary coverage through their own or a spouse’s employer-sponsored plan. These individuals
have a special enrollment period once their employment ends; as long as they enroll in Part B
during this time, they will not be subject to penalty.30
Individuals who do not enroll in Part D during their initial enrollment period may enroll during
the annual open enrollment period, which corresponds with the Part C annual enrollment
period—from October 15 to December 7, with coverage effective the following January.
Individuals are not subject to the Part D penalty if they have maintained creditable drug coverage
through another source, such as retiree health coverage offered by a former employer or union.
However, once employees retire or have no access to creditable Part D coverage, a penalty will
apply unless they sign up for coverage during a special enrollment period. Finally, for persons
who qualify for the low-income subsidy for Part D, the delayed-enrollment penalty does not
apply.
Benefits and Payments
Medicare Parts A, B, and D each cover different services, with Part C providing a private plan
alternative for all Medicare services covered under Parts A and B, except hospice. The Parts A-D
covered services are described below, along with a description of Medicare’s payments.
Part A
Part A provides coverage for inpatient hospital services, posthospital skilled nursing facility
(SNF) services, hospice care, and some home health services, subject to certain conditions and
limitations. Approximately 20% of fee-for-service enrollees use Part A services during a year.31
Inpatient Hospital Services
Medicare inpatient hospital services include (1) bed and board; (2) nursing services; (3) use of
hospital facilities; (4) drugs, biologics, supplies, appliances, and equipment; and (5) diagnostic
and therapeutic items and services. (Physicians’ services provided during an inpatient stay are
paid under the physician fee schedule and discussed below in the “Physicians and Nonphysician
Practitioner Services” section.) Coverage for inpatient services is linked to an individual’s benefit

want Part D prescription drug coverage must choose a Medicare Advantage Prescription Drug (MA-PD) plan, which is
an MA plan that provides all Medicare required parts A, B, and D benefits. If a Medicare beneficiary enrolls in a local
HMO or regional PPO that does not offer drug coverage, he or she does not have the option to enroll in a stand-alone
PDP plan.
30 For additional information on enrollment periods see Medicare Publications: “Enrolling in Medicare Part A & Part
B,” at https://www.medicare.gov/Pubs/pdf/11036-Enrolling-Medicare-Part-A-Part-B.pdf; and “Understanding
Medicare Part C & D Enrollment Periods,” at https://www.medicare.gov/Pubs/pdf/11219-Understanding-Medicare-
Part-C-D.pdf.
31 Utilization data is from CY2017, the most recent year available. This percentage includes only those enrolled in
original fee-for-service (FFS) Medicare and does not include those enrolled in Medicare Advantage. CMS, “CMS Fast
Facts,” December 2019 version, at https://www.cms.gov/fastfacts/.
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period or spell of illness (defined as beginning on the day a patient enters a hospital and ending
when he or she has not been in a hospital or skilled nursing facility for 60 days). An individual
admitted to a hospital more than 60 days after the last discharge from a hospital or SNF begins a
new benefit period. Coverage in each benefit period is subject to the following conditions:32
 Days 1-60. Beneficiary pays a deductible ($1,408 in 2020).
 Days 61-90. Beneficiary pays a daily co-payment charge ($352 in 2020).
 Days 91-150. After 90 days, the beneficiary may draw on one or more of 60
lifetime reserve days, provided they have not been previously used. (Each of the
60 lifetime reserve days can be used only once during an individual’s lifetime.)
For lifetime reserve days, the beneficiary pays a daily co-payment charge ($704
in 2020); otherwise the beneficiary pays all costs.
 Days 151 and over. Beneficiary pays for all costs for these days.
Inpatient mental health care in a psychiatric facility is limited to 190 days during a patient’s
lifetime. Cost sharing is structured similarly to that for stays in a general hospital (above).
Medicare makes payments to most acute care hospitals under the inpatient prospective payment
system (IPPS), using a prospectively determined amount for each discharge. Medicare’s
payments to hospitals is the product of two components: (1) a discharge payment amount adjusted
by a wage index for the area where the hospital is located or where it has been reclassified, and
(2) the weight associated with the Medicare severity-diagnosis related group (MS-DRG) to which
the patient is assigned. This weight reflects the relative costliness of the average patient in that
MS-DRG, which is revised annually, generally effective October 1st of each year.
Additional payments are made to hospitals for cases with extraordinary costs (outliers), for
indirect costs incurred by teaching hospitals for graduate medical education, and to
disproportionate share hospitals (DSH) which provide a certain volume of care to low-income
patients. Additional payments may also be made for qualified new technologies that have been
approved for special add-on payments.
Medicare also makes payments outside the IPPS system for direct costs associated with graduate
medical education (GME) for hospital residents, subject to certain limits. In addition, Medicare
pays hospitals for 65% of the allowable costs associated with beneficiaries’ unpaid deductible and
co-payment amounts as well as for the costs for certain other services.
IPPS payments may be reduced by certain quality-related programs based on a hospital’s quality
performance. These quality-related programs include the Hospital Readmissions Reduction
Program, the Hospital-Acquired Condition Reduction Program, and the Hospital Value-Based
Purchasing Program. Further, hospitals may receive Medicare payment reductions for failing to
demonstrate meaningful use of certified electronic health record (EHR) technology.
Additional payment adjustments or special treatment under the IPPS may apply for hospitals
meeting one of the following designations: (1) sole community hospitals (SCHs), (2) Medicare
dependent hospitals, (3) rural referral centers, and (4) low-volume hospitals.
Certain hospitals or distinct hospital units are exempt from IPPS and paid on an alternative
basis,33 including (1) inpatient rehabilitation facilities, (2) long-term care hospitals, (3) psychiatric

32 CMS, “2020 Medicare Parts A & B Premiums and Deductibles,” Fact Sheet, November 8, 2019, at
https://www.cms.gov/newsroom/fact-sheets/2020-medicare-parts-b-premiums-and-deductibles.
33 Additionally, other hospitals that are exempt from the inpatient prospective payment system (IPPS) and are paid by
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facilities including hospitals and distinct part units, (4) children’s hospitals, (5) cancer hospitals,
and (6) critical access hospitals.
Skilled Nursing Facility Services
Medicare covers up to 100 days of posthospital care for persons needing skilled nursing or
rehabilitation services on a daily basis.34 The SNF stay must be preceded by an inpatient hospital
stay of at least 3 consecutive calendar days, and the transfer to the SNF typically must occur
within 30 days of the hospital discharge. Medicare requires SNFs to provide services for a
condition the beneficiary was receiving treatment for during his or her qualifying hospital stay (or
for an additional condition that arose while in the SNF). There is no beneficiary cost sharing for
the first 20 days of a Medicare-covered SNF stay. For days 21 to 100, beneficiaries are subject to
daily co-payment charges ($176 in 2020).35 After 100 days, the beneficiary is responsible for all
costs. The 100-day limit begins again with a new spell of illness.
SNF services are paid under a prospective payment system (PPS), which is based on a per diem
urban or rural base payment rate, adjusted for case mix (average severity of illness) and area
wages. The per diem rate generally covers all services, including room and board, provided to the
patient that day. Starting for payments made in FY2020, the case-mix adjustment uses a revised
classification system that is based primarily on a patient’s clinical characteristics rather than
primarily on the volume of therapy services provided to the patient, as under the prior payment
system.36 The new payment system also adjusts per diem payments to reflect varying costs
throughout the stay.37 Extra payments are not made for extraordinarily costly cases (outliers).
Hospice Care
The Medicare hospice benefit covers services designed to provide palliative care and
management of a terminal illness; the benefit includes drugs and medical and support services.
These services are provided to Medicare beneficiaries with a life expectancy of six months or less
for two 90-day periods, followed by an unlimited number of 60-day periods. The individual’s
attending physician and the hospice physician must certify the need for the first benefit period,
but only the hospice physician needs to recertify for subsequent periods. Since January 1, 2011, a
hospice physician or nurse practitioner must have a face-to-face encounter with the individual to
determine continued eligibility prior to the 180th day recertification, and for each subsequent
recertification. Hospice care is provided in lieu of most other Medicare services related to the
curative treatment of the terminal illness. Beneficiaries electing hospice care from a hospice

Medicare under different methods include hospitals in Maryland, hospitals located in U.S. territories (with the
exception of Puerto Rico), and hospitals of the Indian Health Service.
34 For additional information on Medicare’s skilled nursing facility benefit, see CRS Report R42401, Medicare Skilled
Nursing Facility (SNF) Payments.
35 CMS, “2020 Medicare Parts A & B Premiums and Deductibles,” Fact Sheet, November 8, 2019, at
https://www.cms.gov/newsroom/fact-sheets/2020-medicare-parts-b-premiums-and-deductibles.
36 This new classification system replaces the Resource Utilization Group (RUG)-IV system. CMS refers to the newest
version of the SNF PPS, which was implemented for FY2020, as the Patient Driven Payment Model (PDPM). For
additional information, see CMS, “Patient Driven Payment Model,” at https://www.cms.gov/Medicare/Medicare-Fee-
for-Service-Payment/SNFPPS/PDPM.
37 The new Variable Per Diem adjustments are to account for the changes in resource utilization over the course of an
SNF stay. CMS has found that certain therapy and non-therapy ancillary costs are highly concentrated at the beginning
of a stay. For more information, see CMS, “Patient Driven Payment Model Fact Sheet: Variable Per Diem
Adjustment,” Fact Sheet, at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/SNFPPS/Downloads/
PDPM_Fact_Sheet_VPD_v3_508.pdf.
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program may receive curative services for illnesses or injuries unrelated to their terminal illness,
and they may disenroll from the hospice at any time. Nominal cost sharing is required for drugs
and respite care.
Payment for hospice care is based on one of four prospectively determined rates (which
correspond to four different levels of care) for each day a beneficiary is under the care of the
hospice. The four rate categories are routine home care,38 continuous home care, inpatient respite
care, and general inpatient care. Payment rates are adjusted to reflect differences in area wage
levels, using the hospital wage index. Aggregate annual payments to a hospice agency are limited
by two caps; the first limits the number of days of inpatient care to 20% or less of total patient
care days that the agency provided in a year, and the second limits the agency’s average annual
payment per beneficiary.39
Parts A and B
Home health services and services for individuals with end-stage renal disease are covered under
both Parts A and B of Medicare.
Home Health Services
Medicare covers visits by participating home health agencies for beneficiaries who (1) are
confined to home and (2) need either skilled nursing care on an intermittent basis or physical or
speech language therapy. After establishing such eligibility, the continuing need for occupational
therapy services may extend the eligibility period. Covered services include part-time or
intermittent nursing care, physical or occupational therapy or speech language pathology services,
medical social services, home health aide services, and medical supplies and durable medical
equipment. The services must be provided under a plan of care established by a physician, and the
plan must be reviewed by the physician at least every 60 days. There is no beneficiary cost
sharing for home health services (though some other Part B services provided in connection with
the visit, such as durable medical equipment, may be subject to cost-sharing charges).
Home health services are covered under both Medicare Parts A and B. There are special eligibility
requirements and benefit limits for home health services furnished under Part A to beneficiaries
who are enrolled in both Parts A and B. For such a beneficiary, Part A pays for only post-
institutional home health services furnished for up to 100 visits during a spell of illness,40 while
Part B covers any medically necessary home health services that exceed the 100-visit limit, as
well as medically necessary home health services that do not qualify as post-institutional.

