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How Medicare Works

Administration and Funding

Medicare remains a vital means of paying for health care for many Americans. In 2018, some 61 million Americans were receiving Medicare: 52.6 million seniors and 8.6 million younger people with qualifying disabilities [source: Centers for Medicare & Medicaid Services ]. Yet despite being a vital program for older Americans' health and financial security, funding for Medicare has always been a sensitive political issue in the U.S.

Medicare is funded through a few different revenue streams, primarily general revenues (most of which comes from federal income tax payments), payroll taxes and beneficiary sources.

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Payroll taxes paid by American employees and employers finance Part A, for example. Under PPACA in 2013, the Additional Medicare Tax, generally withheld from high-wage earners, was introduced.

Part B is mostly financed by general revenues and beneficiary premiums.

Part D is also financed by general revenues and beneficiary premiums, in addition to state funding for individuals eligible for both Medicare and Medicaid (called dual eligibles).

Part C, the Medicare Advantage program, is its own creature but isn't much different. Advantage programs are composed of Medicare Part A, Part B and sometimes Part D, and they're financed in the same ways as Part A, Part B and Part D. The money comes from general revenues, payroll taxes and monthly premiums. The difference is that individuals enrolled in these plans are also responsible for additional costs for the supplementary benefits available in Advantage plans.

Medicare has, and continues to undergo, changes under the PPACA health care reform laws of 2010, including new policy options such as Medicare Advantage, and coverage such as free preventive care services — but beneficiaries have seen, and will see, changes in out-of-pocket expenses, such as deductibles and payroll taxes.

  • Safeguard your Medicare number; it contains your Social Security number.
  • Don't give in to hard-sell or scare tactics.
  • Be suspicious of "free" tests or doctors who waive your copay.
  • Watch for providers who bill for procedures that they never performed.
  • Report Medicare fraud by calling 1-800-MEDICARE (1-800-633-4227) or file a fraud report online.

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