There’s such a high demand for health coverage, and everyone in the workforce watches payroll deductions slip from their paychecks. Surely by now, you’ve got to be asking yourself how these programs are funded. The federal program takes a percentage of your payroll taxes as a deduction from employers, employees, and self-employed individuals. The U.S. Treasury Department runs two trust funds. One for Social Security and one for Medicare.
How is Medicare Part A Funded?
Your hospital coverage through Part A has funding through the hospital insurance trust fund. This trust fund covers inpatient care like hospice, home health care, and skilled nursing facilities. Typically, people pay 2.9% on Medicare taxes from their payroll earnings. The 2.9% comes from 2 parties; employers contribute 1.45%, and employees contribute 1.45%.
Another source of funding for the program comes from:
- Income taxes on Social Security benefits
- Premiums associated with Part A
- Interest accrued on trust fund investments
How is Medicare Part B Funded?
The supplementary medical insurance trust fund is what’s responsible for funding Part B, as well as operating the Medicare program itself. Part B helps to cover beneficiaries’ doctors’ visits, routine labs, and preventative care.
This trust fund receives funds through the following avenues:
- Funds that are sanctioned by the United States Congress
- Interest accrued through trust fund’s investments
- Part B and D-related premiums
- The SMI trust fund is also responsible for funding Part D
How is Medicare Part C Funded?
How Do Medicare Advantage Carriers Make Money?
Advantage plan companies receive payments from Medicare. These plans get money per enrollee; it’s a set amount. Medicare makes separate payments for any plans that provide prescription drug coverage. Plans are paid for by Medicare through a bidding procedure. Bids are submitted depending on the costs for each member for services.
Bids that meet all qualifications receive approval. Benchmark amounts vary depending on the region.
Benchmark amounts can range from 95% to 115% of Medicare costs. If bids come in higher than benchmark amounts, the enrollees must pay the cost difference in a monthly premium.
If bids are lower than benchmark amounts, Medicare and the health plan provide a rebate to enrollees after splitting the difference in cost.
A new bonus system works to compensate for health plans that have high-quality ratings. Advantage plans that have four or more stars receive bonus payments for their quality ratings.
How Much Does the Government pay Medicare Advantage Plans?
The federal government pays out over $1,000 each month for each enrollment for every individual.$1,000 is a substantial amount when taking into consideration the number of enrollees they see, and bonus payments received through the bonus system.
Sometimes the Medicare Advantage plan will get over $9,000 from the government to handle the claims of a “high risk” patient. High risk can include patients with heart disease, diabetes, or other chronic condition.
Will Medicare Funding Run Out?
Many seniors worry about Medicare or Social Security running out of funds. Some say Part A trust fund will be very low or non-existent in 2026. However, some experts suggest it won’t go broke; the cost will be higher. Of course, this isn’t saying Medicare will halt payments on hospital benefits; more likely, Congress will raise the national debt. Medicare already borrows most of the money it needs to pay for the program.
How are Medicare Supplements Funded?
Medicare Supplement plan funding is through beneficiary premiums. These payments go to private insurance companies. Many times, seniors who are retired may have their premiums paid by their former employers. The federal government doesn’t contribute financially to Medigap premiums.
If you’d like more information on Medicare plans near you, complete an online rate comparison form to have an agent get in contact with you. Also, you can call the number above and speak with a Medicare expert today!