Signed into law by President Lyndon B. Johnson on July 30, 1965, Medicare began as a social insurance program for American citizens age 65 or older. Today, the expanded Medicare program also covers citizens who may not be 65 years old but certainly demonstrate need. Those suffering with Lou Gehrig's disease, in need of a kidney transplant or have been receiving Social Security benefits for at least 24 months all qualify for Medicare.

Originally, Medicare covered only Hospital Insurance (known as Part A) and Medical Insurance (Part B). Former President Harry S. Truman was the first recipient of an official Medicare card, which then rarely entitled the holder to prescription drug coverage. As of early 2006, more comprehensive drug coverage was provided.

Part A

Part of Medicare is Hospital Insurance. Given set criteria are met, it will cover hospital stays, including nursing or assisted living facility living. To receive the benefits of Part A, there are four main points that must be met (only the first of which addresses hospital visits):

1.)    Not including the date in which you are discharged, the hospital stay must be a minimum of three days and three midnights.

2.)    A nursing home stay is only covered if the problem is diagnosed during the hospital visit outlined above. For example, if a respiratory issue sent you to the hospital, Medicare would cover a nursing home stay to help rehabilitate your lungs.

3.)    If you don't need rehabilitation at a nursing home but have an ailment that requires constant medical assistance or supervision, the stay would be covered.

4.)    Those caring for you at the nursing home have to be skilled. Part A of Medicare does not cover long term, unskilled or custodial care.

Regarding nursing home stays: Medicare will only cover 100 days per ailment. The first 20 days are paid for my Medicare in full; the following 80 require a co-payment of $128 per day (as of 2008). Every 60 days that you go without using Medicare to help cover a nursing home stay, the 100-day clock is reset and you qualify for a new 100-day period.

Part B

Part B of Medicare deals with Medical Insurance. This section covers most outpatient services and medically necessary products that Part A leaves untouched. Everything from a doctor’s visit to immunosuppressive drugs for organ transplant recipients is covered by Part B, including limited ambulance transportation.

In addition to outpatient doctor's services and treatments like chemotherapy, Part B helps you to pay for “durable” medical equipment (DME). Examples of DME include mobility scooters, prosthetic limbs, canes and oxygen.

Part C

Part C of Medicare deals with Medicare Advantage plans. After the Balanced Budget Act of 1997 passed, Medicare recipients were given the choice to either keep their original Medicare plan (Parts A and B), or receive their benefits through a private health insurance plan. After 2003 and the Medicare Prescription Drug, Improvement and Modernization Act, those exercising the option of Part C became  known as Medicare Advantage (MA) recipients.

If you choose Medicare Advantage, Medicare will pay a set amount each month towards private health insurance. Anything left over you'll have to cover, and in many cases you'll have to fork over a fixed co-payment amount (usually around $10 or $20) each time you see a doctor. By law, the private insurance company you choose to go through must offer a “benefit package” at least as good as the one that Medicare Parts A and B offer.

Part D

Medicare Part D deals with Prescription Drug plans and went into effect at the beginning of 2006. If you have Medicare Part A or B, you are eligible for Part D. If you're taking advantage of an MA Plan, you can also adjust your benefits so that you can also take advantage of Part D (in which case the overall plan becomes MA-PD).

To enroll, you have to enroll in a separate Prescription Drug Plan (PDP) or MA-PD. Part D coverage is not standardized. Different plans cover different drugs and levels of coverage. In fact, some plans don't cover certain drugs at all. As dictated by Medicare, some drugs can't be covered, including some cough suppressants, benzodiazepines and barbiturates.

Costs

While many people view Medicare as a free ride through America's health care system that is not the case for a significant percentage of beneficiaries. From the time that each tax-paying citizen starts working, 2.9 percent of their wages are garnished as taxes, courtesy of the Federal Insurance Contributions Act (FICA). This 2.9 percent is split down the middle between employers and employees, each paying 1.45 percent of any salaries or wages earned. Those who are self-employed have to pay the full 2.9 percent alone. Until 1994, the earnings taxable under FICA were capped. Starting January 1st of that year, the ceiling was removed.

In the fiscal year of 2002, the “Green Book”, produced by the House Ways and Means Committee, reported that Medicare expenditures from the United States government were $256.8 billion. For the fiscal year of 2007, that number increased dramatically to $440 billion. This is a direct result of the average price of health care per person per year increasing, while the number of working people paying Medicare taxes in relation to the number of retirees drawing benefits is decreasing.

Currently, Medicare spending accounts for 16 percent of all federal spending. This puts it third, only behind Social Security and Defense spending. Scarier still, the cost of Medicare is expected to increase 7 percent per year over the next 10 years.

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