Medicare Basic Payments

HOW IS MEDICARE FINANCED AND WHAT ARE
MEDICARE’S FUTURE FINANCING CHALLENGES?
Funding for Medicare comes primarily from payroll tax
revenues, general revenues, and premiums paid by
beneficiaries.
Medicare is funded as follows:
􀁹 Part A, the Hospital Insurance (HI) Trust Fund, is financed
largely through a dedicated tax of 2.9 percent of earnings paid
by employers and their employees (1.45 percent each). In
2007, these taxes are estimated to account for 86 percent of the
$216 billion in revenue to the Part A Trust Fund.
􀁹 Part B, the
Supplementary Medical
Insurance (SMI) Trust
Fund, is financed
through a combination
of general revenues
and premiums paid by
beneficiaries.
Premiums are
automatically set to
cover 25 percent of
revenues in the
aggregate. In 2007,
Part B revenue is estimated to be $194 billion.
􀁹 Part C is not separately financed.
􀁹 Part D is financed through general revenues, beneficiary
premiums, and state payments for dual eligibles eligible for drug
coverage under state Medicaid programs prior to 2006. In 2007,
Part D revenue is projected to be $64 billion, 78 percent of
which will be from general revenues.