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Medicare: Who Pays for It?


Medicare is funded through 2 U.S. Treasury trust fund accounts whose funds are only used for Medicare. The money that fuels Medicare comes from many channels, including but not limited to the following:

  • FICA taxes (from working Americans’ paychecks)

  • Premiums paid by enrolled participants (such as for Part B)

  • IRMAAs

  • Other sources, like the following:

  • Income taxes paid on Social Security benefits

  • Interest earned on the trust fund investments

  • Medicare Part A premiums from people who aren't eligible for premium-free Part A

  • Funds authorized by Congress

  • Other sources, like interest earned on the trust fund investments


FICA Taxes


The Social Security Administration is the main funder of Medicare, meaning that a majority of the money that runs Medicare comes from taxpayers (Source). “We all pay 1.45% of our earnings into FICA - Federal Insurance Contributions Act…Employers pay another 1.45%, bringing the total to 2.9%.” (The self-employed pay the entire 2.9% themselves.)

Part B Premiums


Part B is considered “Medical Insurance” and helps cover outpatient care, home health care, doctor and other health care provider’s services, some preventative services, and some medical equipment. Part B, along with Part A, together are considered “Original Medicare.”

In what is called your coinsurance, you pay a monthly premium to have Part B. This contributes to the overall Medicare funds available in the federal trust. For Medicare Part B in 2022, the standard premium costs $170.10 per month. This is a 14.5% increase from last year, when it was $21.60 per month. (Source).

However, you might not have to pay your Part B premiums if you are eligible for an income and asset based state run program called the Medicare Savings Program.

We help people apply for this all the time. If you qualify, the state will pay your Part B monthly premium! That’s a savings of over $2000 in a year!

Also some private companies that offer Medicare Advantage (also known as Part C Plans, which bundle Parts A, B, and sometimes D) offer a Part B rebate (“buy down”) as an incentive. If someone is not eligible for the Medicare Savings Program they may be eligible for a plan like that, depending on where they live. We can help you assess if you are eligible for either of these programs and save you money.

IRMMAs

Be aware that depending on your income, you may have to pay an additional amount to participate in Medicare. IRMAA stands for Income-Related Monthly Adjustment Amount. The Social Security Administration defines IRMAA as a sliding scale of “a set of statutory percentage-based tables used to adjust Medicare Part B and Part D prescription drug coverage premiums.” In simpler terms, if you make over a certain amount of income, you have to pay more for your Part B and/or Part D premiums. IRMAA only affects those enrolled in Medicare Part B and/or D (Source).

*The SSA calculates whether or not you pay an IRMAA based on your income from the previous two years’ tax returns. So if you plan to start Medicare the year you turn 65, the IRMAA will be calculated using the tax returns from the two years prior. IRMAA calculates your income using a calculation to get to a MAGI- a “modified adjusted gross income” that is The income that counts is the adjusted gross income you reported plus other forms of tax-exempt income (Source). Examples of income added back in that counts in your MAGI include (but are not limited to) student loan interest, IRA contributions, any passive income loss, deductions for tuition and fees, and taxable social security payments (Source). The MAGI threshold in 2021 for avoiding IRMAA was an income below $88,000 for individuals and $176,000 for married couples filing jointly (Source). There are multiple income brackets, so the higher your MAGI, the higher your IRMAA.

**You will not have to identify yourself as requiring an IRMAA; the SSA will contact you to let you know that you qualify for IRMAA and will therefore be paying more for Medicare Part B and/or Part D. The Initial IRMAA Determination will arrive in the mail and will explain the costs and your right to appeal. For example, if you enroll in Medicare when you turn 65, you may have had other life changes that year that aren’t reflected on your previous two years’ tax returns. Perhaps you retired, or your spouse retired, or your income drastically changed for other reasons. For those and other reasons, such as simply believing your IRMAA was miscalculated, “you have the right to request that SSA lower or eliminate your premium increase. You will have to submit evidence whether you are appealing SSA’s original determination or requesting a new determination” (Source).


How is the Medicare Program Overseen and Run?


The federal agency that oversees the Medicare Program is Centers for Medicare & Medicaid Services (CMS) (Source). CMS oversees the Medicare program in each state and functions as a branch of the Department Of Health And Human Services (HHS).


In Conclusion


Funding for medicare comes from a collection of taxpayer and federal channels like the Social Security Administration. Depending on the situation, an applicant can be eligible for an income and asset based Medicare Savings Program for their Part B premiums. If their income proves to be higher, the SSA may have them pay an additional amount through an IRMAA to receive coverage.


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