Financing Healthcare: Medicare and Medicaid


In the last decades, despite the outstanding achievements in the healthcare sector, especially regarding treatment, the cost and access to healthcare service still remain the central issues troubling the public, officials, and policymakers. In this regard, the USA government attempted to address these problems in different ways, primarily focusing on providing affordable medical insurance and encouraging society to lead a healthy lifestyle via various incentives. This paper aims at examining and comparing Medicare, Medicaid, and managed care organizations (MCO) by assessing their strengths and weaknesses and offering relevant recommendations.


Facts MCO Medicare Medicaid
Definition A group of doctors, hospitals, and other healthcare providers delivering comprehensive health services and striving for reducing medical costs through contracts with insurers or self-insured employers for a prepaid, fixed fee. The national health insurance program that partly covers medical expenditures of people 65 and older, as well as disabled persons and people suffering from permanent renal failure, irrespective of their income. A public program of medical assistance to people with incomes below the official poverty line, including the elderly, people with disabilities, families with children, implemented at the state level with the federal government’s support.
Funded by: People with fixed commission per month. The payroll tax levied on both employers and workers, as well as monthly beneficiary premiums. Mutually sponsored by the federal and state governments. The federal government compensates states a percentage of the program’s costs.
Administered by Mainly by for-profit organization and groups of individuals Presently administered by the Centers for Medicare and Medicaid Services (CMS) Presently administered by the US Centers for Medicare & Medicaid Services and state governments
Types/Coverage Health Maintenance Organizations (HMOs): pays only in-network medical providers.
Preferred Provider Organizations (PPOs): pays both in-network providers for specialty and primary care and outside providers but less.
Point of Service Organizations (POS): patients can select between HMO and PPOs each time when needed care service (Heaton, & Tadi, 2020).
In 2019, Medicare comprised over 61 million people, including above 52 million aged 65 and older and almost 9 million disabled (“The boards of trustees,” 2020).
Medicare Part A covers hospital (inpatient), skilled nursing, including home care and hospice services.
Part B – outpatient and preventive services
Part C (Medicare Advantage) – patients can select private health plans that contain the same service as Parts A or B.
Part D is the coverage of prescribed drugs
As of July 2020, 68,8 people were enrolled in Medicaid (“July 2020 Medicaid,” n.d.).
Every state determines their Medicaid programs, but mandatory benefits include physician services, inpatient and outpatient hospital services, laboratory and x-ray services, home health services.
Advantages First, MCO reduces the healthcare and drug costs for enrolled members and provides various coverage options and a good network of doctors. In addition, it has better prescription management because of tight cooperation with pharmaceutical agencies and enhanced relationships between patients and providers. Medicare costs are comparatively low; for example, as of 2020, Medicare Part B’s monthly premium for enrollees amounts to $144.6 (“2020 Medicare Parts,” 2020). Besides, Medicare offers a broad array of flexibility concerning choosing healthcare providers since most hospitals and doctors in the US accept Medicare. Finally, this insurance program has resulted in improvements in healthcare standards. Medicaid improved access of low-income families to healthcare and its quality. The insurance also alleviates childish poverty (Korenman et al., 2019). Lastly, it has a positive impact on hospital readmissions of patients with diabetes, asthma, and pneumonia (Quinn et al., 2016).
Disadvantages First of all, MCO possesses a highly rigid system of rules and restricted access for those without insurance. In addition, there is a continuous risk of privacy loss and prolonged wait times for all patients. Medicare usually places a substantial financial burden on the federal budget, accounting for 15 percent of total federal spending in 2018, namely, $750 billion (“NHE Fact Sheet,” n.d.). Besides, the insurance can have limited provider networks and strict coverage rules, not allowing for seeking outside providers. Firstly, Medicaid poses financial problems for both federal and state budgets, accounting for almost $600 billion in 2018 (“NHE Fact Sheet,” n.d.). Additionally, providers earn less from Medicaid than from other payers. Its rules are also rigid, and there are concerns about seeking providers accepting Medicaid.
Recommendations Firstly, the federal or state governments should participate in consumer protection, especially concerning privacy and care quality, and implement transparency requirements on MCOs’ performance. The accreditation process should be regularly reviewed and be directed at addressing problematic areas. Finally, there is a need to ensure data and payment integrity. Increase the Medicare eligibility age from 65 to 67 and Medicare premiums for higher-income beneficiaries.
Raise penalties for healthcare frauds.
Increase beneficiary alignment and involvement in all models.
Enhance the design of the payment system.
Make payments directly to accountable care organizations.
Modernize eligibility processes and improving people’s awareness of rules.
Increase provider payments that are less than in private insurance or Medicare.
Reform Medicaid financing.
Set a Medicaid quality measurement system.


In summary, the paper has examined and compared Medicare, Medicaid, and managed care organizations by assessing their strengths and weaknesses. For example, although MCO decreases the healthcare and drug costs for enrolled members, gives various coverage options, it has a highly rigid system of rules and restricted medical access for individuals without insurance. Besides, the paper has offered specific recommendations related to these programs. For instance, the Medicare eligibility age, penalties for healthcare frauds, and Medicare premiums for higher-income beneficiaries should be increased. In addition, the policymaker should pay attention to improving the design of the payment system.


Heaton, J., & Tadi, P. (2020). Managed Care Organization. StatPearls.

July 2020 Medicaid & CHIP Enrollment Data Highlights. (n.d.).

Korenman, S., Remler, D. K., & Hyson, R. T. (2019). Accounting for the impact of Medicaid on child poverty. National Bureau of Economic Research, (w25973), 1-59.

NHE Fact Sheet (n.d.).

The boards of trustees, Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. (2020). 2020 Annual report of the boards of trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds.

2020 Medicare Parts A & B Premiums and Deductibles. (2019).

Quinn, K., Weimar, D., Gray, J., & Davies, B. (2016). Thinking about clinical outcomes in Medicaid. The Journal of Ambulatory Care Management, 39(2), 125.

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