38 As of January 1, 2016, there are two separate routine home care payment rates—a higher rate for days 1 through 60
and a lower rate for days 61 and beyond.
39 The second cap is a per-beneficiary amount applied on an aggregate basis during the period from September 30
through October 1 of the following cap year. It is not adjusted for geographic cost differences. The hospice cap amount
for FY2020 is $29,964.78. Hospice agencies must reimburse Medicare for any payments received in excess of the
aggregate cap.
40 A spell of illness is the period beginning on the first day of an inpatient hospitalization or SNF stay of an individual
enrolled in Medicare Part A, and ending with the close of the first period of 60 days during which the individual is an
inpatient of neither a hospital nor a SNF. For purposes of this rule, post-institutional home health services are services
where the first covered visit is rendered within 14 days of discharge after a hospital stay of at least 3 consecutive days,
or within 14 days of discharge from a skilled nursing facility where the individual received post-hospital extended care
services. CMS, Medicare Benefit Policy Manual, Chapter 7, at https://www.cms.gov/Regulations-and-Guidance/
Guidance/Manuals/downloads/bp102c07.pdf.
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For beneficiaries enrolled in only Part A or only Part B, the requirements described above do not
apply. Part A or Part B, as applicable, covers all medically necessary episodes of home health
care, without a visit limit, regardless of whether the episode follows a hospitalization. Regardless
of whether the beneficiary is enrolled in Part A only, in Part B only, or in both parts, the scope of
the Medicare home health benefit is the same. Medicare’s payments to HHAs are calculated using
the same methods, and beneficiaries have no cost sharing.
Home health services are paid under a home health PPS, based on 30-day episodes of care; a
patient may have an unlimited number of episodes.41 The certification of an initial 30-day episode
of home health must be supported by a face-to-face encounter with the patient related to the
primary reason that the patient needs home health services. Under the home health PPS, most
payments are determined by a nationwide payment amount that is subject to adjustments for case
mix and differences in local wages (using the hospital wage index). Further payment adjustments
may be made for services provided in rural areas, outlier visits (for extremely costly patients),
partial episodes (e.g., for beneficiaries who have a break in services during an episode), or an
agency’s failure to submit quality data to CMS. For episodes with few home visits, payments to
HHAs may be subject to a low-utilization payment adjustment (LUPA). When a LUPA is applied,
the PPS pays for each visit performed.
Since January 1, 2016, home health agencies in nine states are being reimbursed under a home
health value-based purchasing (HHVBP) model.42 These home health agencies can receive
increased or decreased home health reimbursements depending on their performance across
certain quality measures.
End-Stage Renal Disease
Individuals with end-stage renal disease (ESRD) are eligible for all services covered under Parts
A and B.43 Kidney transplantation services, to the extent they are inpatient hospital services, are
subject to the inpatient hospital PPS and are reimbursed by both Parts A and B. However, kidney
acquisition costs are paid on a reasonable cost basis under Part A. Dialysis treatments, when an
individual is admitted to a hospital, are covered under Part A. Part B covers their dialysis
services,44 drugs, biologicals (including erythropoiesis stimulating agents used in treating anemia
as a result of ESRD), diagnostic laboratory tests, and other items and services furnished to
individuals for the treatment of ESRD.
In effect since January 1, 2011, the ESRD prospective payment system (PPS) makes no payment
distinction as to the site where renal dialysis services are provided. With the implementation of
the ESRD PPS, Medicare dialysis payments provide a single bundled payment for Medicare renal
dialysis services that includes (1) items and services included in the former payment system’s

41 The Bipartisan Budget Act of 2018 required CMS to implement a new payment system for home health services,
starting in 2020. Among other requirements, the new system must use a 30-day unit of payment instead of the 60-day
unit under the prior system. CMS refers to the newest version of the home health PPS, which was implemented for
CY2020, as the Patient Driven Groupings Model. For additional information, see CMS, “Home Health Patient-Driven
Groupings Model,” at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HomeHealthPPS/HH-
PDGM.
42 These states include home health agencies that provide services in Arizona, Florida, Iowa, Maryland, Massachusetts,
Nebraska, North Carolina, Tennessee, and Washington. See CMS website “Home Health Value-Based Purchasing
Model,” at https://innovation.cms.gov/initiatives/home-health-value-based-purchasing-model.
43 See CRS Report R45290, Medicare Coverage of End-Stage Renal Disease (ESRD).
44 The Trade Preference Extension Act of 2015 (P.L. 114-27) expanded Medicare coverage and payment of renal
dialysis services provided by an outpatient renal dialysis facility to individuals with an acute kidney injury, effective for
services provided on or after January 1, 2017.
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base rate as of December 31, 2010; (2) erythropoiesis stimulating agents (ESAs) for the treatment
of ESRD; (3) other drugs and biologicals for which payment was made separately (before
bundling); and (4) diagnostic laboratory tests and other items and services furnished to
individuals for the treatment of ESRD. The system is case-mix adjusted based on factors such as
patient weight, body mass index, comorbidities, length of time on dialysis, age, race, ethnicity,
and other appropriate factors as determined by the Secretary. Under the ESRD Quality Incentive
Program, dialysis facilities that fail to meet certain performance standards receive reduced
payments.
Part B
Medicare Part B covers physicians’ services, outpatient hospital services, durable medical
equipment, and other medical services. Initially, over 98% of the eligible population voluntarily
enrolled in Part B, but in recent years the percentage has fallen to about 91%.45 About 89% of
enrollees in original (FFS) Medicare use Part B services during a year.46 The program generally
pays 80% of the approved amount (most commonly, a fee schedule or other predetermined
amount) for covered services in excess of the annual deductible ($198 in 2020). The beneficiary
is liable for the remaining 20%.
Most providers and practitioners are subject to limits on amounts they can bill beneficiaries for
covered services. For example, physicians and some other practitioners may choose whether or
not to accept assignment on a claim. When a physician signs a binding agreement to accept
assignment for all Medicare patients, the physician accepts the Medicare payment amount as
payment in full and can bill the beneficiary only the 20% coinsurance plus any unmet deductible.
The physician agrees to accept assignment on all Medicare claims in a given year and is referred
to as a participating physician. There are several advantages to being a participating provider,
including higher payment under the Medicare fee schedule, a lower beneficiary co-payment, and
automatic forwarding of Medigap claims.
Physicians who do not agree to accept assignment on all Medicare claims in a given year are
referred to as nonparticipating physicians. Nonparticipating physicians may or may not accept
assignment for a given service. If they do not, they may charge beneficiaries more than the fee
schedule amount on nonassigned claims; however, these balance billing charges are subject to
certain limits.47 Alternatively, physicians may choose not to accept any Medicare payment and
enter into private contracts with their patients where no Medicare restrictions on payment or
balance billing apply; however, this requires that physicians opt out of Medicare for two years.48
For some providers, such as nurse practitioners and physician assistants, assignment is
mandatory; these providers can only bill the beneficiary the 20% coinsurance and any unmet
deductible. For other Part B services, such as durable medical equipment, assignment is optional;

45 For details, see the Annual Reports of the Board of Trustees of the Federal Hospital Insurance and Federal
Supplementary Medical Insurance Trust Funds, at https://www.cms.gov/Research-Statistics-Data-and-Systems/
Statistics-Trends-and-Reports/ReportsTrustFunds/index.html.
46 Utilization data is from CY2017, the most recent year available. This percentage includes only those enrolled in
original fee-for-service (FFS) Medicare and does not include those enrolled in Medicare Advantage. CMS, “CMS Fast
Facts,” December 2019 version, at https://www.cms.gov/fastfacts/.
47 Because of this restriction, surprise billing is less of an issue in the Medicare program than under private insurance,
where non-network providers can bill full charges to the patient.
48 Under such arrangements, the beneficiary pays the physician directly out of pocket and neither the physician nor the
beneficiary submits a bill to or receives payment from Medicare.
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for these services, applicable providers may bill beneficiaries for amounts above Medicare’s
recognized payment level and may do so without limit.49
Physicians and Nonphysician Practitioner Services
Medicare Part B covers medically necessary physician services and medical services provided by
some nonphysician practitioners. Covered nonphysician practitioner services include, but are not
limited to, those provided by physician assistants, nurse practitioners, certified registered nurse
anesthetists, and clinical social workers. Certain limitations apply for services provided by
chiropractors and podiatrists. Beneficiary cost sharing is typically 20% of the approved amount,
although most preventive services require no coinsurance from the beneficiary.
A number of Part B services are paid under the Medicare physician fee schedule (MPFS),
including services of physicians, nonphysician practitioners, and therapists. There are over 7,000
service codes under the MPFS.
The fee schedule assigns relative values to each service code. These relative values reflect
physician work (based on time, skill, and intensity involved), practice expenses (e.g., overhead
and nonphysician labor), and malpractice expenses. The relative values are adjusted for
geographic variations in the costs of practicing medicine. These geographically adjusted relative
values are converted into a dollar payment amount by a national conversion factor. Annual
updates to payments are determined through changes in the conversion factor.
MACRA made several fundamental changes to how Medicare pays for physician and practitioner
services by (1) changing the methodology for determining the annual updates to the conversion
factor, (2) establishing a merit-based incentive payment system (MIPS) to consolidate and replace
several existing incentive programs and to apply value and quality adjustments to the MPFS, and
(3) establishing the development of, and participation in, alternative payment models (APMs).
Prior to MACRA, the SGR system, which had been in place since BBA 97, tied annual updates to
the Medicare fee schedule to cumulative Part B expenditure targets.50 MACRA repealed the SGR
methodology, established annual fee schedule updates in the short term, and put in place a new
method for determining updates thereafter. As a result of the MACRA changes, the update to
physician payments under the MPFS was 0% from January 2015 through June 2015; for the
remainder of that year—July 2015 through December 2015—the payments were increased by
0.5%. In each of the next four years, 2016 through 2019, the payments were to increase by 0.5%
each year; however, the BBA 18 reduced the 2019 update to 0.25%. For 2020 and the next five
years (2020 through 2025), the payment update is set to be 0%.
In addition to changes to the annual update, MACRA established two pathways for payment
reform, collectively referred to as the Quality Payment Program (QPP). Medicare payment to all
physicians and other practitioners is to be determined by which conditions of the QPP, either
MIPS or APM, the participant satisfies. The MIPS is a new program that remains based on FFS
rates but combines four categories of performance measures (quality of care, cost/resource use,

49 Certain durable medical equipment suppliers in competitive bidding areas are required to accept assignment.
50 Updates were previously determined according to a formula that incorporated Medicare beneficiary enrollment
growth, the Medicare Economic Index (MEI, which measures changes in the price of the inputs required to produce
physician services) and were generally positive when actual cumulative expenditures were below target levels.
However, the SGR methodology required negative updates (payment reductions) when actual cumulative expenditures
exceeded the targets, which first occurred in 2002. Between 2003 and 2015, Congress passed numerous laws that
replaced the negative updates required under the SGR system with updates that were positive or zero. For details, see
CRS Report R40907, Medicare Physician Payment Updates and the Sustainable Growth Rate (SGR) System.
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clinical practice improvement activities, and promoting interoperability) into a single adjustment
to the base MPFS payment.51 Following several years of data collection and feedback on
measures, the MIPS adjustments affected actual payments for the first time in 2019.
In contrast, qualified advanced APMs52 are intended to be alternatives to FFS, incorporating new
approaches to paying for medical care that reward quality and efficiency while de-emphasizing
the number of services billed (volume of care). Proposed advanced APMs are evaluated by an ad
hoc committee (the Physician-Focused Payment Models Technical Advisory Committee), which
provides comments and recommendations to the Secretary as to whether new payment models
meet the criteria of APMs. There are several advanced APMs under the QPP, though not all are
available to all physicians and practitioners, as some are restricted to certain special services (e.g.,
oncology care, joint replacement) or geographic locations (e.g., Vermont’s Medicare ACO
Initiative and Maryland’s Total Cost of Care Model).53
MACRA established incentives to make APMs more attractive than MIPS. First, qualifying
participants in advanced APMs are eligible for an annual prepaid bonus (paid 2019-2024).54
Second, beginning in 2026, there are to be two update factors, one for items and services
furnished by a participant in an advanced APM and another for those electing to remain in the
modified FFS payment system (MIPS) that do not participate in an advanced APM. The update
factor for the advanced APM participants is to be 0.75%, and the update factor for MIPS is to be
0.25%,55 causing a difference between the payment levels that would grow over time.
Therapy Services
Medicare covers medically necessary outpatient physical and occupational therapy and speech-
language pathology services. Beginning in 1997 and for many years subsequently but
intermittently,56 beneficiaries faced limits (therapy caps) on how much Medicare would pay for
outpatient therapy services in a calendar year.
BBA 18 permanently repealed the outpatient therapy caps beginning January 1, 2018, and
established a requirement that therapy services exceeding $3,000 would trigger a manual medical
review (MMR) of the medical necessity of these services, in years 2018-2028. Beginning with
2029, the annual MMR threshold limit is to be increased by the percentage increase in the MEI,
and it is to be applied separately for (1) physical therapy services and speech-language pathology
services combined and (2) occupational therapy services.

