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Where the Money Comes From

Medicare is the largest health program in the United States: a federal social insurance program covering 40 million persons over the age of 65 and 8 million persons with disabilities.

Payroll Taxes and Premiums

Medicare has four basic programs, Parts A through D. Part A covers hospital insurance; this includes inpatient hospital stays, skilled nursing facility stays, hospice care and home health visits. Part A is primarily financed by a 1.45% payroll tax on all wage and salary income for the worker and the employer. Self-employed persons pay the full 2.9% of earnings.

Example: Jo Waller makes $50,000 a year. She would pay $725 a year. Her employer also would pay $725. If Jo were self-employed, she would pay $1,450 a year.

While Social Security taxes are capped at $110,100, there is no maximum wage base for Medicare taxes. An individual making $1,000,000 a year would pay a Medicare payroll tax of $14,500, and his employer would pay an equal amount.

Medicare Part B is a voluntary program that helps pay for doctor bills and other outpatient health care. Medicare beneficiaries pay a premium of $99.90 a month for their part B coverage. Part B premiums can be deducted from the beneficiary's monthly Social Security benefit check. The premium is set annually to cover about 25 percent of Part B spending, while the other 75 percent is paid from general revenues.

Medicare Part C is known as Medicare Advantage (MA), and gives seniors the option of receiving their benefits through private health plan.

Medicare Part D provides prescription drug benefits through private plans that contract with Medicare and Medicare Advantage prescription drug plans. The average monthly premium for Part D is $31.

Income-Related Part B Premium

Beneficiaries with incomes above $85,000 a year ($170,000 for couples) are responsible for paying a higher share of the cost of Part B. Medicaid pays Part B premiums for low-income beneficiaries who are currently enrolled in Medicaid; beneficiaries with higher incomes pay an income-related Part B premium that ranges from $139.90 to $319.70 per month. Medicare provides low-income subsidies to those who qualify. 

For more information on Medicare funding, see:

The official Medicare website is www.medicare.gov.