Medicare Spending and Financing

Future of Medicare: 11/13/12

There are two distinct funds through which Medicare is financed. Specifically, Part A is funded by the Hospital Insurance (HI) Trust Fund, which is comprised of revenue from payroll taxes, interest, taxation of Social Security benefits and other sources.

Part B is funded by the Supplementary Medical Insurance (SMI) Trust Fund, which is comprised of general revenue, beneficiary premiums, and interest.

Part D receives funding through general revenues, beneficiary premiums and payments from states.

Part A: Hospital Insurance; helps cover inpatient, hospice, skilled nursing facility services and certain home health care services. Those who are eligible due to age or disability, and thus receive a Social Security cash benefit, are automatically enrolled. Most beneficiaries do not pay a premium for Part A.

  • Part B: Medical Insurance; helps cover outpatient services, doctor services and other medical services. Enrollment in Part B is voluntary, and approximately 93 percent of those eligible do enroll. Most beneficiaries pay a set monthly premium for Part B.
  • Part C: Medicare Advantage (MA); private health plans administer parts A and B, usually in addition to other benefits, including Part D. Enrollment in Medicare Advantage plans is voluntary and approximately 25 percent of Medicare beneficiaries choose to enroll in a MA plan. Costs vary by plan.
  • Part D: Prescription Drugs; covers prescription drugs. Individuals eligible for Part A or enrolled in Part B may voluntarily enroll in Part D. Costs vary by plan and income level. Read more