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What is Medicare-Covered Employment?
Just the essentials...
Medicare tax is 1.45 percent withholding tax the law requires employers to deduct from wages they pay
The law requires employers to match the 1.45 percent Medicare tax for each employee
The law requires each employer to deduct a .09 percent Medicare tax surcharge on wages totaling $200,000 or more per employee
A covered quarter is a three-month period with the Medicare tax withheld and matched
A worker needs a total of 40 covered quarters to get full Medicare benefits at age 65 including premium -free Part A.
The concept of Medicare-covered employment relates to the way in which the federal government funds Medicare. A primary source of money comes from taxes paid by workers and matched by their employers.
While many people work for 20 years or more, the key figure for Medicare-covered employment is 10 years or 40 covered quarters. At the point that a worker or spouse gets 40 covered quarters, they can get Medicare Part A at age 65, and they can get Part A premium-free.
Paying the full Medicare withholding tax through FICA deductions creates an entitlement to Medicare after a sufficient number of years. The full taxation means this is Medicare-covered employment, but there are degrees of benefit that depend on the length of employment.
The number of years affects the price of Medicare premiums that one must pay.
If someone works for 10 or more years covered by Medicare, then they can get Medicare Part A with a zero premium.
At the other end of the spectrum, some people must pay full price for Medicare Part A which in 2020 was $458 per month.
The Congress Designed a Worker-paid System
The two Medicare Trusts have different funding sources. The paycheck deduction dedicated to Medicare from wages give each worker a sense of connection with the Medicare benefits that come with age 65.
The Medicare benefits are called entitlements, and this may be a poor way to describe and investment in future medical care needs by those young and healthy enough to work. The workers clearly earn their benefits by fair labor, and it’s part of a larger contract with the society to care for its older citizens.
The Hospital Insurance Trust or HI Trust gets most of its funds from worker deductions matched by employers. This trust fund pays for Part A Hospitalization and the Administration costs associated with it. The CMS administers Medicare A and B with large numbers of contractors to handle the massive amounts of paperwork and records involved in hundreds of $billions in claims, reimbursements, and payments.
The Supplemental Medicare Trust or SMI Trust gets most of its funding from Congress, the Part B Premiums, and interest on funds. The Supplemental Trust pays for Part B benefits, skilled nursing, hospice, and durable medical equipment, prosthetics, orthotics, and supplies related to these categories
The Supplemental Medicare Trust pays for the Part D Prescription Drug benefits. Premiums from Part D help pay the costs of Administration.
Employers Collect Taxes
The funding system for the social safety net for older Americans relies upon wage deductions for a large part of the funds. The below-listed items describe the taxes that all employers must collect on wages they pay their employees.
Social Security Taxes starting at $1 with a cap at $118,500 for 2016
Medicare Taxes starts at $1 with no ceiling or cap
Medicare Surcharge starts at $200,000 with no ceiling or cap
Medicare Covered Employment Creates Entitlement
Medicare covered employment is the heart of the funding system designed by the Congress when they authorized Medicare in 1965. Persons under age 65 that receive benefits from Social Security or the Railroad Retirement Board get Medicare automatically after 24 months.
The Medicare rules on covered quarters have a direct consequence for the price of the insurance premium for Medicare Part A Hospital Insurance. The below-listed items reflect the difference in premiums based on covered quarters.
A $458 premium for Part A with less than 30 covered quarters
A $252 premium for thirty but less than 40 covered quarters
A $0 premium for Part A at age 65 with 40 covered quarters
Self-employed and Medicare Covered Employment
Self-employed persons can pay into the FICA system through the taxes that they pay quarterly as self-employed workers. The SE Tax or self-employed tax adds the employer and employee shares of the Medicare tax.
The self-employment rules require that a self-employed person must pay 2.9 percent on all wages without a cap to meet the requirement for four covered quarters.
If the earned income is $200,000 or more, then one must pay and additional 0.9 percent Medicare tax on earnings above that amount. The net result is the same for self-employed as employed workers. They must accumulate 40 quarters covered by the Medicare tax to get premium -free Medicare at retirement.
Federal and State Public Employees
Some public employees pay only the Medicare portion of the FICA tax. They are not part of the Social Security System and do not pay into that part of the tax. For them, Medicare covered employment only involved the 1.45 percent Medicare tax.
By creating this system, Congress deemed it to be Medicare-covered employment. The employee beneficiaries can combine Medicare with other parts of the Federal Employee Health Benefits and create a secure health insurance situation that meets the Individual mandate.
Obamacare and Medicare Covered Employment
Obamacare affects the entire health insurance industry, and it cut funds from Medicare to reprogram efforts to reduce fraud waste, and over-payments. It strengthens Medicare by cutting waste, improving Drug Benefits and adding free services in wellness and prevention.
Obamacare does not change the method for getting Medicare by covered employment.
Medicare Covered Employment
The Medicare withholding taxes are the keys to getting Medicare benefits on the best possible terms. The working years set the stage for health benefits at lowest possible costs for the best possible coverage. Federal employees also get Medicare and on the best terms with covered employment.