51 MIPS categories supplanted the Physician Quality Reporting System (PQRS), the Value Modifier (VM, or Value-
Based Payment Modifier), and the Medicare Electronic Health Record (EHR) Incentive Program. For additional
information, see CMS, “MIPS Overview,” at https://qpp.cms.gov/mips/overview.
52 Advanced alternative payment models (APMs) are a subset of all APMs that (1) are CMS CMMI models, Shared
Savings Program tracks, or certain federal demonstration programs; (2) require participants to use certified EHR
technology; (3) base payments for services on quality measures comparable to those in MIPS; (4) are a Medical Home
Model as expanded under CMMI authority or require participants to bear more than nominal financial risk for losses.
53 For additional information, see CMS, “Advanced Alternative Payment Models (APMs),” at https://qpp.cms.gov/
apms/advanced-apms.
54 The advanced APM bonus is a lump sum payment equal to 5% of estimated MPFS payments from the previous year.
55 For more discussion of APMs and the new methodology for determining payment updates for services provided by
physician and other practitioners, see CRS Report R43962, The Medicare Access and CHIP Reauthorization Act of
2015 (MACRA; P.L. 114-10).
56 The limits were suspended for calendar years 2000 through 2005.
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Preventive Services57
Medicare statute prohibits payments for covered items and services that are “not reasonable and
necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a
malformed body member,”58 which would effectively exclude the coverage of preventive and
screening services. However, Congress has explicitly added and expanded Medicare coverage for
a number of such services through legislation, including through MMA, MIPPA, and ACA. Under
current law, if a preventive service is recommended for use by the U.S. Preventive Services Task
Force (USPSTF, an independent evidence-review panel) and Medicare covers the service,59 all
cost sharing must be waived. Also, the Secretary may add coverage of a USPSTF-recommended
service that is not already covered. Coverage for preventive and screening services currently
includes, among other services, (1) a “welcome to Medicare” physical exam during the first year
of enrollment in Part B and an annual visit and prevention plan thereafter; (2) flu vaccine
(annual), pneumococcal vaccine, and hepatitis B vaccine (for persons at high risk); (3) screening
tests for breast, cervical, prostate, and colorectal cancers; (4) screening for other conditions such
as depression, alcohol misuse, heart disease, glaucoma, and osteoporosis; and (5) intensive
behavioral therapy for heart disease and for obesity.60 Payments for these services are provided
under the physician fee schedule and/or the clinical laboratory fee schedule.
Clinical Laboratory and Other Diagnostic Tests
Part B covers medically reasonable and necessary outpatient clinical laboratory tests when
provided by Medicare-participating laboratories.61 These services may be furnished by labs
located in hospitals and physician offices, as well as by independent labs. Medicare does not
cover routine screening tests, except those directed by law.62 Beneficiaries have no co-payments
or deductibles for covered clinical lab services.
Payments for outpatient clinical laboratory services are paid under the Medicare Clinical
Laboratory Fee Schedule (CLFS). Historically, CLFS payment rates were based on historical
laboratory charges.63 However, PAMA introduced a new method for determining clinical
laboratory payments and required CMS to base Medicare CLFS payment rates on reported private
insurance payment amounts. Medicare has been using weighted median private insurer rates,
based on the applicable information collected during a specified data collection period and
reported to CMS, to calculate Medicare payment rates for laboratory tests paid under the CLFS

57 This section was written by Sarah A. Lister, Specialist in Public Health and Epidemiology at the Congressional
Research Service.
58 Social Security Act §1862(a)(1)(A); 42 U.S.C. 1395y(a)(1)(A).
59 See the U.S. Preventive Services Task Force website at http://www.uspreventiveservicestaskforce.org/.
60 A complete list of covered services, intervals, and limitations is available at Medicare.gov, “Preventive Services,” at
https://www.medicare.gov/coverage/preventive-screening-services.
61 Covered screening tests are listed in Medicare.gov, “Preventive and Screening Services,” at
https://www.medicare.gov/coverage/preventive-screening-services.
62 See, for example, Social Security Act, Section 1861(ww)(2), which identifies screening services that may be covered
under the Medicare initial preventive physical exam.
63 From 1984 until 2018, payment amounts were set as the lesser of the amount billed, the local fee for a geographic
area, or a national limit amount. The national limits were set at a percentage (74%) of the median of all local fee
schedule amounts for each laboratory test code; therefore, fee schedule amounts could differ by region, although most
clinical lab services were paid at the national limit amount. In general, clinical lab fees were updated annually, based on
the percentage change in the Consumer Price Index for Urban Consumers; however, in some years, Congress specified
lower updates.
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since January 1, 2018.64 These payment rates are national and do not vary by geographic area.
These payment rates are adjusted every three years based on updated data.
PAMA also established a new subcategory of clinical diagnostic laboratory tests and advanced
diagnostic laboratory tests (ADLTs), and it imposed separate reporting and payment requirements
for these ADLTs. ADLTs must be covered under Part B, must be furnished only by a single
laboratory, and must be either (1) an analysis of multiple biomarkers of DNA, RNA, or proteins,
or (2) cleared or approved by the FDA.65
Part B also covers diagnostic nonlaboratory x-ray tests and other diagnostic tests, as well as x-ray,
radium, and radioisotope therapy. Generally, these services are paid for under the physician fee
schedule, with beneficiaries responsible for a 20% coinsurance payment. Beginning in 2014, with
certain exceptions, laboratory tests provided in hospital outpatient departments are no longer paid
separately under the CLFS and are instead included in the OPPS payments.
Durable Medical Equipment, Prosthetics, Orthotics, and Supplies
Medicare covers a wide variety of equipment and devices under the heading of durable medical
equipment (DME), prosthetics, and orthotics (PO) if they are medically necessary and are
prescribed by a physician. DME is defined as equipment that (1) can withstand repeated use, (2)
has an expected life of at least three years (effective for items classified as DME after January 1,
2012), (3) is used primarily to serve a medical purpose, (4) is not generally useful in the absence
of an illness or injury, and (5) is appropriate for use in the home. DME includes such items as
hospital beds, wheelchairs, blood glucose monitors, and oxygen and oxygen equipment. It also
includes related supplies (S), such as drugs and biologics that are necessary for the effective use
of the product. Prosthetics (P) are items that replace all or part of a body organ or its function,
such as colostomy bags, pacemakers, and artificial eyes, arms, or legs. Orthotics (O) are braces
that support a weak or deformed body member, such as leg or back braces.
Except in competitive bidding areas (CBAs, described below), Medicare pays for most durable
medical equipment, prosthetics, orthotics, and supplies (DMEPOS) based on fee schedules.
Medicare pays 80% of the lower of the supplier’s charge for the item or the fee schedule amount.
The beneficiary is responsible for the remaining 20%. In general, fee schedule amounts are
updated each year by a (1) measure of price inflation, and (2) a measure of economy-wide
productivity, which may result in lower fee schedule amounts from one year to the next. Since
2016, the fee schedule rates that applied outside of competitive bidding areas for certain
DMEPOS have been reduced based on price information from the competitive bidding program.
The reductions were phased in during 2016, and fully phased in starting in January 2017. In
response to concerns that the adjusted rates were too low, the Secretary again applied the phase-in
rate for rural and noncontiguous areas not subject to competitive bidding from June 2018 through
December 31, 2020. As such, two different fee schedules applied outside of CBAs. First, in rural
or noncontiguous areas, the fee schedule was a 50/50 blend of the fee schedule with and without
the reductions based on information from competitive bidding (i.e., the phase-in methodology).
Second, in nonrural and contiguous areas, the fee schedule amounts were fully adjusted by

64 Per the Protecting Access to Medicare Act of 2014 (PAMA; P.L. 113-93), the new payment system is being phased
in through 2023; during the phase-in period, payment reductions are limited by specified percentage amounts. For
details, see CMS Announcement “Medicare Will Use Private Payor Prices to Set Payment Rates for Clinical Diagnostic
Laboratory Tests Starting in 2018,” June 17, 2016, at https://www.cms.gov/newsroom/press-releases/medicare-will-
use-private-payor-prices-set-payment-rates-clinical-diagnostic-laboratory-tests and CMS, “PAMA Regulations,” at
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ClinicalLabFeeSched/PAMA-Regulations.html.
65 See 42 C.F.R. §414.502.
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information from the competitive bidding program. Most recently, the Coronavirus Aid, Relief,
and Economic Security Act (CARES Act; P.L. 116-136) extended the 50/50 blend rate for rural or
noncontiguous areas through the end of the current COVID-19 emergency period, if that period
extends beyond December 31, 2020. Effective for dates of service from April 26, 2020, through
the end of the COVID-19 emergency period,66 DMEPOS fee schedule rate adjustments that apply
in non-rural and contiguous areas are to be a 75/25 blend, where 75% is comprised of the fully
phased-in (lower) rates and the 25% is comprised of the rates without the reduction based on
information from the competitive bidding program.
Numerous studies and investigations indicated that Medicare paid more for certain items of DME
and PO than some other health insurers and some retail outlets.67 Such overpayments were
attributed, in part, to the fee schedule mechanism of payment. MMA required the Secretary to
establish a Competitive Acquisition Program for certain DMEPOS in specified areas. Instead of
paying for medical equipment based on a fee schedule established by law, payment for items in
competitive bidding areas is based on the supplier bids. The program started in 9 metropolitan
areas in January 2011 and had expanded to 130 competitive bidding areas in 2018. However, the
program was suspended for 2019 and 2020 to establish and implement a new bidding
methodology.68 During the gap, the payments for previously competitively bid items in
competitive bidding areas are to be the amounts that applied on December 31, 2018, increased,
yearly, by a measure of inflation.69 The deadline for submitting bids in the next round of
competitive bidding was September 18, 2019, for contracts effective in 2021. CMS contractors
are expected to begin the contracting process in the summer of 2020.70
Part B Drugs and Biologics
Certain specified outpatient prescription drugs and biologics are covered under Medicare Part B.71
(However, most outpatient prescription drugs are covered under Part D, discussed below.)
Covered Part B drugs and biologics include drugs furnished incident to physician services,
immunosuppressive drugs following a Medicare-covered organ transplant, erythropoietin for
treatment of anemia for individuals with ESRD when not part of the ESRD composite rate, oral
anticancer drugs (provided they have the same active ingredients and are used for the same
indications as chemotherapy drugs that would be covered if furnished incident to physician

66 For additional information, see CMS, “Current Emergencies” at https://www.cms.gov/About-CMS/Agency-
Information/Emergency/EPRO/Current-Emergencies/Current-Emergencies-page.
67 See Government Accountability Office (GAO), Medicare Payments for Oxygen, GAO-97-120R, May 15, 1997; HHS
Office of the Inspector General, Medicare Home Oxygen Equipment: Cost and Servicing, OEI-09-04-00420, September
2006.
68 The final rule for the new bidding methodology was published November 14, 2018. CMS, “Medicare Program; End-
Stage Renal Disease Prospective Payment System, Payment for Renal Dialysis Services Furnished to Individuals with
Acute Kidney Injury, End-Stage Renal Disease Quality Incentive Program, Durable Medical Equipment, Prosthetics,
Orthotics and Supplies (DMEPOS) Competitive Bidding Program (CBP) and Fee Schedule Amounts, and Technical
Amendments to Correct Existing Regulations Related to the CBP for Certain DMEPOS,” 83 Federal Register,
November 14, 2018.
69 HHS, “Medicare Program; End-Stage Renal Disease Prospective Payment System, Payment for Renal Dialysis
Services Furnished to Individuals with Acute Kidney Injury, End-Stage Renal Disease Quality Incentive Program,
Durable Medical Equipment, Prosthetic, Orthotics and Supplies (DMEPOS) Competitive Bidding Program (CBP) and
Fee Schedule Amounts, and Technical Amendments to Correct Existing Regulations Related to the CBP for Certain
DMEPOS,” 83 Federal Register 57017-57039, November 14, 2018.
70 CMS DMEPOS Competitive Bidding Program - Round 2021, “CMS Announces Single Payment Amounts and
Begins Contracting Process,” at https://www.dmecompetitivebid.com/cbic/cbic2021.nsf/DocsCat/GCI47F3QI4.
71 Biologics generally are derived from living organisms rather than inorganic chemical compounds.
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services), certain vaccines under selected conditions, and drugs administered through DME.
Generally, Medicare reimburses physicians and other providers, such as hospital outpatient
clinics, for covered Part B drugs and biologics at 106% of the volume weighted average sales
price of all drugs billed under the same billing code, although some Part B drugs, such as those
administered through DME, are reimbursed at 95% of the drug’s average wholesale price. Health
care providers also are paid separately for administering Medicare Part B drugs. Medicare pays
80% of the amount paid to providers, and beneficiaries are responsible for the remaining 20%.
Hospital Outpatient Department Services
A hospital outpatient is a person who has not been admitted by the hospital as an inpatient but is
registered on the hospital records as an outpatient.72 Generally, payments under the hospital
outpatient prospective payment system (OPPS) cover the operating and capital-related costs that
are directly related and integral to performing a procedure or furnishing a service on an outpatient
basis. These payments cover services such as the use of an operating suite, treatment, procedure,
or recovery room; use of an observation bed as well as anesthesia; certain drugs or
pharmaceuticals; incidental services; and other necessary or implantable supplies or services.
Payments for services such as those provided by physicians and other professionals as well as
therapy and clinical diagnostic laboratory services, among others, are separate.
Under the OPPS, the unit of payment for acute care hospitals is the individual service or
procedure as assigned to an ambulatory payment classification (APC). To the extent possible,
integral services and items (excluding physician services paid under the physician fee schedule)
are bundled within each APC. Specified new technologies are assigned to new technology APCs
until clinical and cost data are available to permit assignment into a clinical APC. Medicare’s
hospital outpatient payment is calculated by multiplying the relative weight associated with an
APC by a conversion factor. For most APCs, 60% of the conversion factor is geographically
adjusted by the wage index used for the inpatient prospective payment system. Except for new
technology APCs, each APC has a relative weight that is based on the median cost of services in
that APC. The OPPS also includes pass-through payments for new technologies (specific drugs,
biologicals, and devices) and payments for outliers.
The Medicare Payment Advisory Commission (MedPAC) has recommended site-neutral payment
policies that base payments on the resources needed to provide high-quality care in the most
efficient setting.73 The Bipartisan Budget Act of 2015 (BBA 15; P.L. 114-74) gave CMS the
authority to add new restrictions on Medicare payments for services furnished in provider-based
off-campus hospital outpatient departments (HOPDs) to address discrepancies between payments
under the MPFS and the OPPS for similar services. Although CMS has issued rules extending the
site-neutral policy for off-campus HOPDs to clinic visits,74 the most commonly billed service in

