CMS Files Prospectus: Overview of Centers for Medicare & Medicaid Services and Its Role in U.S. Public Healthcare

CMS, or the Centers for Medicare & Medicaid Services, is a public health insurance service platform that currently covers 100 million people. Its predecessor was the Health Care Financing Administration (HCFA), a federal agency within the U.S. Department of Health and Human Services responsible for administering the Medicare program and working with state governments to administer the Medicaid program, the Children’s Health Insurance Program (CHIP), and health insurance standards. In addition to these responsibilities, CMS has other duties, including establishing administrative simplification standards under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), certifying nursing facilities against standards for long-term care homes, developing and revising quality standards for clinical laboratories, and overseeing Healthcare.gov, the core platform of the federal health insurance exchange system in the United States.

The U.S. healthcare system is highly complex, primarily comprising two components: public health insurance and private health insurance. Today, we will focus on the public health insurance segment. In 1965, the U.S. Congress passed the Social Security Amendments, authorizing the government to establish public health insurance programs, including Medicare for retirees and individuals with disabilities, and Medicaid for low-income populations.



What Is Medicare?（Medicare）？

Medicare is the earliest health insurance program in the United States. It is a health insurance program provided by the U.S. government to individuals aged 65 or older who have participated in the workforce, individuals under 65 with certain disabilities, and individuals of any age with permanent kidney failure (also known as "end-stage renal disease"). It consists of two parts: Hospital Insurance and Medical Insurance, providing $560 billion in healthcare expenditures for approximately 48 million Americans annually. It is estimated that Medicare spending will exceed $1 trillion by around 2022.

Hospital insurance helps beneficiaries cover the costs of inpatient care received in hospitals, skilled nursing facilities, or during hospice care; under certain conditions, it may also cover the cost of home health care. Most individuals do not need to pay premiums for this coverage, as they or their spouses have already paid Medicare taxes while working in the United States. Medicare funding is part of payroll taxes, with a total rate of 2.9% of an employee’s wages, split equally between employers and employees (1.45% each), to support retirees’ health benefits.

Health insurance can help beneficiaries cover the costs of medically necessary physician services and other outpatient services. It also covers part of the cost of preventive services (such as flu vaccines) to help insured individuals stay healthy, as well as certain services that prevent a condition from worsening. Most people are required to pay this premium.

What Is Medicaid?（Medicaid）?

For the vast low-income population who have not yet reached the retirement age of 65, particularly minors living in poverty, Medicaid—jointly funded by the U.S. federal and state governments—is their sole avenue for accessing healthcare services. Its primary beneficiaries include low-income pregnant women, children and adolescents under the age of 19, individuals who are blind, and elderly persons requiring nursing home care. While Medicaid beneficiaries are entitled to free medical services, they must meet specified eligibility criteria regarding their identity, age, income, and other factors.

Currently, all 50 U.S. states participate in the program. State governments determine eligibility criteria, standards, and insurance coverage for Medicaid based on the income levels of their residents. Eligibility requirements vary significantly across states. In addition to belonging to low-income groups, applicants must meet certain conditions, such as age, pregnancy status, disability, blindness, income and asset limits, U.S. citizenship, and lawful immigrant status. In recent years, due to the U.S. economic downturn, Medicaid eligibility standards have gradually become more stringent. A criterion added in 2005 requires beneficiaries to be U.S. permanent residents. Regarding operational models, some states contract private health insurance companies to administer Medicaid, while others provide subsidies directly to hospitals or physicians delivering services, rather than subsidizing individuals directly. Some states also require enrollees to pay cost-sharing fees when receiving medical services. Currently, a significant portion of the U.S. population qualifies as “dual eligibles,” meaning they are eligible for both Medicare and Medicaid.



About the Affordable Care Act

When discussing health insurance, it is impossible to overlook the healthcare reform legislation enacted under U.S. President Barack Obama. The United States has long been described as “the only developed country without universal health coverage.” Statistics show that in 2010, approximately 49 million people across the United States had no health insurance whatsoever. These individuals were neither classified as low-income nor elderly; they fell outside the scope of any public health insurance programs yet lacked the financial means to purchase private insurance products. Nevertheless, U.S. regulations mandate that hospitals cannot refuse treatment to patients even if they are uninsured or unable to afford medical costs. Consequently, the unpaid medical expenses ultimately become a government liability, further exacerbating the nation’s already strained fiscal situation. The healthcare reform championed by President Obama was precisely aimed at resolving this persistent challenge for the U.S. government. This reform requires the vast majority of American citizens to obtain health insurance, with federal subsidies available to those who cannot afford the premiums. Larger companies and enterprises are obligated to provide health insurance coverage for their employees or face penalties. Meanwhile, the federal government can offer financial subsidies to small businesses that provide employee health insurance.

The bill was passed by a vote of the U.S. Congress in 2010, and in 2015, the U.S. Supreme Court upheld the healthcare reform law by a 6-3 margin. The aim of the legislation was to expand health insurance coverage while controlling medical expenditures and reducing healthcare costs. However, its implementation encountered significant obstacles, including the financial crisis facing the government and partisan resistance.

By Xu Huiting

Editor: Huang Jia