How Is Medicare Paid For?

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How Is Medicare Paid For?

The parts of Medicare are not all paid for in the same way.

Part A

Part A largely is funded by revenue from a 2.9% payroll tax levied on employers and workers (each pay 1.45%). Beginning in 2013, the 2.9% hospital insurance tax will continue to apply to the first $200,000 of earnings for individuals or $250,000 for couples filing jointly, but will rise to 3.8% on earnings in excess of those amounts. Unlike the Social Security tax, there is no ceiling on the income on which the Medicare tax is paid.

Parts B and D

Parts B and D are funded primarily by premiums paid by Medicare enrollees.

Part C

Medicare Part C (Medicare Advantage), being an alternative means of delivering the services provided by Parts A and B, offers health plans run by approved private insurance companies. In other words, the federal government pays for this private health coverage.

A caveat

Despite the breadth of the various Medicare coverages, there are significant out-of-pocket expenses to be borne by enrollees, such as Medicare premiums, deductibles, and co-payments, as well as dental, hearing, and vision care, none of which are covered by traditional Medicare at all.

More information on Medicare costs can be found on Medicare's website.