72 For additional information on the difference between inpatient and outpatient status, see Medicare.gov, “Inpatient or
Outpatient Hospital Status Affects Your Costs,” at https://www.medicare.gov/what-medicare-covers/what-part-a-
covers/inpatient-or-outpatient-hospital-status-affects-your-costs.
73 MedPAC, Report to the Congress: Medicare Payment Policy, March 2012, at http://www.medpac.gov/docs/default-
source/reports/march-2012-report-to-the-congress-medicare-payment-policy.pdf.
74 See the 2019 and 2020 final rules on the Medicare hospital outpatient prospective payment system and ambulatory
surgical center payment system at https://www.federalregister.gov/documents/2018/11/21/2018-24243/medicare-
program-changes-to-hospital-outpatient-prospective-payment-and-ambulatory-surgical-center, and
https://www.federalregister.gov/documents/2019/11/12/2019-24138/medicare-program-changes-to-hospital-outpatient-
prospective-payment-and-ambulatory-surgical-center.
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hospital outpatient departments, the authority to extend this policy has been challenged and the
case is ongoing.75
Ambulatory Surgical Center Services
An ambulatory surgical center (ASC) is a distinct entity that furnishes outpatient surgical
procedures to patients who do not require an overnight stay after the procedure. According to
MedPAC, most ASCs are freestanding facilities rather than part of a larger facility, such as a
hospital. Medicare covers surgical and medical services performed in an ambulatory surgical
center that are (1) commonly performed on an inpatient basis but may be safely performed in an
ASC; (2) not of a type that are commonly performed or that may be safely performed in
physicians’ offices; (3) limited to procedures requiring a dedicated operating room or suite and
generally requiring a postoperative recovery room or short-term (not overnight) convalescent
room; and (4) not otherwise excluded from Medicare coverage.
Medicare pays for surgery-related facility services provided in ASCs using a prospective payment
system based on the OPPS. (Associated physician fees are paid for separately under the physician
fee schedule.) Each of the approximately 3,500 procedures approved for payment in an ASC is
classified into an APC group on the basis of clinical and cost similarity. The ASC system
primarily uses the same payment groups as the OPPS; however, ASC payment rates are generally
lower. The ASC weights are scaled (reduced) to account for the different mix of services in an
ASC, and the ASC conversion factor (the base payment amount) is lower. A different payment
method is used to set ASC payment for office-based procedures, separately payable radiology
services, separately payable drugs, and device-intensive procedures.76 In addition, separate
payments are made for certain ancillary items and services when they are integral to surgical
procedures, including corneal tissue acquisition, brachytherapy sources, certain radiology
services, many drugs, and certain implantable devices. The application of the site-neutral
payment policy to clinic visits also affects such payments to ASCs (see discussion above).
Ambulance
Medicare Part B covers emergency and nonemergency ambulance services to or from a hospital, a
critical access hospital, a skilled nursing facility, or a dialysis facility for End-Stage Renal
Disease (ESRD) beneficiaries who require dialysis when other modes of transportation could
endanger the Medicare beneficiary’s health.77 In most cases, the program covers 80% of the
allowed amount for the service, and the beneficiary is responsible for the remaining 20%.

75 Plaintiffs, including the American Hospital Association and the American Association of Medical Colleges, argue
that “CMS was not authorized to ignore the statutory process for setting payment rates in the Outpatient Prospective
Payment System and to lower payments only for certain services performed by certain providers.” See related court
documents at https://www.aha.org/system/files/2018-12/complaint-challenging-site-neutral-payment-policy181204.pdf
and https://www.aha.org/system/files/media/file/2020/01/Site-neutral-2020-complaint.pdf.
76 Office-based procedures are services that are performed in physician offices at least 50% of the time. Payment is set
at the lower of the ambulatory surgical center rate or the practice expense portion of the physician fee schedule
payment rate. The same policy is applied to separately payable radiology services. Separately payable drugs in an ASC
are paid the same amount as if provided in a hospital outpatient department. Device intensive procedures are those
where the cost of a device is packaged into the APC and that cost accounts for more than 40% of the total payment;
payment for the device-related portion of the procedure is made at the same amount as under the OPPS, while the
nondevice portion is paid at 60% of the OPPS amount.
77 CMS, “Medicare Learning Network Booklet: Medicare Ambulance Fee Schedule and Medicare Transports,” July
2019 version, at https://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/
Downloads/Medicare-Ambulance-Transports-Booklet-ICN903194.pdf. The Bipartisan Budget Act of 2018 (P.L. 115-
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Generally, ambulance services are covered if (1) transportation of the beneficiary occurs; (2) the
beneficiary is taken to an appropriate location (generally, the closest appropriate facility); (3) the
ambulance service is medically necessary (other forms of transportation are contraindicated); (4)
the ambulance provider or supplier meets state licensing requirements; and (5) the transportation
is not part of a Medicare Part A covered stay.78
Medicare covers both scheduled and nonscheduled nonemergency transports if the beneficiary is
bed-confined or meets other medical necessity criteria. Medicare may also cover emergency
ambulance transportation by airplane or helicopter if the beneficiary’s location is not easily
reached by ground transportation or if long distance or obstacles, such as heavy traffic, would
prevent the individual from obtaining needed care.79
Medicare pays for ambulance services according to a national fee schedule. The fee schedule
establishes seven categories of ground ambulance services and two categories of air ambulance
services. Medicare pays for different levels of ambulance services, which reflect the staff training
and equipment required to meet the patient’s medical condition or health needs.80 Generally, basic
life support is provided by emergency medical technicians (EMTs). Advanced life support is
provided by EMTs with advanced training or by paramedics.
Some rural ground and air ambulance services may qualify for increased payments. Also,
ambulance providers that are CAHs, or that are entities that are owned and operated by a CAH,
are paid on a reasonable-cost basis rather than the fee schedule if they are the only ambulance
provider within a 35-mile radius.81
Rural Health Clinics and Federally Qualified Health Centers
Medicare covers Part B services in rural health clinics (RHCs) and federally qualified health
centers (FQHCs) provided by (1) physicians and specified nonphysician practitioners; (2) visiting
nurses for homebound patients in home health shortage areas; (3) registered dieticians or
nutritional professionals for diabetes training and medical nutrition therapy; and (4) others, as
well as certain drugs administered by a physician or nonphysician practitioner.
RHCs are paid based on an all-inclusive cost-based rate per beneficiary visit subject to a per visit
upper limit, adjusted annually for inflation. For cost-reporting periods that began on or after
October 1, 2014, FQHCs are paid a base payment rate per visit (with a limit, in most cases, of one
billable visit per day) under a PPS methodology. Each FQHC’s PPS rate is adjusted based on the
location where the service is furnished using geographic adjustment factors, which are the
geographic practice cost indices (GPCI) used in Medicare’s physician fee schedule (MPFS). This
rate is increased by 34% for new patients (those not seen in the FQHC organization within the
past three years). The 34% increase also applies when a beneficiary receives a comprehensive
initial Medicare visit (an initial preventive physician examination or an initial annual wellness
visit) or a subsequent annual wellness visit. Effective January 1, 2017, the FQHC PPS base rate is

123) requires a 23% Medicare payment reduction for nonemergency basic life support ambulance transports for renal
dialysis services for beneficiaries with end-stage renal disease.
78 Under certain circumstances, Part B will cover a nonemergency ambulance service during a Part A covered stay,
including transport of an SNF resident with end-stage renal disease to and from a dialysis facility for dialysis services.
79 Unlike ground ambulance transports that are covered to and from a number of destinations, Medicare only covers air
ambulance transports to a hospital.
80 MedPAC Payment Basics, Ambulance Services Payment System, October 2019.
81 CMS, “Medicare Learning Network Booklet: Critical Access Hospital,” July 2019 version, at https://www.cms.gov/
Outreach-and-Education/Medicare-Learning-Network-MLN/MLNProducts/downloads/critaccesshospfctsht.pdf.
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updated annually using an FQHC-specific market basket. Medicare’s payment to the FQHC is
equal to 80% of the lesser of the adjusted PPS rate or the FQHC’s actual charges associated with
the visit, and the beneficiary is responsible for a 20% coinsurance.
Part C, Medicare Advantage
Medicare Advantage (MA) is an alternative way for Medicare beneficiaries to receive covered
benefits. Under MA, private health plans are paid a per-person amount to provide all Medicare
covered benefits (except hospice82) to beneficiaries who enroll in their plan. Medicare
beneficiaries who are eligible for Part A, enrolled in Part B, and do not have ESRD are eligible to
enroll in an MA plan if one is available in their area.83 Some MA plans may choose their service
area (local MA plans), while others agree to serve one or more regions defined by the Secretary
(regional MA plans). In 2020, nearly all Medicare beneficiaries have access to an MA plan and
approximately a third of beneficiaries are enrolled in one.84 Private plans may use different
techniques to influence the medical care used by enrollees. Some plans, such as health
maintenance organizations (HMOs), may require enrollees to receive care from a restricted
network of medical providers; enrollees may be required to see a primary care physician who will
coordinate their care and refer them to specialists as necessary. Other types of private plans, such
as private fee-for-service (PFFS) plans, may look more like original Medicare, with fewer
restrictions on the providers an enrollee can see and minimal coordination of care.
In general, MA plans offer additional benefits or require smaller co-payments or deductibles than
original Medicare. Sometimes beneficiaries pay for these additional benefits through a higher
monthly premium, but sometimes they are financed through plan savings. The extent of extra
benefits and reduced cost sharing varies by plan type and geography. However, MA plans are
seen by some beneficiaries as an attractive alternative to more expensive supplemental insurance
policies found in the private market.
By contract with CMS, a plan agrees to provide all required services covered in return for a
capitated monthly payment adjusted for the demographics and health history of their enrollees.
The same monthly payment is made regardless of how many or few services a beneficiary
actually uses. In general, the plan is at-risk if costs, in the aggregate, exceed program payments;
conversely, the plan can retain savings if aggregate costs are less than payments. Payments to MA
plans are based on a comparison of each plan’s estimated cost of providing Medicare covered
services (a bid) relative to the maximum amount the federal government will pay for providing
those services in the plan’s service area (a benchmark). If a plan’s bid is less than the benchmark,
its payment equals its bid plus a rebate. The size of the rebate is dependent on plan quality and
ranges from 50% to 70% of the difference between the bid and the benchmark. The rebate must
be returned to enrollees in the form of additional benefits, reduced cost sharing, reduced Part B or
Part D premiums, or some combination of these options. If a plan’s bid is equal to or above the
benchmark, its payment will be the benchmark amount and each enrollee in that plan will pay an
additional premium, equal to the amount by which the bid exceeds the benchmark.
The MA benchmarks are determined through statutorily specified formulas that have changed
over time. Since BBA 97, formulas have increased the benchmark amounts, in part, to encourage
plan participation in all areas of the country. As a result, however, the benchmark amounts (and

