Wednesday, October 03, 2012


Medicare 101: Paying for Medicare
Part 2 in a Series
Medicare provides coverage at a time when our healthcare needs are often the greatest – and the most expensive. 
Cost-Effective Coverage
The good news is that Medicare has a long track record of providing coverage more cost-effectively than private insurance.  Since 1979, Medicare’s cost per beneficiary has grown cumulatively 40 percent more slowly than equivalent benefits provided by private insurers.  To put this figure in real  terms consider that the average family insurance plan provided by employers today is roughly $15,000 annually.  If the private sector was as effective in controlling costs as Medicare over the same time period, that same family coverage would cost only $9,100.  Why does it save?  There are fewer administrative costs, no million dollar CEOs to pay, negotiating power that provides significant discounts and a focus on service rather than being profit-driven.
Medicare is primarily fin
anced by a payroll tax, general revenue and premiums paid by beneficiaries:
  • Part A is mainly funded by a payroll tax of 1.45 percent on current employees and employers.  Next year, this rate will increase for higher-income taxpayers (more than $200,000/individual and $250,000/couple) by 0.9 percentage points (from 1.45% to 2.35%).  The revenues are placed in the Hospital Insurance (HI) trust, which, like Social Security is designed to be self-supporting.
  • Part B is financed through monthly premiums paid by Medicare enrollees and general revenues. Income from these sources is credited to a Supplementary Medical Insurance (SMI) trust. 
  • Part C is paid for by the government making payments to private insurers on the enrollees’ behalf in appropriate parts from the HI and SMI trust funds.
  • Part D funding comes from a separate account in the SMI trust fund and is financed by general revenues, state contributions and beneficiary premiums.
Important Information About the Medicare Trust Funds
A board of trustees makes an annual report to Congress on the status of the trust funds, including a projection for the date when the HI fund will be able to cover a portion of costs rather than 100 percent. Since 1970, the dates have ranged from as little as two years out to as many as 28.  The fund has always covered 100 percent of costs, in part due to legislative changes. 
The passage of the Affordable Care Act (“Obamacare”) included a series of improvements and funding changes to Medicare.  According to the 2010 Medicare trustees report, those changes strengthened the HI trust fund a significant number of years to 2024.  Because of the way it is funded, the SMI trust fund does not face exhaustion. 

Sources:; Economic Policy Institute; Centers for Medicare and Medicaid Services; Congressional Research Service

“The past is the cause of the present and the present will be cause of the future"!

" two wolves and a lamb voting on what to have for lunch"! a well-armed lamb contesting the vote.

Fiat Lux

No comments: