What Exactly Is Medicare?

What Exactly Is Medicare?
January 1, 2004



Medicare was established in 1965 to provide health care insurance to individuals age 65 and over. The program was expanded over the years to include disabled individuals as well. Today, Medicare covers more than 40 million Americans and is the nation’s largest health insurance program.

Medicare consists of two parts. Part A, Hospital Insurance (HI), covers hospital, some home health care, services delivered at a skilled nursing facility, and hospice care expenses. HI is financed primarily by payroll taxes.

Medicare Part B, Supplementary Medical Insurance (SMI), covers physician, outpatient hospital, and other certain home health expenses. SMI is financed primarily by transfers of money from the general fund of the U.S. Treasury, and also by the collection of monthly premiums.


John Berthoud is president of the National Taxpayers Union. His email address is ntu@ntu.org.