82 MA enrollees who choose the hospice benefit remain enrolled in their plan, pay the same premium, and have access
to the same supplemental benefits. However, the CMS payment to the plan changes to reflect the change in benefit.
83 Currently, Medicare beneficiaries who develop ESRD while enrolled in an MA plan may remain enrolled. For plan
years beginning January 1, 2021, beneficiaries with ESRD will be able to enroll in an MA plan.
84 MedPAC, Report to Congress: Medicare Payment Policy, p. 366, March 2020.
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plan payments) in some areas have been higher than the average cost of original FFS Medicare.
The ACA changed the way benchmarks are calculated by tying them closer to (or below)
spending in FFS Medicare, and adjusting them based on plan quality. In a recent analysis,
MedPAC found that “over the past few years, plan bids and payments have come down in relation
to FFS spending while MA enrollment continues to grow. The pressure of lower benchmarks has
led to improved efficiencies and more competitive bids that enable MA plans to continue to
increase enrollment by offering benefits that beneficiaries find attractive.”85
In 2006, the MA program began to offer MA regional plans. Regional MA plans must agree to
serve one or more regions designated by the Secretary. There are 26 MA regions consisting of
states or groups of states. Regional plan benchmarks include two components: (1) a statutorily
determined amount (comparable to benchmarks described above) and (2) a weighted average of
plan bids. Thus, a portion of the benchmark is competitively determined. Similar to local plans,
plans with bids below the benchmark are given a rebate, while plans with bids above the
benchmark require an additional enrollee premium.
In general, MA eligible individuals may enroll in any MA plan that serves their area. However,
some MA plans may restrict their enrollment to beneficiaries who meet additional criteria. For
example, employer-sponsored MA plans are generally only available to the retirees of the
company sponsoring the plan. In addition, Medicare Special Needs Plans (SNPs) are a type of
coordinated care MA plan that exclusively enrolls, or enrolls a disproportionate percentage of,
special needs individuals. Special needs individuals are any MA eligible individuals who are
either institutionalized as defined by the Secretary, eligible for both Medicare and Medicaid, or
have a severe or disabling chronic condition and would benefit from enrollment in a specialized
MA plan.
Part D
Medicare Part D provides coverage of outpatient prescription drugs to Medicare beneficiaries
who choose to enroll in this optional benefit.86 (As previously discussed, Part B provides limited
coverage of some outpatient prescription drugs.) In 2020, about 49 million (about 77%) of
eligible Medicare beneficiaries are estimated to be enrolled in a Part D plan.87 Prescription drug
coverage is provided through private prescription drug plans (PDPs), which offer only
prescription drug coverage, or through Medicare Advantage prescription drug plans (MA-PDs),
which offer prescription drug coverage that is integrated with the health care coverage they
provide to Medicare beneficiaries under Part C. Plans must meet certain minimum requirements;
however, there are significant variations among them in benefit design, including differences in
premiums, drugs included on plan formularies (lists of drugs covered by the plan), and cost
sharing for particular drugs.
Part D prescription drug plans are required to offer either standard coverage or alternative
coverage that provides at least actuarially equivalent benefits. In 2020, standard coverage has a
$435 deductible and a 25% coinsurance for drug costs between $435 and $4,020. After this point,

85 MedPAC, Report to Congress: Medicare Payment Policy, p. 344, March 2019.
86 The Part D program was created by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(P.L. 108-173), and began in 2006. For additional information, see CRS Report R40611, Medicare Part D Prescription
Drug Benefit.
87 CMS, 2020 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary
Medical Insurance Trust Funds, April 22, 2020, p. 176, at https://www.cms.gov/Research-Statistics-Data-and-Systems/
Statistics-Trends-and-Reports/ReportsTrustFunds/index.html.
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an enrollee enters the coverage gap (the doughnut hole), which continues until the enrollee incurs
out-of-pocket costs of $6,350 (an estimated $9,719.38 in total spending) and reaches the
catastrophic limit.88 While in the coverage gap under the standard benefit, enrollees pay 25%
coinsurance. Once a beneficiary’s costs exceed the catastrophic limit, the program pays all costs
except for the greater of 5% coinsurance or $3.60 for a generic drug and $8.95 for a brand-name
drug. Most plans offer actuarially equivalent or enhanced benefits rather than the standard
package, including alternatives such as reducing or eliminating the deductible, or using tiered cost
sharing with lower cost sharing for generic drugs.89
When Part D was first implemented in 2006, enrollees generally were responsible for 100% cost
sharing in the coverage gap. The ACA gradually reduced enrollee cost sharing in the coverage
gap from 2011 through 2019. For plan year 2020, the Part D coverage gap is closed, meaning that
enrollees are now responsible for 25% of the costs for brand-name and generic drugs in the
coverage gap (the same as during the initial coverage period). (See Figure 2.) The ACA
eliminated the coverage gap by (1) phasing in larger Medicare subsidies90 and (2) requiring
pharmaceutical manufacturers to provide a discount on brand-name drugs purchased by enrollees
who reached the coverage gap.91 In 2020, manufacturers pay a 70% discount, and Medicare pays
an additional 5% of the cost of brand-name drugs dispensed during the coverage gap. For generic
drugs, Medicare pays 75% of the cost of drugs dispensed during the coverage gap. As noted
above, enrollees pay the remaining 25% under the standard benefit.
The ACA also changed the formula for calculating the catastrophic threshold from 2014 through
2019. This temporary formula change had the effect of limiting annual increases in the
catastrophic threshold, thereby making the doughnut hole smaller than it otherwise would have
been in those years. The ACA required CMS to calculate the catastrophic threshold for 2020 as
though the original formula had been in place since 2014. Therefore, the increase in the
catastrophic threshold from 2019 to 2020 was much larger than in prior years—from $5,100 in
2019 to $6,350 in 2020.92

88 CMS, “Announcement of Calendar Year (CY) 2020 Medicare Advantage Capitation Rates and Medicare Advantage
and Part D Payment Policies and Final Call Letter and Request for Information” April 1, 2019, at https://www.cms.gov/
Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/Announcement2020.pdf.
89 Under a tiered cost-sharing structure, an enrollee may have lower co-payments for generic drugs and higher cost
sharing for more expensive drugs (such as 33% cost sharing for specialty drugs or up to 50% coinsurance for non-
preferred brand-name drugs).
90 Medicare provides subsidies to Part D plan sponsors that are, on average, equal to 74.5% of the value of standard
coverage. Beneficiary premiums cover the remainder. Part D subsidies include direct subsidies, under which Medicare
pays drug plans a risk-adjusted per enrollee payment, and reinsurance under which Medicare subsidizes 80% of a
plan’s drug spending above a catastrophic threshold.
91 For additional information, see CRS Report R41196, Medicare Provisions in the Patient Protection and Affordable
Care Act (PPACA): Summary and Timeline. Under the ACA, the coverage gap for both brand-name and generic drugs
was to be eliminated in 2020, but Congress moved up the date to 2019 for brand-name drugs as part of BBA 18. The
BBA 18 also increased the 50% manufacturer discount, which took effect in 2011, to 70% beginning in 2019. As
required by the ACA, in 2010, Medicare sent a tax-free, one-time $250 rebate check to each Part D enrollee who
reached the doughnut hole.
92 CMS, “Advance Notice of Methodological Changes for Calendar Year (CY) 2020 for Medicare Advantage (MA)
Capitation Rates, Part C and Part D Payment Policies and 2020 Draft Call Letter,” April 1, 2019, p. 50 and p. 60, at
https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/Advance2020Part2.pdf.
Section 1860D-2(b)(4) of the ACA required that for 2014 and 2015, out-of-pocket or catastrophic threshold be updated
by the annual percentage increase (API) in Part D drug spending, minus 0.25 percentage point. For 2016 through 2019
the threshold was updated by the lesser of 1) the API or 2) two percentage points plus the annual percentage increase in
the Consumer Price Index for July of the previous year. For 2020 and subsequent years, the ACA requires the
catastrophic threshold to be calculated using the API. In addition, for 2020, the catastrophic threshold must be
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Figure 2. 2020 Standard Medicare Prescription Drug Benefit

Sources: Figure by CRS based on data from the Centers for Medicare & Medicaid Services (CMS), “Advance
Notice of Methodological Changes for Calendar Year (CY) 2020 for Medicare Advantage (MA) Capitation Rates,
Part C and Part D Payment Policies and 2020 Draft Call Letter,” Attachment V, April 1, 2019.
Notes: Enrollees need to spend $6,350 in 2020 in out-of-pocket costs to reach the catastrophic threshold.
Based on average spending patterns, the estimated amount of total spending needed to reach the catastrophic
threshold is $9,719.38; however, total spending at the catastrophic threshold (beneficiary payments and amounts
covered by the plans and manufacturer discounts) may vary depending on the portion of brand-name drugs and
generic drugs used in the coverage gap since a greater portion of the cost of brand-name drugs counts toward
the out-of-pocket spending total. Amounts paid by the enrollee and the 70% manufacturer discount count as
out-of-pocket costs, whereas the 5% coverage by Medicare of the cost of brand-name drugs and the 75%
coverage of the cost of generic drugs do not.
Medicare’s payments to Part D plans are determined through a competitive bidding process, and
enrollee premiums are tied to plan bids. Plans are paid a risk-adjusted monthly per capita amount
based on their bids during a given plan year. Part D plan sponsors determine payments for drugs
and are expected to negotiate prices. The federal government is prohibited from interfering in the
price negotiations between drug manufacturers, pharmacies, and plans (the so-called
noninterference clause).
Medicare also provides Part D plans additional subsidies to cover most out-of-pocket costs,
including premiums and deductibles, for enrollees with limited assets and incomes. These low-
income subsidies (LIS) are provided for those enrollees who qualify for both Medicare and
Medicaid (dual eligibles) and others with incomes up to 135% of the federal poverty level (FPL).
Additionally, certain persons whose incomes are between 135% and 150% of the FPL also may
receive assistance for some portion of their premium and cost-sharing charges.93
The MMA included significant incentives for employers to continue to offer coverage to their
retirees by providing a 28% federal subsidy. In 2020, the maximum potential subsidy per covered
retiree is $2,384 for employers or unions offering drug coverage that is at least actuarially
equivalent (called creditable coverage) to standard coverage.94 Employers or unions may select

calculated as if the calculation for years 2014 through 2019 had not be modified (i.e., as if the thresholds for each of
years 2014 through 2019 had been updated using the API).
93 This low-income assistance is also referred to as Extra Help. See Medicare.gov, “Lower Prescription Costs,” at
https://www.medicare.gov/your-medicare-costs/get-help-paying-costs/lower-prescription-costs.
94 The retiree drug subsidy is subject to an additional 2% reduction under budget sequestration rules. See CMS,
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an alternative option (instead of taking the subsidy) with respect to Part D, such as electing to pay
a portion of the Part D premiums. They may also elect to provide enhanced coverage, though this
has some financial consequences for the employer or union. Alternatively, employers or unions
may contract with a PDP or MA-PD to offer the coverage or become a Part D plan sponsor
themselves for their retirees.
Administration
A variety of public and private entities are involved in carrying out Medicare administrative and
oversight functions. CMS, an agency within HHS, has primary operational responsibilities. Such
responsibilities include managing program finances, developing policies and regulations, setting
payment rates, and developing the program’s information-technology infrastructure. CMS
conducts its activities through its headquarters and 10 regional offices.95 The Social Security
Administration, however, enrolls beneficiaries into the program and issues Medicare beneficiary
cards.96
CMS also contracts with various private entities, including private health insurance companies, to
help administer the program.97 For example, Medicare Administrative Contractors (MACs)
process and pay Parts A and B reimbursement claims, enroll providers and suppliers, educate
providers and suppliers on billing requirements, support appeal processes, and answer provider
and supplier inquiries through call centers, as well as other activities.98 Qualified Independent
Contractors (QICs) perform second-level reviews on appeals initially reviewed by MACs.99
Medicare’s quality assurance activities are primarily handled by State Survey Agencies and
Quality Improvement Organizations (QIOs), which operate in all states and the District of
Columbia, Puerto Rico, and the U.S. Virgin Islands. The State Survey Agencies are responsible

