Who Pays for Medicare?

Yes, it's true that Medicare is a government-funded program. But although the federal government can literally print money, it must still get the funds to pay for Medicare from somewhere. Understanding how Medicare is funded is important for its long-term health and survival.

The Medicare program is funded in part by various payroll taxes. These taxes are legal requirements created by the 1954 FICA (Federal Insurance Contributions Act) and the Self-Employment Contributions Act. Employees have 2.9% of their salaries paid towards Medicare taxes - half is withheld from their compensation (salaries/wages etc.) and the other half is matched by the employer. There used to be a limit with regard to how much of your salary could be used to calculate Medicare taxes, but the limit was removed at the beginning of 1994. If you are self-employed, you will have to pay the entire 2.9% of your net earnings.

Taxes are not the only funds that pays for the Medicare program, however. Although many people get their Part A coverage without the need to pay any premiums, enrollees must pay the Medicare Part B premiums based on a progressive income scale. Other methods that are used to finance the Medicare program are the deductibles, copayments and coinsurance. Although these methods do not create revenue to fund the program, they do take some of the financial burden away from the program's capital expenditure.

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The hospital insurance deductible of approximately $1000 is applicable for Medicare Part A beneficiaries. They also have to pay variouscopayments depending on the length of their hospital admission. The Medicare Part B deductible must be paid for medical insurance beneficiaries before the Medicare program starts to cover their medical expenses. After this, there is generally a 20% copayment that is applied to all doctor's fees for services rendered.

Besides all of this, there are also various co-insurance costs applicable to most of the services covered by Medicare. This means that you still have to pay a portion of certain costs, in addition to the premiums and deductibles you pay for you cover. Even with all of these funding structures put in place, however, there is still a financial burden placed on the federal government by this program. This is why it is regarded as a "high-risk" program, and many critics and experts have brought up the issue that it is a program that is in urgent need of reformation.

It is because of this that Medicare and its sister programs are constantly being reviewed, since it is clear that its expenses are growing rapidly and that it may soon outweigh the revenue that is being put into the program. If this should happen, the state will have a critical financial liability on its hands, so you can expect many changes to be applied to Medicare's legislation in coming years.

However, it would be a mistake to think that these contributions that most Americans make during their younger working years will cover all our Medicare expenses. In fact, just like social security, Medicare will increasingly depend on the contributions of today's workers to ensure that Medicare costs are covered.

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