Medicare is a completely federal social insurance program that entitles eligible persons to coverage for a defined set of benefits, including certain immunizations.21 All Medicare-eligible individuals enrolled in Part B of the program, whether entitled to coverage on the basis of age, disability, or coverage for end-stage renal disease (ESRD), are entitled to immunizations for influenza and pneumococcal disease, as well as for hepatitis B if determined to be at risk for that disease. Since the original 1965 Medicare statute excluded coverage of all preventive services, other vaccines or inoculations are excluded as “preventive immunizations” unless directly related to the treatment of an injury or direct exposure to diseases or conditions.22 Pneumococcal and influenza immunizations are covered by Medicare without deductible and coinsurance.

In 1998, 32.3 million persons aged 65 and older were covered by Medicare Part B. An additional 5 million persons under age 65 were covered as disabled or ESRD beneficiaries. Originally designed in 1965 as a health insurance program to cover the expenses of acute and rehabilitative medical care, Medicare explicitly excluded coverage of preventive services until Congress authorized the coverage of pneumococcal vaccine in 1981. In 1984, hepatitis B vaccine was covered for ESRD patients, and it is now covered for any beneficiaries who are at risk of the disease. Annual influenza immunizations were added to Medicare benefits in 1993, following a 4-year demonstration program. In 1994, the first full year in which both influenza and pneumococcal vaccines were covered, Medicare spent an estimated $100 million on the vaccines and their administration (General Accounting Office, 1995b). In 1998, Medicare paid providers $87 million for influenza immunizations, $27 million for pneumococcal immunizations, and $800,000 for hepatitis B immunizations (information provided by HCFA).

Medicare began paying providers a separate fee for vaccine administration as a uniform national policy in 1993. Prior to that time, payment for immunizations was inconsistent among Medicare administrative areas, and sometimes only the cost of the vaccine was reimbursed. As for other physician service payments, Medicare’s vaccine administration payment rates vary geographically.23 For the year 2000, vaccine administration fees range from a low of $3.95 in Mississippi to a high of $5.38 in New York City, with a national average of $4.39 (information provided by HCFA).

Some have argued that Medicare administration fees are too low to compensate physicians adequately for the costs of storing and administering vaccines, and that these low fees contribute to low immunization coverage rates among beneficiaries (Poland and Miller, 2000). However, other factors contribute to low influenza and pneumococcal coverage rates for the elderly, including provider practices and knowledge, and patients’

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