“Mandatory Payment Reduction in CMS’ Retiree Subsidy Reconciliation Payments (April 19, 2014),” at
https://www.rds.cms.hhs.gov/sites/default/files/webfiles/documents/mandatorypaymentreduction.pdf. The ACA
changed how retiree drug subsidies are treated for tax purposes. Originally, the Medicare Prescription Drug
Improvement and Modernization Act of 2003 (P.L. 108-173) allowed employers to exclude the retiree drug subsidies
from their gross income and to claim a business deduction for retiree prescription drug expenses. Beginning in 2013,
the allowed deduction for retiree prescription drug coverage is reduced by the amount of the federal drug subsidy
received. For additional information, see CRS Report R41128, Health-Related Revenue Provisions in the Patient
Protection and Affordable Care Act (ACA).
95The CMS headquarters is located outside of Baltimore, MD, where the majority of the agency’s approximately 4,300
full-time-equivalent employees work. (This figure excludes staffing funded from indirect cost allocations, directly
appropriated funding sources, and reimbursables.) CMS also has offices in Washington, DC, and Bethesda, MD;
offices in 10 regional offices across the country; and antifraud field offices in Los Angeles and New York. For more
information, see CMS, “About CMS,” at https://www.cms.gov/About-CMS/About-CMS.html.
96 See “How do I get Parts A & B?” at https://www.medicare.gov/sign-up-change-plans/get-parts-a-and-b/when-how-
to-sign-up-for-part-a-and-part-b.html.
97 For examples, see CMS, “Review Contractor Directory - Interactive Map,” at https://www.cms.gov/Research-
Statistics-Data-and-Systems/Monitoring-Programs/Medicare-FFS-Compliance-Programs/Review-Contractor-
Directory-Interactive-Map/.
98 In FY2020, the Medicare Administrative Contractors are expected to process close to 1.3 billion claims. CMS, Fiscal
Year 2020 Justification of Estimates for Appropriations Committees, at https://www.cms.gov/About-CMS/Agency-
Information/PerformanceBudget/. For more information, see “Medicare Administrative Contractors” at
https://www.cms.gov/Medicare/Medicare-Contracting/Medicare-Administrative-Contractors/
MedicareAdministrativeContractors.html.
99 For more information, see “Second Level of Appeal: Reconsideration by a Qualified Independent Contractor” at
https://www.cms.gov/Medicare/Appeals-and-Grievances/OrgMedFFSAppeals/
ReconsiderationbyaQualifiedIndependentContractor.html.
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for inspecting Medicare provider facilities (e.g., nursing homes, home health agencies, and
hospitals) to ensure that they are in compliance with federal safety and quality standards referred
to as Conditions (or Requirements) of Participation.100 Alternatively, some types of providers,
including hospitals, may receive certification through private accrediting agencies, such as the
Joint Commission.101 QIOs are mostly private, not-for-profit organizations that monitor the
quality of care delivered to Medicare beneficiaries and educate providers on the latest quality-
improvement techniques.102
Medicare program integrity activities, such as audits, provider education, medical review, and
predictive data analysis, are also carried out by a variety of government and private entities. For
example, the Center for Program Integrity within CMS works together with the U.S. Department
of Justice (DOJ) and the HHS Office of Inspector General (OIG) to identify and prevent fraud,
waste, and abuse in Medicare.103 CMS also works with private contractors to carry out certain
program-integrity functions. Unified Program Integrity Contractors (UPICs) perform integrity-
related activities including data analysis to identify potentially fraudulent claims (bills) for
Medicare Parts A and B, home health and hospice services, and DME.104 Similarly, the National
Benefit Integrity Medicare Drug Integrity Contractor (MEDIC) is responsible for identifying and
investigating fraud, waste, and abuse in Medicare Advantage and Part D.105 When appropriate, the
UPICs and MEDIC work with and refer cases to law enforcement, including OIG and DOJ.
In addition, Recovery Audit Contractors (RACs) are responsible for identifying improper
Medicare payments, including both underpayments and overpayments, and for recouping any
overpayments made to providers.106 Each year, the Comprehensive Error Rate Testing (CERT)
program quantifies a national improper Medicare payment rate by examining a random sample of
claims.107 In turn, the Supplemental Medical Review Contractor targets medical reviews in areas

100 To participate in and receive reimbursements from the Medicare program, health care facilities are required to be
certified as meeting applicable requirements. For additional information, see CMS, “Quality, Safety & Oversight -
General Information,” at https://www.cms.gov/Medicare/Provider-Enrollment-and-Certification/
SurveyCertificationGenInfo/index.html.
101 The Joint Commission website may be found at https://www.jointcommission.org/.
102 See CMS, “Quality Improvement Organizations,” at https://www.cms.gov/Medicare/Quality-Initiatives-Patient-
Assessment-Instruments/QualityImprovementOrgs/index.html.
103 For more information, see CMS, “Center for Program Integrity” at https://www.cms.gov/About-CMS/Components/
CPI/CPI-Landing.html.
104 The Unified Program Integrity Contractors operate in five geographical jurisdictions in the United States. They
combine and integrate functions previously performed by the Zone Program Integrity Contractor, Program Safeguard
Contractor, and Medicaid Integrity Contractor contracts.
105 See CMS, “Review Contractor Directory—Interactive Map,” at https://www.cms.gov/Research-Statistics-Data-and-
Systems/Monitoring-Programs/Medicare-FFS-Compliance-Programs/Review-Contractor-Directory-Interactive-Map/.
106 In FY2018, Medicare FFS Recovery Audit Contractors returned approximately $73 million to the Medicare trust
funds. For more information, see CMS Blog, “Recovery Audits: Improvements to Protect Taxpayer Dollars and put
Patients over Paperwork,” May 2, 2019, at https://www.cms.gov/blog/recovery-audits-improvements-protect-taxpayer-
dollars-and-put-patients-over-paperwork, and CMS, “Medicare Fee for Service Recovery Audit Program” at
https://www.cms.gov/Research-Statistics-Data-and-Systems/Monitoring-Programs/Medicare-FFS-Compliance-
Programs/Recovery-Audit-Program/.
107 The FY2019 Medicare FFS program improper payment rate was found to be close to 7.3% (6.9% overpayments and
0.3% underpayments), representing $28.9 billion in improper payments. For more information, see CMS,
“Comprehensive Error Rate Testing (CERT)” at https://www.cms.gov/Research-Statistics-Data-and-Systems/
Monitoring-Programs/Medicare-FFS-Compliance-Programs/CERT/. The full FY2019 CERT report may be found at
https://www.cms.gov/research-statistics-data-and-systemsmonitoring-programsmedicare-ffs-compliance-
programscertcert/2019-medicare-fee-service-supplemental-improper-payment-data.
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where OIG, RACs, and CERT have identified vulnerabilities and/or questionable billing patterns
to identify ways to lower improper payment rates.108
As required by the ACA, the Center for Medicare and Medicaid Innovation (CMMI) was
established in January 2011 to test and evaluate innovative payment and service delivery models
to reduce program expenditures under Medicare.109 Examples of these models include providing
payment incentives for groups of doctors, hospitals, and other health care providers (Accountable
Care Organizations, or ACOs) to coordinate the services they provide to Medicare beneficiaries;
bundling payments for services provided in different settings during a beneficiary’s episode of
care; and reimbursing health providers based on the quality of care rather than on the volume of
services.110 CMMI also plays an important role in developing and implementing the new
physician payment models required by MACRA.111
Medicare beneficiary education and outreach duties are shared between CMS and the Social
Security Administration. Each year, CMS mails out a “Medicare and You” handbook to
beneficiaries, which provides information on their benefits for the upcoming year.112 Additional
educational materials and responses to frequently asked questions may be found on the CMS-
maintained Medicare.gov website,113 and beneficiaries may call a CMS-operated 1-800 number
for assistance with specific questions and help with selecting and enrolling in a Medicare
Advantage and/or Part D plan.114 A Medicare beneficiary ombudsman is also available to provide
assistance to Medicare consumers with their complaints, grievances, and requests.115
The Social Security Administration is responsible for notifying low-income Medicare
beneficiaries about programs that may be able to assist them with their medical and prescription
drug expenses. The Social Security Administration also provides general Medicare eligibility and
enrollment information on its web page and on Social Security benefit statements.116 Finally,
CMS partners with community-based organizations, such as State Health Insurance Assistance

108 A medical review involves evaluating medical records and related documents to determine whether Medicare claims
were billed in compliance with coverage, coding, payment, and billing practices. For more information, see CMS,
“Supplemental Medical Review Contractor,” at https://www.cms.gov/Research-Statistics-Data-and-Systems/
Monitoring-Programs/Medicare-FFS-Compliance-Programs/Medical-Review/SMRC.html.
109 For more information on Center for Medicare and Medicaid Innovation (CMMI) activities and models, see
https://innovation.cms.gov/.
110 For additional examples, see CMS, “Innovation Models,” at https://innovation.cms.gov/initiatives/
index.html#views=models.
111 See “Physicians and Nonphysician Practitioner Services.”
112 Beneficiaries also may opt to receive this publication electronically. The current Medicare & You booklet may be
accessed at https://www.medicare.gov/medicare-and-you/medicare-and-you.html.
113 The Medicare.gov website includes information on enrollment, costs, coverage, appeals, and related resources.
Numerous Medicare publications on various topics are also available on the Medicare.gov website,
https://www.medicare.gov/Publications/.
114 The help line, 1-800-Medicare, is the primary means for Medicare beneficiaries to receive immediate guidance.
Inquiries may be related to such things as costs, coverage, eligibility and enrollment, claims (including denials), and
complaints.
115 For more information, see “Medicare Beneficiary Ombudsman (MBO)” at https://www.cms.gov/Center/Special-
Topic/Ombudsman/Medicare-Beneficiary-Ombudsman-Home.html.
116 The Social Security Administration (SSA) also is required to identify those low-income Medicare beneficiaries to
their state Medicaid programs. SSA, “Medicare Benefits,” at https://www.ssa.gov/benefits/medicare/. See pages 4 and
5 for an example of Medicare information on a Social Security statement at https://www.ssa.gov/myaccount/materials/
pdfs/SSA-7005-SM-SI%20Wanda%20Worker%20Near%20retirement.pdf.
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Programs, in every state to provide educational resources and personalized assistance to Medicare
beneficiaries.117
Financing
Medicare’s financial operations are accounted for through two trust funds maintained by the
Department of the Treasury—the Hospital Insurance (HI) trust fund for Part A and the
Supplementary Medical Insurance (SMI) trust fund for Parts B and D. For beneficiaries enrolled
in Medicare Advantage (Part C), payments are made on their behalf in appropriate portions from
the HI and SMI trust funds. HI is primarily funded by payroll taxes, while SMI is primarily
funded through general revenue transfers and premiums. (See Figure 3.) The HI and SMI trust
funds are overseen by a Board of Trustees that provides annual reports to Congress.118
The trust funds are accounting mechanisms. Income to the trust funds is credited to the fund in
the form of interest-bearing government securities. Expenditures for services and administrative
costs are recorded against the fund. These securities represent obligations that the government has
issued to itself. As long as a trust fund has a balance, the Department of the Treasury is authorized
to make payments for it from the U.S. Treasury.
Figure 3. Sources of Medicare Revenue, CY2019

Source: Boards of Trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust
Funds, 2020 Report of the Medicare Trustees, Table II.B1.
Notes: Totals may not add to 100% due to rounding. HI is the Hospital Insurance Trust Fund, and SMI is the
Supplementary Medical Insurance Trust Fund.
Medicare expenditures are primarily paid for through mandatory spending—generally Medicare
pays for all covered health care services provided to beneficiaries. Aside from certain constraints
in HI described below, the program is not subject to spending limits. Additionally, most Medicare

117 Information on State Health Insurance Assistance Programs (SHIPs) may be found on the Medicare.gov website,
“State Health Insurance Assistance Programs (SHIPs),” at https://www.medicare.gov/contacts/#resources/ships.
118 For more information on Medicare financing, see CRS Report R43122, Medicare Financial Status: In Brief.
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expenditures (aside from premiums paid by beneficiaries) are paid for by current workers through
income taxes and dedicated Medicare payroll taxes, that is, current income is used to pay current
expenditures. Medicare taxes paid by current workers are not set aside to cover their future
Medicare expenses.
Part A Financing
The primary source of funding for Part A is payroll taxes paid by employees and employers. Each
pays a tax of 1.45% on the employee’s earnings; the self-employed pay 2.9%. Beginning in 2013,
some higher-income employees pay higher payroll taxes.119 Unlike Social Security, there is no
upper limit on earnings subject to the tax. Other sources of income include (1) interest on federal
securities held by the trust fund, (2) a portion of federal income taxes that individuals pay on their
Social Security benefits, and (3) premiums paid by voluntary enrollees who are not automatically
entitled to Medicare Part A. Income for Part A is credited to the HI trust fund. The Medicare
trustees reported that, in CY2019, Part A expenditures were approximately $328 billion and
revenues to the HI trust fund consisted of about $285 billion in payroll tax income and another
$37 billion in interest and other income.120 The trustees thus reported that in CY2019, the HI trust
fund incurred a deficit of approximately $6 billion.
As long as the HI trust fund has a balance, the Department of the Treasury is authorized to make
payments for Medicare Part A services. To date, the HI trust fund has never run out of money
(i.e., become insolvent), and there are no provisions in the Social Security Act that govern what
would happen if that were to occur. Part A expenditures exceeded HI income each year from 2008
through 2015, and the assets credited to the trust fund were drawn down to make up the deficit in
those years. Although the HI trust fund accumulated small surpluses in 2016 and 2017, the
Medicare trustees estimate that, beginning in 2018, expenditures would outpace income in all
future years, and project that the HI trust fund will become insolvent in 2026 (i.e., the balance of
the trust fund will reach $0). At that time there would no longer be sufficient funds to fully cover
Part A expenditures.121
Part B Financing
Medicare Part B is financed primarily from federal general revenues and from beneficiary
premiums, which are set at 25% of estimated per capita program costs for the aged. (The disabled
pay the same premium as the aged.) Income for Part B is credited to the SMI trust fund. Total
spending for Part B was about $370 billion in CY2019, with premiums financing about $99
billion of that amount and general revenues financing most of the rest.122 Most beneficiaries who
enroll in Medicare Part B pay a monthly premium. Individuals receiving Social Security benefits
have their Part B premium payments automatically deducted from their Social Security benefit

