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Medicare Insurance Comparison

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How is Medicare funded?

Money in piggy bank
Just the essentials...
  • Three separate sources fund Medicare
  • Center for Medicare and Medicaid is a federal agency that runs the programs
  • Medicare outlays exceed $500 billion annually

The federal government serves as the trustee of the funds and the executor who sees that the correct funds go to the correct program. The answer to the question is relatively simple, but when studying how Medicare is funded, it becomes obvious that the funding is paid by the people like any other government-run program.

The short answer to how Medicare is funded is explained through the examination of the three primary sources. These sources of funding include:

  • General revenues—41 percent
  • Payroll taxes—38 percent
  • Beneficiary premiums—13 percent

Medicare Part A, which covers hospital costs, account for the other 2.9 percent of Medicare funding. This part is the tax on earnings paid by employers and employees.

Employees pay 1.45 percent of their income and the employers pay a matching amount. Together the two sources account for 87 percent of the Medicare Part A revenues.

Therefore, the short answer is that numerous sources of income are involved in funding Medicare costs.

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The Deductibles

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Like most insurance policies, there are deductibles and copayments that are paid by the patient.

For example, most people receiving Medicare benefits do not have to pay a deductible for the coverage, if they paid Medicare taxes for at least 10 years or forty-quarters. Individuals who did not pay into Medicare over the years may be faced with a monthly premium that can go as high as $411 each month.

The Centers for Medicare and Medicaid services (CMS) is a branch of the Department of Health and Human Resources. It is this agency that runs the Medicare program and monitors the Medicaid programs offered at the state level.

Who Receives Medicare Benefits?

A senior couple in front of a hospital

The Kaiser Family Foundation determined that the number of participants in Medicare was approximately 55.5 million in 2015. Among the 50 states, California has the highest number of Medicare clients total 5.6 million while the state with the lowest number of participants. Alaska comes in at the 50th position with 88,063 participants.

Medicare benefits are also extended to the District of Columbia, Guam, Northern Mariana Islands, and Puerto Rico.

Medicare expenses account for 14 percent of the U.S. budget. Social Security accounts for 24 percent and Medicaid accounts for 9 percent, resulting in a total for health care-related total of 47 percent or, almost half of the federal budget. Defense spending accounts for 17 percent of the total funding, according to the Kaiser Family Foundation.

Does Medicare Cover All Expenses with Its Funds

While funding for Medicare may come from different sources, it is necessary to remember that in most cases Medicare claims are not covered at the 100 percent level.

Normally Medicare will pay 80 percent of hospital and physician fees. Medicare only pays for a portion of prescription drug coverage.

Two Sides to Medicare Costs

Businessman writing pros and cons list on screen

When discussing the cost of Medicare it is very easy to concentrate on how much health care coverage the clients, persons 65 and older, and others with special health needs require.

However, another facet needs to be considered. Doctors and hospital that accept Medicare patients, will usually receive considerably less compensation that they do when treating non-Medicare clients. In some cases, a specialist in a particular discipline will not accept Medicare.

Accordingly, the simple answer would be to expand the scope of Medicare so that the fee doctors receive for services is more in line with the going rate charged non-Medicare patients. The only problem is that such a move would have the government paying more money and people covered by Medicare will continue to pay 20 percent of the cost, it will just be more expensive.

Prior Attempts at Health Care Reform

There have been two significant attempts to reform health care. President Bill Clinton and wife Hillary attempted to install a federal health care system. It did not get off the ground.

The second attempt was the Affordable Care Act or Obamacare presented by President Barrack Obama. Unfortunately, the Obamacare coverage suffers some of the same problems as the present system. Insurance companies are seeing more people but the monetary return per patient is not increasing

Medicare Advantage Plans

Benefits written in marker

The Medicare Advantage is another option and in most cases works like an HMO. Doctors are paid a fee for each Medicare patient they treat. The doctor receives the Medicare Advantage Fee regardless of the number of times an enrolled person sees the doctor.

Many specialists do not accept Medicare Advantage plans. In some cases, such as pediatricians, the doctors will not sign up for a program that pays a one-time fee, since children usually see a doctor more times each year than adults.

Reaching a Conclusion

Medicare on chalkboard

Medicare general revenues, payroll taxes, and beneficiary premiums are all paid by the people. Some of it is paid directly such as paying premiums and copays for insurance coverage. Part of it comes from the general revenues of the country. Individuals do not generate all of that income.

There are taxes on gasoline, royalties on producing oil and gas and many other sources that make up the general fund, but the people are paying that. For example, part of the general fund is the gasoline tax. It is the consumer that pays the tax, and not the petroleum company. Finally, after acquiring the Medicare policy, there will be other charges that will have to be paid by the people.

Accordingly, the conclusion can be reached that it is not the government that provides the funds for Medicare. The funds are provided by the people. The federal government serves as the trustee of the funds and the executor who sees that the correct funds go to the correct program.

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MULTIPLAN_GHHK5LLEN_Accepted Last Updated 3/18/2018