How is Medicare funded?


The Centers for Medicare & Medicaid Services (CMS), a branch of the Department of Health and Human Services (HHS), is the federal agency that runs the Medicare Program. CMS also monitors  medicaid programs offered by each state.In 2011, Medicare covered 48.7 million people. Total expenditures in 2011 were $549.1 billion. This money comes from the Medicare Trust Funds.

Medicare Trust Funds

Medicare is paid for through 2 trust fund accounts held by the U.S. Treasury. These funds can only be used for Medicare.

Hospital Insurance (HI) Trust Fund

How is it funded?

  • Payroll taxes paid by most employees, employers, and people who are self-employed – See publication 15 pdf
  • Other sources, like income taxes paid on Social Security benefits, interest earned on the trust fund investments, and Medicare Part A premiums from people who aren’t eligible for premium-free Part A

What does it pay for?

  • Medicare Part A (Hospital Insurance)benefits, like inpatient hospital care, skilled nursing facility care, home health care, and hospicecare
  • Medicare Program administration, like costs for paying benefits, collecting Medicare taxes, and combating fraud and abuse

Supplementary Medical Insurance (SMI) Trust Fund

How is it funded?

  • Funds authorized by Congress
  • Premiums from people enrolled in Medicare Part B (Medical Insurance) and Medicare prescription drug coverage (Part D)
  • Other sources, like interest earned on the trust fund investments

What does it pay for?

  • Part B benefits
  • Part D
  • Medicare Program administration, like costs for paying benefits and for combating fraud and abuse  copied from Medicare.Gov
  • Learn More ==> Kaiser Foundation, including spending

What is the Additional Medicare Tax?

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