How is Medicare funded is a funny question because there are so many answers depending on who answers your question. Some will say it’s primarily funded through general revenue, payroll taxes, and beneficiary premiums.

The Center for Medicare and Medicaid Services (CMS) says Medicare gets its funding from the Medicare Trust Fund. Well, there are two trust funds funding Medicare. But who funds the trust fund? I think we can all agree that Medicare exists because of American tax dollars.

Where Does the Money Come from to Pay for Medicare?

Have you taken a close look at your paycheck; did you notice the “Medicare Tax” that comes out of your payroll? Yes, Medicare funding comes out of payroll taxes.

Is Medicare Federally Funded?

Medicare is a federally funded health care program available to those over 65 years old or those with specific disabilities. The federal program is available everywhere in America and is run by CMS which is a federal agency.

Medical bills are paid from the Medicare trust funds those covered have already paid into.

Do Taxes Pay for Medicare?

Both your employer and you will pay the Medicare Tax as part of your FICA. FICA taxes include money that is taken out to pay for elderly Social Security and Medicare.

Generally, if your employer is in the United States, you must pay the Medicare tax no matter your citizenship status. Employers must deduct Medicare taxes from your paycheck, even if you don’t plan on qualifying for benefits.

How is Part A Funded?

Part A is funded through a Hospital Insurance Trust Fund that most employees, employees, and self-employed individuals pay through payroll taxes. The Part A trust fund is also funded through interests earned on the trust funds investments.

Income taxes paid on Social Security benefits go towards the trust fund as well as Part A premiums paid by those not eligible for free-Part A.

How is Part B Funded?

Part B funding comes from the Supplementary Medical Insurance (SMI) Trust Fund. Interest earned on the trust fund investments goes back into the trust.

Congress authorizes funds to go into the SMI trust. For people that pay premiums on Part B and Part D, those premiums go into the trust.

Both trust funds use money from the trust to fight Medicare fraud and abuse. Remember, if you see something, say something.

Will Medicare Funding Run Out?

The Medicare funding may be in serious trouble, but it’s not bankrupt. It’s estimated by several resources that the Hospital Insurance Trust fund will be depleted by 2026 if healthcare costs continue to exceed the money flowing into the trust.

Without a legislative plan, Medicare may only be able to pay a fraction of the amount it’s currently paying for beneficiaries.

How are Medicare Advantage Plans Funded?

When you enroll in a Medicare Advantage plan, the federal government pays the Medicare Advantage plan a lump sum to be responsible for your claims during the year. Each insurance carrier must be approved and have a contract with Medicare to qualify.

Some Medicare Advantage plans receive financing by asking beneficiaries to pay a monthly premium, monthly premium costs vary by plan. Beneficiaries of Part C plans have copays and coinsurances.

How is Medicare Part D Funded?

The SMI trust fund that funds Part B also helps fund Part D. Part D premiums from beneficiaries also keep money coming into the program.

Higher-income earners may pay a larger portion of the cost than the standard amount.

How are Medicare Supplements Funded?

Medigap plans are funded by the beneficiaries that buy them through private insurance companies. If you want a Medicare Supplement plan, you’ll pay the premium monthly, quarterly, semi-annually, or annually.

There are currently, no government contributions toward the cost of Medigap.

However, some Medicare recipients may qualify for an Employer Reimbursement. Whether retired or actively working, employer reimbursement plans are nice additions to Medicare insurance.

To learn more about the options in your area fill out the online coverage comparison form and have an agent talk to you today.

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by Lindsay Malzone, Lindsay Malzone is the Medicare expert for Medigap.com. She's been contributing to many well-known publications as an industry expert since 2017. Her passion is educating Medicare beneficiaries on all their supplemental Medicare options so they can make an informed decision on their healthcare coverage.