 Medicare is a government healthcare program. But do you know just how big it is? In 2014, Fee for Service Medicare covered 38 million people and wrote over a billion checks for medical services. That's a lot. But here's the catch. Medicare can affect you even if you don't use it. It is so large that the price Medicare pays doctors influences what your private plan pays. But do you know where those prices come from? Probably not. Which is why you're watching this video. So sit back and relax. So Medicare pays for health services. This means it deals with tons of numbers and formulas in order to figure out what each service costs. Now, with other types of insurance, this process is straightforward. If you wreck your car, you go to a mechanic or two, get a quote, and that's the price. But it's a very different process with medical care. Ever get a quote for draining a lower leg lesion? No? Let's say you need to. Here's what the Medicare payment formula would look like. To determine the cost, the government looks at three components. First, the work involved. Things like, does the doctor need a lot of technical skill? Does the work require a lot of physical effort? Is it mentally stressful? Second, it considers practice expenses, like overhead. And the third factor is the cost of malpractice insurance. Each component is given an RVU or resource value unit and then totaled up. The RVU is then converted into dollars. The result is the price, or fee, that Medicare reimburses for that service. And there you have it. However, several factors can affect the price. Things like geography, type of facility, or who performs the service. So this process is repeated for every procedure, from a regular checkup to cancer screening. But that's just the formula. You still need numbers to plug into the formula. Remember those resource value units? Where do they come from? An RVU is just a number that tries to capture the cost of a medical service. The government could collect this data by looking at accounting statements or other sources, which actually is starting to happen. But historically, they've gotten this number simply by asking doctors. How? Glad you asked. A 31-member committee organized by the American Medical Association sends out surveys to doctors. They use the results of those surveys to make recommendations to the government. For many years, the government accepted the AMA's recommendations with little to no modification, though recently they've been met with more scrutiny. Each year, codes are added and updated. The formulas compute new prices. And Medicare writes another billion or so checks. So, yeah, Medicare is huge. But its impact is even bigger than you think. Why? Because private plans often use Medicare prices as a benchmark. That means Medicare prices ripple throughout the entire health insurance market. And because these prices have such a large impact, getting them right is critical. So are they right? Probably not. Because the current system has many problems, such as, only a select group of doctors is asked to set prices. The AMA committee representing those doctors can cherry-pick cost estimates. And the committee is biased in favor of specialties. Plus, there's no incentive for anyone involved to correct overpriced procedures. The list goes on. And here's the kicker. The current problems with Medicare price setting affect more than just the doctors or Medicare patients. They affect your medical bills and your tax dollars. Basically, they affect you. So what can be done to fix Medicare's prices? To find out, visit mercadis.org slash Medicare pricing.