Nearly every aspect of the United States health care system is complex; Medicare is no exception. Discovering who is eligible for Medicare, how Medicare is paid for and what benefits are covered under which part is confusing at best. Medicare has four parts: Part A, Part B, Part C and Part D. Not all of these require premium payments and different services are covered under each part. Furthermore, the financing of Medicare is difficult to understand because it is funded by several different sources. Most of the funding for Medicare comes from the following sources: payroll taxes, premiums and general revenues.
How Medicare is Financed
Medicare is financed by six separate sources of funding. The first and greatest source of Medicare funding is payroll taxes (Kaiser Family Foundation - Medicare at a Glance, 2010; Kaiser Family Foundation - Medicare 101: the basics, 2009 & Medicare Payment Advisory Commission, 2010). Payroll taxes account for approximately 40% of all funding for Medicare (Kaiser Family Foundation, 2009). Medicare taxes are deducted from the wages of every employed person for as long as they are working. The current Medicare tax is 1.45% from each the employee and the employer (IRS, 2014). If the employee makes more than $200,000 per year, the tax is increased by 0.9% for any wages received/earned in excess of $200,000 (IRS, 2014). Payroll tax being the greatest source of Medicare funding means that the more individuals who work and the longer they work, the more funding there will be available for the Medicare system as a whole because of the contributions they will make to Medicare taxes.
General revenues are the second greatest contributor to Medicare funding (Medicare Payment Advisory Commission, 2010 & Kaiser Family Foundation, 2009). General revenues come mostly from income taxes obtained by the federal government (Medicare Payment Advisory Commission, 2010). The federal government then uses these funds for many things including helping to finance Medicare. General revenues account for approximately 39% of all Medicare funding (Kaiser Family Foundation, 2009) making this funding source the second largest contributor to Medicare and nearly equal to payroll tax in contributions.
The next largest contributor to Medicare funding is beneficiaries (Medicare Payment Advisory Commission, 2010 & Kaiser Family Foundation, 2009). Beneficiaries contribute to Medicare funding through premium payments, health care copays, deductibles and medication copays (Medicare Payment Advisory Commission, 2010). As of 2009, beneficiary contributions to Medicare accounted for 12% of all Medicare funding (Kaiser Family Foundation, 2009). At 12%, beneficiary contributions are less than one-third that of payroll tax contributions or general revenue contributions. Although...