How Is Medicare Funded?
- How is Medicare funded? There are various ways this government program receives its funding. Learn more about these funding methods in our guide today.
Medicare is a national government health insurance program that started in 1965. Although it was initially begun by the Social Security Administration (SSA), it's now managed by the Centers for Medicare and Medicaid Services. The program provides free or low-cost health care to anyone over age 65.
How Is Medicare Funded?
Medicare has various funding methods that come from both the government and taxpayers. Where funding comes from also depends on the different types of Medicare.
Medicare Part A Funding
Medicare Part A covers hospital costs, including hospitalization and emergency services. One form of funding for Part A comes from the Hospital Insurance trust fund, which covers specific types of inpatient care, including home health care, skilled nursing facilities and hospice.
You also contribute to Medicare Part A through your payroll earnings when you earn money from working. Generally, you'll pay 1.45% of your earnings on Medicare taxes, and your employer matches that contribution for a total contribution equal to 2.9% of your income. Taxes from Social Security benefits are another form of funding, as is interest accrued on trust fund investments and premiums associated with Part A.
Medicare Part B Funding
Medicare Part B helps cover the enrollee's costs associated with preventative care, including doctor visits and routine labs. Part B is primarily funded by the Supplementary Medical Insurance trust fund, which operates the Medicare program itself.
The United States Congress sanctions some funding for Medicare Part B, and interest accrued through the trust fund's investments also contributes. Other forms of Part B funding include premiums paid for this Medicare plan and Part D (which helps pay for prescriptions).
Medicare Advantage Funding
Medicare Advantage funding is primarily funded through premiums, payroll taxes and revenues. Each year, the government determines an amount of money that goes to private insurers for each Advantage enrollee. These funds come from both the Hospital Insurance and the Supplementary Medical Insurance trust funds.
Medicare Supplement Funding
Medicare offers various supplemental packages covering additional services such as prescriptions and dental, vision and hearing services. These packages are funded almost exclusively through premiums. However, some retirees may have their premiums paid by former employers.
How Do Medicare Advantage Providers Make Money?
Medicare Advantage plans are through private insurance carriers who have agreed to work with Medicare. Each of these companies receives a set amount of money per enrollee from the Medicare program. Separate payments are made for plans with prescription drug coverage.