Medicare is funded through a diverse mix of government contributions, payroll taxes, premiums paid by beneficiaries, and other revenues.
Medicare, the federal health insurance program primarily serving adults ages 65 and older, is a cornerstone of the U.S. social safety net. It ensures access to essential medical care for millions of people in the United States.
A significant portion of Medicare’s funding comes from general federal revenues. These are tax dollars collected by the federal government that are not earmarked for specific purposes.
The government allocated a substantial amount of these revenues to cover Medicare expenses, particularly Part B and Part D.
This funding source ensures that Medicare can provide comprehensive coverage without relying solely on dedicated taxes or premiums.
Payroll taxes are another major source of funding for Medicare. Part A, in particular, is primarily funded through payroll taxes collected under the Federal Insurance Contributions Act (FICA).
Employees and employers each contribute 1.45% of earnings to Medicare, totaling 2.9% of wages. Self-employed people cover the entire 2.9% for themselves.
High income earners pay an additional 0.9% in Medicare taxes on earnings above a certain threshold. These taxes are deposited into the Medicare Trust Fund, which helps cover inpatient hospital services and related costs.
Medicare beneficiaries also contribute to the program’s funding through premiums, which vary depending on the part of Medicare.
Part A
Most people do not have to pay a monthly premium for Part A. If you don’t meet the criteria for premium-free Part A, you’ll pay $278 or $505 each month.
Part B
In 2024, most people will pay a monthly premium of $174.70. Your Part B premium may be higher depending on your income.
If you file an individual tax return and make:
- $103,001 to $129,000, you’ll pay $244.60
- $129,001 to $161,000, you’ll pay $349.40
- $161,001 to $193,000, you’ll pay $454.20
- $193,001 to $500,000, you’ll pay $559
- $500,001 or more, you’ll pay $594
If you file a joint tax return and make:
- $206,001 to $258,000, you’ll pay $244.60
- $258,001 to $322,000, you’ll pay $349.40
- $322,001 to $386,000, you’ll pay $454.20
- $386,001 to $750,000, you’ll pay $559
- $750,001 or more, you’ll pay $594
If you file a married and separate tax return and make:
- $103,001 to $397,000, you’ll pay $559
- $397,001 or more, you’ll pay $594
Part C
Each Part C plan sets its own cost and coverage amounts. Your premium depends on your chosen plan.
Part D
Each Part D plan sets its own cost and coverage amounts. Your premium depends on your chosen plan.
If you have a higher income, you may have an income-related monthly adjustment amount (IRMAA) added to your monthly premium.
If you file an individual tax return and make:
- $103,001 to $129,000, you’ll pay an additional $12.90
- $129,001 to $161,000, you’ll pay an additional $33.30
- $161,001 to $193,000, you’ll pay an additional $53.80
- $193,001 to $500,000, you’ll pay an additional $74.20
- $500,001 or more, you’ll pay an additional $81
If you file a joint tax return and make:
- $206,001 to $258,000, you’ll pay an additional $12.90
- $258,001 to $322,000, you’ll pay an additional $33.30
- $322,001 to $386,000, you’ll pay an additional $53.80
- $386,001 to $750,000, you’ll pay an additional $74.20
- $750,001 or more, you’ll pay an additional $81
If you file a married and separate tax return and make:
- $103,001 to $397,000, you’ll pay an additional $74.20
- $397,001 or more, you’ll pay an additional $81
Social Security benefit taxes
The revenues collected from these taxes contribute to the Medicare Trust Fund.
State payments
Certain states contribute to Medicare funding through specific agreements or supplemental payments. For example, states may fund certain services or enhancements beyond federal Medicare coverage.
These payments can help fill gaps in coverage or offer additional benefits to beneficiaries.
Interest
The Medicare Trust Fund generates interest income from investments made with collected funds. This interest helps grow the trust fund’s assets, contributing to the program’s overall financial health.
Other revenues
Other minor sources include fees and payments from other services and administrative activities.
Medicare is primarily funded through government contributions, payroll taxes collected under FICA, and premiums paid by beneficiaries.