119 For additional information, see Internal Revenue Service, Questions and Answers for the Additional Medicare Tax,
at http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Questions-and-Answers-for-the-Additional-
Medicare-Tax.
120 2020 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary
Medical Insurance Trust Funds, April 22, 2020, Table III.B4, p. 52, at http://www.cms.gov/Research-Statistics-Data-
and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/index.html. Note that the Medicare Trustees generally
report expenditures on a calendar year basis, whereas CBO reports on a fiscal year basis.
121 For additional information on Hospital Insurance solvency estimates, see CRS Report RS20946, Medicare:
Insolvency Projections.
122 2020 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary
Medical Insurance Trust Funds, Table III.C4, p. 85.
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checks. Due to a hold-harmless provision in the Social Security Act, an individual’s Social
Security check cannot decrease from one year to the next as a result of the annual Part B premium
increase (except in the case of higher-income individuals subject to income-related premiums).123
The 2020 monthly Part B premium is $144.60. However, in 2020, about 3% of Medicare
enrollees are protected by the hold-harmless provision and pay lower premium amounts because
the dollar amount of the 2020 cost-of-living increase in their Social Security benefits was not
sufficient to cover the full premium increase.124
Since 2007, higher-income Part B enrollees have paid higher premiums.125 In 2020, individuals
whose modified adjusted gross income (AGI) exceeds $87,000 and each member of a couple
filing jointly whose modified AGI exceeds $174,000 are subject to higher premium amounts.
These higher-income premiums range from 35% to 85% of the value of Part B and affect about
5% of Medicare enrollees.126 (See Appendix B for 2020 Part B premiums and high-income
thresholds.)
Part C Financing
Payments to Medicare Advantage plans are made from the HI and SMI trust funds in proportions
determined by the Secretary based on actuarial estimates of the relative portions of Parts A and B
spending. There is no separate trust fund for Part C.
Part D Financing
Medicare Part D is financed through a combination of beneficiary premiums and federal general
revenues. In addition, certain transfers are made from the states. These transfers, referred to as
clawback payments, represent a portion of the amounts states could otherwise have been expected
to pay for drugs under Medicaid if drug coverage for the dual eligible population had not been
transferred to Part D. Part D revenues are credited to a separate Part D account within the SMI
trust fund. In CY2019, total spending for Part D was approximately $98 billion, with about $70
billion of that amount paid for by general revenues, $16 billion from beneficiary premiums, and
$12 billion from state transfers.127
In 2020, the base beneficiary premium is $32.74;128 however, beneficiaries pay different
premiums depending on the plan they have selected and whether they are entitled to low-income
premium subsidies.129 Additionally, beginning in 2011, higher income Part D enrollees pay higher

123 For more information, see CRS Report R40082, Medicare Part B: Enrollment and Premiums.
124 CMS, “2020 Medicare Parts A & B Premiums and Deductibles,” Fact Sheet, November 8, 2019, at
https://www.cms.gov/newsroom/fact-sheets/2020-medicare-parts-b-premiums-and-deductibles. The premiums of those
held harmless may vary. Specifically, under the hold-harmless rule, Part B premiums may increase up the dollar
amount of the increase in one’s Social Security benefits from one year to the next.
125 There are five high-income premium tiers; depending on income, beneficiaries can pay 35%, 50%, 65%, 80%, or
85% of average per capita Parts B (or D) expenditures. For additional information, see Social Security publication,
Medicare Premiums: Rules for Higher-Income Beneficiaries, at http://www.socialsecurity.gov/pubs/EN-05-10536.pdf.
126 See Table B-2 and CMS, “2020 Medicare Parts A & B Premiums and Deductibles,” Fact Sheet, November 8, 2019,
at https://www.cms.gov/newsroom/fact-sheets/2020-medicare-parts-b-premiums-and-deductibles.
127 2020 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary
Medical Insurance Trust Funds, Table III.D3, p. 103.
128 CMS, Annual Release of Part D National Average Bid Amount and Other Part C and D Bid Information, July 30,
2019, at https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/
PartDandMABenchmarks2020.pdf.
129 There is no hold harmless provision under Part D similar to that under Part B. Part D premium increases are not
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premiums.130 (The income thresholds are the same as for Part B, as described above.) On average,
beneficiary premiums are set at 25.5% of expected total Part D costs for basic coverage.
Medicare and Sequestration
The Budget Control Act of 2011 (BCA; P.L. 112-25) provided for increases in the debt limit and
established procedures designed to reduce the federal budget deficit, including the creation of a
Joint Select Committee on Deficit Reduction.131 The failure of the Joint Committee to propose
deficit reduction legislation by its mandated deadline triggered automatic spending reductions
(sequestration of mandatory spending and reductions in discretionary spending) in fiscal years
2013 through 2021. The American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240) delayed
the automatic reductions by two months,132 and the Bipartisan Budget Act of 2013 (BBA 13; P.L.
113-67) extended sequestration for mandatory spending for an additional two years—through
FY2023.133 In 2014, the President signed into law an amended version of S. 25 (P.L. 113-82),
which included a provision to extend BCA’s sequester of mandatory spending through
FY2024.134 BBA 15 extended the sequestration of mandatory spending another year, through
FY2025;135 BBA 18 extended it through FY2027;136 and the Bipartisan Budget Act of 2019 (BBA
19; P.L. 116-37) extended the sequestration of mandatory spending an additional two years,
through FY2029.137 Most recently, the CARES Act waived the application of sequestration to
Medicare spending between May 1, 2020, and December 31, 2020, but extended the sequestration
of mandatory spending for an additional year, through FY2030.138
Section 256(d) of the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA;
P.L. 99-177) contains special rules for the Medicare program in the event of a sequestration.139

affected by Social Security cost-of-living adjustments.
130 See Table B-4 and Social Security publication, Medicare Premiums: Rules for Higher-Income Beneficiaries, at
http://www.socialsecurity.gov/pubs/EN-05-10536.pdf.
131 For a comprehensive discussion of the BCA, see CRS Report R41965, The Budget Control Act of 2011.
132 See CRS Report R42884, The “Fiscal Cliff” and the American Taxpayer Relief Act of 2012.
133 §1205 of the act changed the sequestration percentages for Medicare in the last year of sequestration. Instead of
reducing Medicare benefits by a uniform 2% throughout the year, the sequestration level during the first six months is
to be 2.9% and in the last six months, 1.1%.
134 The Protecting Access to Medicare Act of 2014 (PAMA; P.L. 113-93) adjusted the Medicare sequestration
reductions in FY2024 to 4% for the first six months and 0% for the last six months.
135 BBA 15 §101(c). BBA 15 also modified the FY2024 sequestration adjustments so that reductions will be a uniform
2% through the entire fiscal year (instead of 4% for the first six months and 0% for the last six months [see footnote
134]), and adjusted the FY2025 Medicare sequestration reductions to 4% for the first six months and 0% for the last six
months.
136 BBA 18 §30101(c). BBA 18 also modified the FY2025 sequestration adjustments so that reductions will be a
uniform 2% through the entire fiscal year (instead of 4% for the first six months and 0% for the last six months [see
footnote 135]), and adjusted the FY2027 Medicare sequestration reductions to 4% for the first six months and 0% for
the last six months.
137 BBA 19 §402. BBA 19 also modified the FY2027 sequestration adjustments so that reductions will be a uniform 2%
through the entire fiscal year (instead of 4% for the first six months and 0% for the last six months [see footnote 136]),
and adjusted the FY2029 Medicare sequestration reductions to 4% for the first six months and 0% for the last six
months.
138 CARES Act §3709. The CARES Act also modified the FY2029 sequestration adjustments so that reductions will be
a uniform 2% through the entire fiscal year (instead of 4% for the first six months and 0% for the last six months [see
footnote 137]), and adjusted the FY2030 Medicare sequestration reductions to 4% for the first six months and 0% for
the last six months.
139 See CRS Report R45106, Medicare and Budget Sequestration.
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Among other things, it specifies that for Medicare, sequestration is to begin the month after the
sequestration order has been issued. Therefore, as the sequestration order was issued March 2013,
Medicare sequestration began April 1, 2013, and will continue through March 31, 2031.140
Under sequestration, Medicare’s benefit structure generally remains unchanged; however, benefit
related payments are subject to 2% reductions. In other words, with the exception of the
aforementioned period in 2020 during which the application of sequestration is waived, most
Medicare payments to health care providers, as well as to MA and Part D plans, are reduced by
2%.141 Certain Medicare payments are exempt from sequestration and therefore not reduced.
These exemptions include (1) Part D low-income subsidies, (2) the Part D catastrophic subsidy,
and (3) Qualified Individual (QI) premiums. Some non-benefit related Medicare expenses, such
as administrative and operational spending, may be subject to higher reductions.142
Additional Insurance Coverage
While Medicare provides broad protection against the costs of many, primarily acute care,
services, the program does not cover all services that may be used by its aged and disabled
beneficiaries. In general, Medicare does not cover eyeglasses, hearing aids, dentures, or most
long-term care services. Further, unlike most private insurance policies, it does not include an
annual catastrophic cap on out-of-pocket spending on cost-sharing charges for services covered
under Parts A and B (except for persons enrolled in Medicare Advantage plans).
Most Medicare beneficiaries have some coverage in addition to Medicare. The following are the
main sources of additional coverage for Medicare enrollees:
 Medicare Advantage. Many MA plans offer services in addition to those covered
under original Medicare, reduced cost sharing, or reduced Part B or D premiums.
All MA plans have a catastrophic cap.143
 Employer Coverage. Coverage may be provided through a current or former
employer. In recent years, a number of employers have cut back on the scope of
retiree coverage. Some have dropped such coverage entirely, particularly for
future retirees. As noted earlier, the MMA attempted to stem this trend, at least
for prescription drug coverage, by offering subsidies to employers who offer drug
coverage, at least as good as that available under Part D.
 Medigap.144 Individual insurance policies that supplement fee-for-service
Medicare are referred to as Medigap policies. Beneficiaries with Medigap

140 The first sequestration order was issued March 1, 2013. See Office of Management and Budget (OMB), OMB
Report to the Congress on the Joint Committee Sequestration for Fiscal Year 2013, March 1, 2013, at
https://obamawhitehouse.archives.gov/sites/default/files/omb/assets/legislative_reports/
fy13ombjcsequestrationreport.pdf.
141 §256(d) of the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA; P.L. 99-177) contains
special rules for the Medicare program in case of a sequestration. While BBEDCA ordinarily limits reduction of certain
Medicare spending to 4% under a sequestration order, the BCA limits the size of this reduction to 2%. See CRS Report
R42050, Budget “Sequestration” and Selected Program Exemptions and Special Rules.
142 See CMS accounts in OMB, OMB Report to the Congress on the Joint Committee Reductions for Fiscal Year 2020,
March 18, 2019, at https://www.whitehouse.gov/wp-content/uploads/2019/03/2020_JC_Sequestration_Report_3-18-
19.pdf.
143 Starting in 2011, all MA plans are required to include a maximum out-of-pocket (OOP) limit determined by CMS.
Prior to 2011, only MA regional plans were required to include a catastrophic cap on OOP spending.
144 See CRS Report R42745, Medigap: A Primer.
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insurance typically have coverage for a portion of Medicare’s deductibles and
coinsurance; they may also have coverage for some items and services not
covered by Medicare. Individuals select from a set of standardized plans, though
not all plans are offered in all states.
 Medicaid.145 Certain low-income Medicare beneficiaries also may be eligible for
full or partial benefits under their state’s Medicaid program. Individuals eligible
for both Medicare and Medicaid are referred to as dual eligibles. The lowest-
income dual eligibles qualify for full Medicaid benefits, so that the majority of
their health care expenses are paid by either Medicare or Medicaid; Medicare
pays first, with Medicaid picking up most of the remaining costs. In addition to
full-benefit dual eligibles, state Medicaid programs pay Medicare premiums and
some cost sharing for other partial dual eligibles, who have higher income than
full-benefit dual eligibles but are still considered to have low income.146
 Other Public Sources. Individuals may have additional coverage through the
Department of Veterans Affairs, or TRICARE for military retirees eligible for
Medicare (and enrolled in Part B).147
In 2016, about 88% of Medicare beneficiaries had some form of additional coverage.148 Some
persons may have had more than one type of additional coverage.

