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How is Medicare funded?

October 3, 2019

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Q: How is Medicare funded?

A: Medicare is funded with a combination of payroll taxes, general revenues allocated by Congress, and premiums that people pay while they’re enrolled in Medicare.

  • Medicare Part A is funded primarily by payroll taxes (FICA), which end up in the Hospital Insurance Trust Fund.
  • Medicare Part B revenue comes from both general revenues and premiums paid by Medicare beneficiaries (the money goes into the Supplemental Medical Insurance (SMI) Trust Fund and is then used to cover Medicare expenses).
  • Medicare Advantage (Part C) is also funded by general revenues and by beneficiary premiums
  • Medicare Part D prescription drug coverage is funded by general revenues, premiums and state payments (as is the case for Part B, the SMI trust fund is used for Part D expenses).

Kaiser Family Foundation has a breakdown of the funding for each part of Medicare, and also has a general overview. Substantial details about Medicare funding, including the Hospital Insurance Trust Fund and the Supplemental Medical Insurance Trust Fund, can be found in the annual Medicare Trustees’ Report (2019 report available here).

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