How is Medicare funded?

Medicare costs about $277 billion per year, roughly 13 percent of the total federal budget.

Funding comes partially from payroll taxes, through provisions of the Federal Insurance Contributions Act. FICA deductions from Americans' paychecks finance Social Security and Medicare. The Medicare tax rate is 2.9 percent-half withheld from employees' pay and half provided by employers.

High-income Social Security beneficiaries also pay income tax on their benefits, some of which goes toward Medicare. The money goes into a trust fund used to pay doctors, hospitals and private insurance companies when Medicare patients use their services. This trust fund has been more difficult to manage than the Social Security trust fund, because health care expenditures are harder to track and can change quickly.

About one-fourth of Medicare Part B is paid for by premiums and co-pays. ## Medicare began as a single-payer system in which the government served as administrator and distributor of taxpayer-funded insurance. But since the 1990s, private health insurers have been allowed to take part in Medicare, opening the system to market forces. The Medicare Advantage Plan programs are the primary example of this.

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Important: This content reflects information from various individuals and organizations and may offer alternative or opposing points of view. It should not be used for medical advice, diagnosis or treatment. As always, you should consult with your healthcare provider about your specific health needs.