Medicare

How It Works

Medicare is the single largest payer for hospital services in the United States, covering approximately 67 million Americans as of 2025 (63 million aged 65+ and 4 million under 65 with qualifying disabilities or end-stage renal disease). It is organized into four parts. Part A (Hospital Insurance) covers inpatient hospital stays under the IPPS, skilled nursing facility care, hospice, and some home health care; it is funded by a 2.9% payroll tax split between employer and employee. The 2025 Part A inpatient deductible is $1,676 per benefit period, with a daily coinsurance of $419 starting day 61 and $838 starting day 91 (lifetime reserve days). Part B (Medical Insurance) covers physician services, outpatient hospital services under OPPS/APC, durable medical equipment, and most preventive services; the 2025 standard monthly premium is $185 with a $257 annual deductible and 20% coinsurance. Part C (Medicare Advantage) is a private-insurance alternative covering Parts A+B plus usually D and supplemental benefits, enrolling about 33 million beneficiaries (roughly 54% of all Medicare enrollees) in 2025. Part D (Prescription Drug Coverage) is optional standalone or bundled coverage with 2025 caps of $590 deductible and a new $2,000 annual out-of-pocket maximum established by the Inflation Reduction Act. Medicare sets payment rates (IPPS/OPPS/Physician Fee Schedule) that serve as the benchmark for commercial insurance. Hospitals typically receive 30-50% less from Medicare than from commercial insurers for the same services. HospitalCostData uses CMS Medicare payment data, Hospital Cost Reports (Form 2552-10), Provider of Services files, and Care Compare quality data as primary sources.

Related Terms

• Medicare Advantage (Part C), A private health insurance alternative to traditional Medicare that covers Parts A and B and usually Part D, enrolling over half of all Medicare beneficiaries as of 2024.
• Centers for Medicare & Medicaid Services (CMS), The federal agency within the Department of Health and Human Services that administers Medicare, Medicaid, CHIP, and the ACA marketplace, setting hospital payment rates, quality standards, and the data that HospitalCostData uses.
• Inpatient Prospective Payment System (IPPS), Medicare's payment system for acute-care hospital inpatient stays, paying a fixed amount per MS-DRG rather than reimbursing each individual service.
• Diagnosis Related Group (DRG), A classification system that groups hospital inpatient stays into categories based on diagnosis, procedures, and patient complexity, used by Medicare to determine how much a hospital gets paid.
• Medicaid, A joint federal-state health insurance program for low-income individuals, paying hospitals less than Medicare and covering over 80 million Americans as of 2025.