There are millions of Medicare beneficiaries from all different states, which makes it a national health care program available regardless of your income, existing health conditions, and your current residency. Medicare continues to stand based on the way it is funded by a complex system of payroll taxes along with the monthly Medicare premiums paid by all Medicare beneficiaries. Medicare is also partially funded by taxes paid by those receiving Social Security benefits and by various other payments from States to the Federal government. So, how is each specific component of Medicare funded? Here’s what you should know.

What is the Funding Source for Medicare Part A?

Medicare Part A receives most of its funding from the payroll tax, which totals a tax of 2.9% on salary that is earned, with employees paying 1.45% and employers paying the same 1.45%.

Those workers who receive a higher salary are required to pay a higher percentage of tax on their earnings. Workers who are self-employed must pay the entire 2.9% of payroll tax by themselves every quarter.

Every individual who is employed in the US must pay taxes on their salaries and this tax, which is called the Medicare tax, is seen on employee paystubs as the FICA tax (Federal Insurance Contributions Act) that is deducted automatically with every paycheck.

How is Medicare Part B Funded

Medicare Part B is mainly funded by the Federal General Fund, which in turn is funded from Federal Income Taxes and other Federal Taxes. In addition, an additional 27% of Medicare Part B funding is derived from the Medicare Part B Premiums that is paid by all Medicare enrollees. For 2022, the normal Medicare Part B monthly premium is $170.10, which is deducted automatically every month from Social Security payments.

How Much Does the Government Pay Medicare Advantage Plans

Medicare Part C (Medicare Advantage) is funded by the Medicare Program which pays an agreed upon fixed amount to private insurance companies each month for each beneficiary. This amount is approximately $1,000 per month for every enrollee.

How is Medicare Part D Funded?

Most of the funding for Medicare Part D, which pays for prescription drug coverage, comes from the General Revenue Fund of the Federal Government. An additional 17% of funding for Medicare Part D is derived from the premiums paid monthly by enrollees in this plan.

How are Medicare Supplement Plans Funded?

Medicare Supplement Plans are funded without any funding at all from the Federal Government. These plans are only funded by the monthly premiums paid by Medicare Supplement Plan enrollees along with all coinsurance costs and copays. These types of Medicare Supplement Plans, which are also called Medigap Plans, cover the additional 20% of medical costs that are not covered by Medicare (Medicare Part A and Medicare Part B typically only cover 80% of medical costs).

Sources:

  1. Medicare Trustees Report, CMS.
  2. How is Medicare Funded, Medicare.
  3. How is Medicare Financed, Kaiser Family Foundation.