145 See CRS Report R43357, Medicaid: An Overview.
146 In addition to individuals eligible for full Medicaid benefits, other low-income Medicare beneficiaries are entitled to
limited benefits under the Medicare Savings Program (MSP). MSP includes three benefit categories each with different
benefit levels: (1) Qualified Medicare Beneficiaries (QMBs), (2) Specified Low-Income Beneficiaries (SLMB), and (3)
Qualified Individuals (QIs). For QMBs, state Medicaid programs pay Medicare Part B premiums and Medicare cost
sharing (deductibles and co-payments) when beneficiaries’ incomes are under 100% of the federal poverty level (FPL).
For SLMBs, state Medicaid programs pay Part B premiums when beneficiaries’ incomes are between 100% and 120%
of the FPL. For QIs, Medicaid pays premiums when beneficiaries’ incomes are between 120% and 135% of the FPL.
To be eligible for MSP, Medicare beneficiaries must also meet Medicaid’s other eligibility requirements (e.g., meet
citizenship or legal residency requirements).
147 See CRS Report R42747, Health Care for Veterans: Answers to Frequently Asked Questions, and CRS In Focus
IF10530, Defense Primer: Military Health System.
148 MedPAC, Data Book, Health Care Spending and the Medicare Program, June 2019. Figure based on MedPAC
analysis of Medicare Current Beneficiary Survey, Survey file 2016. This figure excludes beneficiaries living in
institutions, those who were not enrolled in Medicare Parts A and B for the entire year, and those for whom Medicare
paid secondary.
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Appendix A. Abbreviations
ACA
Patient Protection and Affordable Care Act, as modified by the Health Care and Education
Reconciliation Act of 2010 (P.L. 111-148 and P.L. 111-152)
ACO
Accountable Care Organization
AGI
Adjusted Gross Income
APC
Ambulatory Payment Classification
APM
Alternative Payment Model
ASC
Ambulatory Surgical Center
ATRA
American Taxpayer Relief Act of 2012 (P.L. 112-240)
BBA 97
Balanced Budget Act of 1997 (P.L. 105-33)
BBA 15
Bipartisan Budget Act of 2015 (P.L. 114-74)
BBA 18
Bipartisan Budget Act of 2018 (P.L. 115-123)
BBA 19
Bipartisan Budget Act of 2019 (P.L. 116-37)
BBRA
Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 (P.L. 106-113)
BCA
Budget Control Act of 2011 (P.L. 112-25)
BIPA
Medicare, Medicaid and SCHIP Benefits Improvement and Protection Act of 2000 (P.L. 106-554)
CAH
Critical Access Hospital
CARES
Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136)
CBO
Congressional Budget Office
CERT
Comprehensive Error Rate Testing
CHIP
State Children’s Health Insurance Program
CLFS
Clinical Laboratory Fee Schedule
CMMI
Center for Medicare and Medicaid Innovation
CMS
Centers for Medicare & Medicaid Services
COLA
Cost-of-Living Adjustment
CORF
Comprehensive Outpatient Rehabilitation Facility
CPI
Consumer Price Index
DGME
Direct Graduate Medical Education
DME
Durable Medical Equipment
DMEPOS
Durable Medical Equipment, Prosthetics, Orthotics, and Other Medical Supplies
DRA
Deficit Reduction Act of 2005 (P.L. 109-171)
DRG
Diagnosis Related Group
DSH
Disproportionate Share Hospital
ESRD
End-Stage Renal Disease
FFS
Fee-for-Service
FPL
Federal Poverty Level
FQHC
Federally Qualified Health Center
GAO
Government Accountability Office
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GDP
Gross Domestic Product
GME
Graduate Medical Education
HCERA
Health Care and Education Reconciliation Act of 2010 (P.L. 111-152)
HHA
Home Health Agency
HHS
Department of Health and Human Services
HI
Hospital Insurance (Medicare Part A)
HMO
Health Maintenance Organization
HOPD
Hospital Outpatient Department
IME
Indirect Medical Education
IPAB
Independent Payment Advisory Board
IMPACT
Improving Medicare Post-Acute Care Transformation Act of 2014 (P.L. 113-185)
IPF
Inpatient Psychiatric Facility
IPPS
Inpatient Prospective Payment System
IRF
Inpatient Rehabilitation Facility
LIS
Low-Income Subsidy
LTC
Long-Term Care
LTCH
Long-Term Care Hospital
LUPA
Low-Utilization Payment Adjustment
MA
Medicare Advantage
MA-PD
Medicare Advantage – Prescription Drug (Plan)
MAC
Medicare Administrative Contractor
MACRA
Medicare Access and CHIP Reauthorization Act of 2015 (P.L. 114-10)
MCTRJCA
Middle Class Tax Relief and Job Creation Act of 2012 (P.L. 112-96)
MEDIC
Medicare Drug Integrity Contractor
MedPAC
Medicare Payment Advisory Commission
MEI
Medical Economic Index
MIPPA
Medicare Improvements for Patients and Providers Act of 2008 (P.L. 110-275)
MIPS
Merit-Based Incentive Payment System
MMA
Medicare Prescription Drug Improvement and Modernization Act of 2003 (P.L. 108-173)
MMSEA
Medicare, Medicaid and SCHIP Extension Act of 2007 (P.L. 110-173)
MPFS
Medicare Physician Fee Schedule
MS-DRG
Medicare Severity Diagnosis Related Groups
MSP
Medicare Savings Program
OIG
Office of Inspector General
OMB
Office of Management and Budget
OPPS
Outpatient Prospective Payment System
OT
Occupational Therapy
PAMA
Protecting Access to Medicare Act of 2014 (P.L. 113-93)
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PBD
Provider-Based Department
PDGM
Patient Driven Groupings Model
PDP
Prescription Drug Plan
PDPM
Patient Driven Payment Model
PFFS
Private Fee-for-Service
PO
Prosthetics and Orthotics
PPS
Prospective Payment System
PQRS
Physician Quality Reporting System
PT
Physical Therapy
QI
Qualified Individual
QIC
Qualified Independent Contractor
QIO
Quality Improvement Organization
QMB
Qualified Medicare Beneficiary
QPP
Quality Payment Program
RAC
Recovery Audit Contractor
RBRVS
Resource-Based Relative Value Scale
RHC
Rural Health Clinic
SCH
Sole Community Hospital
SGR
Sustainable Growth Rate
SHIP
State Health Insurance Assistance Program
SLMB
Specified Low-Income Beneficiaries
SMI
Supplementary Medical Insurance (Medicare Parts B and D)
SNF
Skilled Nursing Facility
SNP
Special Needs Plan
SSA
Social Security Act or Social Security Administration
SSI
Supplemental Security Income
TRHCA
Tax Relief and Health Care Act of 2006 (P.L. 109-432)
UPIC
Unified Program Integrity Contractor
USPSTF
United States Preventive Services Task Force
VPD
Variable Per Diem
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Appendix B. 2020 Medicare Beneficiary Costs
Table B-1. Part A (Hospitalization Insurance)
2020 Premiums, Deductible, and Additional Cost Sharing
Premiums
Individuals with
2020 Monthly Premium
40 or more quarters of Social Security credits
$0
30-39 quarters of Social Security credits
$252
0-29 quarters of Social Security credits
$458
Deductible and Additional Cost Sharing
Inpatient Hospital
Deductible
$1,408 per benefit period
Days 1-60
No co-payment
Days 61-90
$352 per day
Days 91-150
$704 per day (for up to 60 lifetime reserve days)
After 150 Days
Beneficiary pays 100%
Skilled Nursing Facility (SNF)
Days 1-20
No co-payment
Days 21-100
$176 per day
After 100 Days
Beneficiary pays 100%
Home Health
No co-payment
Hospice
No co-payment for hospice care; co-payment of up to
$5 per outpatient drug prescription
Source: CMS, “2020 Medicare Parts A & B Premiums and Deductibles,” Fact Sheet, November 8, 2019, at
https://www.cms.gov/newsroom/fact-sheets/2020-medicare-parts-b-premiums-and-deductibles.
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Table B-2. Part B (Supplementary Medical Insurance)
2020 Premiums, Deductible, and Additional Cost Sharing
Premiums
Yearly Income in 2018 (2019 Tax Return)
File Individual Tax Return
File Joint Tax Return
2020 Monthly Premiuma
$87,000 or less
$174,000 or less
$144.60
above $87,000 up to $109,000
above $174,000 up to $218,000
$202.40
above $109,000 up to $136,000
above $218,000 up to $272,000
$298.20
above $136,000 up to $16,000
above $272,000 up to $326,000
$376.00
above $163,000 and less than
above $326,000 and less than
$462.70
$500,000
$750,000
at or above $500,000
at or above $750,000
$491.60
Deductible
Deductible
$198 per year
Additional Cost Sharing
Physician and Nonphysician Practitioner
20% coinsurance, plus up to an additional 15% of the
Services
Medicare-approved amount if the medical provider
does not accept assignment
Outpatient Hospital Care
20% coinsurance
Ambulatory Surgical Services
20% coinsurance
Durable Medical Equipment
20% coinsurance
Physical, Occupational, and Speech Therapy
20% coinsurance, certain limits may apply
Clinical Laboratory Services
No coinsurance, deductible does not apply
Home Health
No coinsurance, deductible does not apply
Outpatient Mental Health Services
20% coinsurance
Most Preventive Services
No coinsurance
Source: CMS, “2020 Medicare Parts A & B Premiums and Deductibles,” Fact Sheet, November 8, 2019,
athttps://www.cms.gov/newsroom/fact-sheets/2020-medicare-parts-b-premiums-and-deductibles.
a. May be higher if enrolled late in Part B.

Table B-3. Part C (Medicare Advantage)
Premiums, deductibles and additional cost sharing vary by plan.
Source: Medicare.gov, “Costs for Medicare Advantage Plans,” at https://www.medicare.gov/your-medicare-
costs/medicare-health-plan-costs/costs-for-medicare-advantage-plans.html.
Note: For plan premiums, see https://www.medicare.gov/find-a-plan/questions/home.aspx.
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Table B-4. Part D (Outpatient Prescription Drug Benefit)
2020 Premiums, Deductible, and Additional Cost Sharing
Premiums
Premiums vary by plan. (See https://www.medicare.gov/find-a-plan/questions/home.aspx for plan premiums.) Higher
income beneficiaries pay an income-related monthly adjustment amount in addition to their plan premiums.
Beneficiaries who qualify for the low-income subsidy generally pay no premium.
Yearly Income in 2018 (2019 Tax Return)
File Individual Tax Return
File Joint Tax Return
2020 Monthly Premiuma
$87,000 or less
$174,000 or less
Plan Premium
above $87,000 up to $109,000
above $174,000 up to $218,000
Plan Premium + $12.20
above $109,000 up to $136,000
above $218,000 up to $272,000
Plan Premium + $31.50
above $136,000 up to $163,000
above $272,000 up to $326,000
Plan Premium + $50.70
above $163,000 and less than
above $326,000 and less than
Plan Premium + $70.00
$500,000
$750,000
at or above $500,000
at or above $750,000
Plan Premium + $76.40
Deductible and Additional Cost Sharing
The amounts below apply to the standard Part D benefit; actual benefits and cost-sharing requirements may vary
by plan. Beneficiaries qualifying for low-income subsidies pay reduced cost-sharing amounts.
Deductible
$435
Initial Coverage (up to $4,020 in total drug costs)
25% coinsurance
Coverage Gap (between $4,020 and approximately
25% coinsurance
$9,719 in total drug costs)
Catastrophic Coverage (above $6,350 in beneficiary out-
Minimum of $3.60 for generic drugs, $8.95 for brand-
of-pocket spending)
name drugs; or 5% coinsurance.
Source: CMS, 2020 Part D Income-Related Monthly Premium Adjustment, September 27, 2019, at
https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/PartDIRMAA2020.pdf; and
CMS, “Announcement of Calendar Year (CY) 2020 Medicare Advantage Capitation Rates and Medicare
Advantage and Part D Payment Policies and Final Call Letter,” Attachment V, April 1, 2019.
a. May be higher if enrolled late in Part D.

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Author Information

Patricia A. Davis, Coordinator
Paulette C. Morgan
Specialist in Health Care Financing
Specialist in Health Care Financing

Cliff Binder
Marco A. Villagrana
Analyst in Health Care Financing
Analyst in Health Care Financing

Jim Hahn
Phoenix Voorhies
Specialist in Health Care Financing
Analyst in Health Care Financing

Suzanne M. Kirchhoff

Analyst in Health Care Financing

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan
shared staff to congressional committees and Members of Congress. It operates solely at the behest of and
under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other
than public understanding of information that has been provided by CRS to Members of Congress in
connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not
subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in
its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or
material from a third party, you may need to obtain the permission of the copyright holder if you wish to
copy or otherwise use copyrighted material.

Congressional Research Service
R40425 · VERSION 55 · UPDATED
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