Ever since July 30, 1965, when the United States federal government established Medicare, millions of people have counted on their Medicare benefits for most of their health care coverage. Today, there are more than 48 million Americans who use Medicare coverage for their main health care insurance.

When the Social Security Administration first implemented this national health program, it was meant to protect uninsured citizens and those who were at a later stage in life when it was more difficult to get health care insurance from private companies.

While Medicare’s main purpose continues to be the same, it has also greatly affected costs associated with the private insurance market. Medicare has been influential in setting fair prices for services and supplies in the health care industry. But, how and why did this happen?

How does Medicare impact other payers?

According to a recent study, it has been shown that the Medicare health care system plays an important role in determining what the prices are for the majority of medical treatments and services in the United States. For all medical procedures, services, and supplies, the Centers for Medicare & Medicaid Services (CMS) sets what it deems to be a fair price. These prices, in turn, affect other insurance companies because of the large market share that Medicare covers. Consumers are able to make price comparisons and do not purchase plans that are more expensive, or offer less coverage, than Original Medicare does.

Not only is the CMS responsible for setting fair prices, they also determine which treatments, technologies, and supplies are worth including in Medicare coverage.

Once the U.S. federal government began insuring people over 65 with the Medicare program, this opened new markets for private health care insurance providers. Before Medicare, they were not interested in pursuing this age group for health care coverage. After it was introduced, they began offering supplemental insurance policies, like Medigap, to financially assist beneficiaries with Medicare’s high cost sharing requirements.

Original Medicare benefits and Medigap plans work together even though you must purchase a Medigap plan from a private insurance provider. To be eligible for a Medigap plan, you must have Medicare Part A (hospital insurance) and Part B (medical insurance) both and have turned 65 years of age.

Medigap supplements your Original Medicare insurance coverage but you still play a monthly premium for both Medigap and Part B of Medicare.

Also provided by private insurance companies are Medicare Advantage (Part C) plans that serve as an alternative to Original Medicare. These policies cover everything that Original Medicare Parts A and B cover. A Medicare Advantage policy also offers extra coverage like prescription drug (Part D), or vision, hearing, or dental care if you choose to include them.

Medicare pays a set monthly amount for every Medicare Advantage beneficiary directly to the private provider and the provider pays for Medicare services from this amount. They profit from a monthly stipend that is not completely used by the beneficiary. All private insurance companies create a network of health care providers that beneficiaries are allowed to use for medical services.

Today in the United States, the federal government is the largest single payer of health care, covering one quarter of money spent in the country for health care. Medicare continues to have an influence on the private insurance market and greatly impacts other payers in the health care industry.

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