Medicare is run by the Centers for Medicare & Medicaid Services (CMS). CMS is a federal agency and branch of the Department of Health and Human Services (DHHS). Medicare insurance covers more than 60 million Americans and is associated with over $700 billion in annual costs, and these numbers continue to rise each year. Medicare funding is provided by the United States Treasury in the form of the Medicare trust fund, which is financed using taxes from payroll and general taxes as well as premium payments from Medicare recipients.
How does the Medicare Trust Fund Work?
The funding for this insurance coverage is provided by two trust fund accounts that are held by the United States Treasury. These accounts are designed solely for the use of Medicare health insurance. These two funds are known as the Hospital Insurance Trust Fund and the Supplemental Medical Insurance Trust Fund.
Medicare benefits are available to all United States citizens over the age of 65 and some people under the age of 65 with disabilities or end-stage renal disease. In order to receive these benefits for little cost out of pocket, recipients must have worked for at least 10 years while paying Medicare taxes. If they have, Medicare Part A will be provided with no premium charge. If you have worked for less than 10 years, you may be charged a premium payment for Part A.
Hospital Insurance Trust Fund
This trust fund focuses solely on Part A services that are covered by Medicare benefits. This fund is therefore responsible for covering inpatient expenses, such as those incurred during hospitals stays, in skilled nursing facilities, or through hospice care.
In 2017, the Hospital Insurance Trust Fund had a total balance of around $200 billion. The expenses for the year totaled $297 billion, and the fund’s income for the year added up to $299 billion. This allowed the fund to stay nearly constant in regard to total balance.
The primary source of income for the trust fund is payroll taxes, which accounted for $262 billion of the $299 billion for the year. The next greatest sources of income include benefit taxation at $24 billion, interest payments at $7 billion, and Medicare premium payments at $4 billion. The interest payments are those accumulated from the trust fund balance and premium payments for those that do not qualify for free premiums.
Supplemental Medical Insurance Trust Fund
This trust fund is responsible for financing Medicare Part B and Part D. Part B covers outpatient procedures and visits and any medical care that preventive in nature. Part D is used solely for prescription drug coverage. This plan is not required for everyone, but those who commonly use medications may benefit from it.
In 2017, the Supplemental Medical Insurance Trust Fund had a total revenue of $406 billion. $306 billion of this amount came from Part B, while the other $100 billion was generated from Medicare Part D. For this trust fund, there are no contributions from payroll taxes, meaning that revenue must come from other areas. In addition, this trust fund has nearly identical income and expenses, leading to almost no net change in its total visit.
Most of the Part B funds are generated from general revenue, and the $217 billion in this category came from individual income taxes, corporate taxes, and excise taxes. Almost all the rest of the Part B funding came from Part B premium payments, which are required for every Medicare recipient. The total balance of the Part B portion of the Supplemental Medical Insurance Trust Fund is kept around $88 billion.
For the $100 billion in Part D revenue, $73 billion of it was generated from general revenue and $16 billion came from premium payments. Additionally, this fund received $11 billion from transfers from states. The Part D fund overall balance is kept low at just $8 billion as it only exists to cover temporary shortfalls in the general fund.