According to a July 18 report from the Henry J. Kaiser Family Foundation, in 2016, Medicare was funded primarily from three sources: general revenues (45 percent), payroll taxes (36 percent), and beneficiary premiums (13 percent).
Part A (hospital) is financed primarily through a 2.9 percent tax on earnings paid by employers and employees (1.45 percent each) (accounting for 88 percent of Part A revenue.) Higher-income taxpayers (more than $200,000/individual and $250,000/couple) pay a higher payroll tax on earnings (2.35 percent).
Part B is financed through general revenues (75 percent), beneficiary premiums (23 percent), and interest and other sources (2 percent). Beneficiaries with adjusted gross incomes more than $85,000 per individual or $170,000 per couple pay a higher premium.
Part D (prescriptions) is financed by general revenues (78 percent), beneficiary premiums (13 percent), and state payments for dually eligible beneficiaries (9 percent).
In 2016 total federal outlays totaled $3.9 trillion. Medicare’s portion represented 15 percent or $588 billion.
When a member of Congress tells a national TV audience, “Medicare is going broke”, it implies the entire system will crumble. But don’t become alarmed, because it is not true.
Medicare has four parts, and one of the parts called Part A trust fund is expected to be depleted by the year 2029 if changes are not made. Part A of Medicare covers hospital care, skilled home and nursing care, hospice and other home health services.
The other three parts including Part B (doctors), Part C (Medicare Advantage) and Part D (prescriptions) are mainly paid for with general government revenues, but Part A is funded by a payroll tax that goes into this trust fund.
Here’s how the Part A trust fund works. Approximately 88 percent of income to the trust fund comes from payroll taxes. According to a recent report from the Medicare trustees, “HI-(Hospital insurance trust fund) expenditures have exceeded income annually since 2008.” Therefore, monies in the trust fund are being depleted to make up the difference.
A more accurate statement regarding the fiscal health of Medicare would be to say, according to the trustees report, “HI (Part A) revenues would only cover 88 percent of estimated expenditures in 2029 and 80 percent in 2050.”
That’s a far cry from using the term “going totally broke.”
Then add the fact that although changes are needed to support the Part A trust fund, the other parts of Medicare will not go broke because they are funded by general revenues and beneficiary premiums.
I hope these Medicare explanations will help you understand how Medicare is financed and then know what to say when misstatements are made in the media by those who say, “Medicare is going broke and we must privatize it with a voucher system.”