How Is Medicare Funded?

Most people know that Medicare is a federal and state-funded program, which means that it’s paid for with your tax dollars. That said, some people (and businesses) contribute more to Medicare than others. Additionally, some taxes are reserved to fund Medicare, while others are diverted to other government programs. So, how is Medicare funded? Read on to find out.

A Breakdown of Medicare Funding

The truth is that Original Medicare is not funded from one single source. Instead, it accumulates funding from various forms of taxation. Here’s a more accurate breakdown of approximately how much each form of taxation pays into the Medicare program:

• General Revenues (43%) – General Revenues, which is just another term for taxes that have not been earmarked for any specific purpose, make up a total of 43% of Medicare’s entire budget.
• Payroll Taxes (36%) – Payroll taxes are levied on both employers and employees. They are a percentage of each employee’s salary, with the employer paying part and the employee paying the rest. In addition to Medicare, payroll taxes also help fund Social Security.
• Medicare Premiums (15%) – The monthly premiums that Medicare beneficiaries pay helps fund approximately 15% of the Medicare program.

The remainder of Medicare is generally paid for through direct payments from states, taxes charged on Social Security benefits, and interest.

Will Medicare Run Out of Funding?

The question of Medicare’s solvency began to arise when the “Baby Boomer” generation started hitting retirement age. With the sudden influx of new beneficiaries compared to the relatively stagnant number of young taxpayers, it appeared that the program was doomed to run out of money within a few years. While many economists still worry about the future of Medicare, the reality is that there is enough funding to pay for Medicare through 2025. However, Congress will likely need to divert funding from another source or increase payroll taxes to ensure that people don’t lose any of their Medicare benefits in the future. If nothing is changed, Medicare Part A will only be able to pay out 90% of its benefits starting in 2026. Since Medicare Part B is largely funded by beneficiary premiums, it will take much longer for Part B benefits to start decreasing.

The Bottom Line

While the future of Medicare funding is somewhat uncertain, you can have peace of mind knowing that you will not lose any benefits within the next few years. Moreover, new legislation will likely ensure that benefits are sustained or even increased going forward. Just remember, the more people pay in taxes now, the more benefits you’ll have later on.

If you’d like to learn more about Medicare funding or your Medicare coverage options, feel free to fill out this form or give us a call anytime. Time for 65’s partnered licensed agents are focused on giving you the information you need, with zero pressure to enroll in a plan.