Social Security is on track to go bankrupt. But did you know that Medicare is the real threat to our financial future? It is on course to become the largest and fastest growing entitlement in the country. See what you can do to keep costs under control.
An increasing share of Medicare’s funding comes from general tax revenue. In other words, the payroll taxes and premiums that people pay are doing less and less to cover the cost of Medicare.
Medicare is the nation’s government-administered health insurance program for the elderly. Every American and permanent legal resident aged 65 and older qualifies for Medicare. Workers pay a combined 2.9% payroll tax (with an additional 0.9% for higher income workers) during their working years. When on Medicare, they pay monthly premiums for physician visits and prescription drugs, as well as limited coinsurance payments on a progressive income scale.
But these payroll taxes and premium payments don’t cover the full cost of Medicare’s expenses, and their share continues to fall. Most of Medicare is now paid for by general tax revenue – that is, tax revenue taken from income taxes paid primarily by individuals.
Medicare was created in 1965 to provide health insurance for seniors aged 65 and older.
Medicare currently has three parts: Part A, B, and D. They cover hospital insurance, physician and outpatient services, and prescription drugs respectively.
Employees and employers each pay a tax of 1.45% on every dollar earned. An additional employee-side tax of 0.9% goes into effect above $200,000 for single earners and $250,000 for married couples.
Medicare expenditures were $679 billion in 2016. Payroll tax revenue was $254 billion, general tax revenue was $319 billion, and premiums were $89 billion.
Recipients of Medicare receive much more in benefits than they ever pay in taxes. A married couple retiring in 2015 that earned an average wage will have paid about $140,000 in payroll taxes, but will receive around $420,000 in present value of Medicare.
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