The primary source of funding for Part A is a payroll tax contribution of 1.45 percent on both employers and employees, with self-employed workers paying the full 2.9 percent. The tax revenues are added to the Hospital Insurance (HI) Trust Fund along with interest on federal securities held by the trust fund, federal income taxes paid on Social Security benefits, and premiums paid by enrollees not entitled to premium-free Part A. In 2022, total revenue accrued by the HI Trust Fund was $396.6 billion, total expenditures were $342.7 billion, and its assets grew by $53.9 billion. The assets totaled $196.6 billion at the end of 2022, which represents about 57 percent of 2022 expenditures. The HI assets are predicted to be depleted in 2031, at which point Medicare revenues will cover 89 percent of expenditures (in 2031), declining to 81 percent by 2047, and rising to 96 percent by 2097 (Board of Trustees, 2023).
Part B benefits are financed through the Supplementary Medical Insurance (SMI) Trust Fund and are not at risk of insolvency because financing is derived through beneficiary premiums with general revenues filling the gap. Beneficiary premiums are set to finance 25 percent of expected program costs. Total revenue for the SMI Trust Fund in 2022 was $591.9 billion, and total expenditures were $562.4 billion, adding $29.5 billion to the SMI assets, which totaled $212.5 billion at the end of 2022 (Board of Trustees, 2023). Payments and spending under MA (Part C) are set based on spending in traditional Medicare and are taken from the HI and SMI Trust Funds.
Medicare Part D is also financed through federal general revenues and beneficiary premiums. Beneficiary premiums are set to cover, on average, 25.5 percent of the cost of a standard Part D plan. Additional revenue comes from state “claw back” payments, which reflect a portion of the amounts that state Medicaid programs would otherwise have had to pay for dual-eligible enrollees’ drug coverage. Part D revenues are included in a separate account within the SMI Trust Fund. In 2022, total Part D income was $124.3 billion, and expenditures were $125.2 billion (Board of Trustees, 2023).
Board of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. (2022). 2022 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds. Retrieved from: https://www.cms.gov/files/document/2022-medicare-trustees-report.pdf