Did you know that you will be required to pay a fee for most, if not all, parts of Medicare?
Many people assume that Medicare is free because you have paid into “Medicare” through taxes for most of your life…but that assumption is not correct.
Today I want to clarify how Medicare is financed and what we, as Medicare beneficiaries, pay for when it comes to our Medicare coverage.
According to a July 18, 2017 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).
Most of us won’t pay any extra fees for Medicare Part A once we join Medicare.
Part B is financed through general revenues (75 percent), beneficiary premiums (23 percent), and interest and other sources (2 percent).
Most of us will pay $134/month for Medicare Part B once we join Medicare. There are two unique aspects of the Part B fee
- This rate is subject to change every year and likely will change each year
- The rate varies on your situation. For example, if you are claiming Social Security you likely pay less than $134 and if you have a higher income (more than $85,000/individual or $170,000/couple) you will pay more than $134.
In addition to the standard payments above, we likely have additional payments based on which of the two Medicare programs we pick: Original Medicare or Medicare Advantage.
If you pick Medicare Advantage, you will enroll in Part C. Part C comes with a wide range of premiums, deductibles and out-of-pockets depending on the plan you pick.
If you pick Original Medicare you will enroll in prescription plan (Part D) and we recommend you get supplement plan which helps pay some of the health care costs that Original doesn’t cover, like copayments, coinsurance, and deductibles.
There are many parts to Medicare that will determine how much you will pay on a monthly basis for coverage, but most of our clients have monthly Medicare payments range from $150 to $200.
I hope these Medicare explanations will help you understand how Medicare is financed and what you can expect to pay.
