Do you have questions about the Medicare Trust Fund? You’re not alone. Millions of seniors and retirees rely on Medicare for their health care needs, and it’s important to understand how the Trust Fund works.
The Medicare Trust Fund is created by the government to help cover the cost of Medicare. The funding comes from premiums paid by people with Medicare and taxes on Social Security benefits.
The information here explains what the Trust Fund is, how it’s funded, and what happens when it runs out of money. We’ll also answer some common questions about Medicare and the Trust Fund. So if you’re curious about the Trust Fund, keep reading!
What is Medicare in Simple Terms?
Medicare is the federal health insurance program for people turning 65 or older and certain younger people with disabilities. Also for people with End-Stage Renal Disease (permanent kidney failure requiring dialysis or a transplant, sometimes called (ESRD). The president who started Medicare; we all know this is Lyndon B. Johnson, and if you didn’t know, the first recipient of Medicare was former President Harry S Truman. President Johnson had a particular idea and purpose for the program in 1965: to provide healthcare coverage for all seniors at an affordable price.
- Supplementary Medical and Hospital Insurance Trusts
- Medicare Trust Fund: Hospital Insurance Trust Fund: How does it Work?
- Supplementary Medical Insurance Trust Fund | Facts to Know—Medicare Trust Fund
- Medicare Trust Fund: Can you have a PACE plan and Medicare Advantage?
- How Is Medicare Part A Paid For?
- Medicare Part B Cost
- What Is the Cost of Medicare Part C?
- The Cost of Medicare Part D
- Medicare Trust Fund: How much will Medicare run in 2021?
- What Medicare Part A Expenses You Are Responsible For
- Medicare Part B Premiums, Deductibles, & Coinsurance
- Expenses of Medicare Part C
- Medicare Part D Expenses
- Medicare Trust Fund: Medigap
- How to Set Realistic Expectations when Enrolling in a Medicare Supplement Plan
- Medicare Trust Fund Conclusion
- About The Author — Christopher Duncan
- Important YouTube Channel Specifics
What are the 2 Medicare Trust Funds?
The Medicare trust fund is a two-tiered system, with funds drawn from the supplementary medical insurance trust and hospital insurance. Hospital Insurance Trusts Funds are responsible for Medicare Part A coverage. Here is a brief definition of the Hospital Insurance trust. I get this part directly from a document on the Centers for Medicare and Medicaid Services website.
If you have read my other blogs, you know I cite a lot of official Medicare documents. I want you to know I’m not just making this stuff up, that I actually research to provide you with the correct information. If you would like to view the document, I have provided a link below. The document is titled: The 2020 ANNUAL REPORT OF THE BOARDS OF TRUSTEES OF THE FEDERAL HOSPITAL INSURANCE AND FEDERAL SUPPLEMENTARY MEDICAL INSURANCE TRUST FUNDS.
What is the Hospital Trust Fund?
It states, “HI (which stands for Hospital Insurance Trust Fund), otherwise known as Medicare Part A, helps pay for inpatient hospital services, hospice care, and skilled nursing facility and home health services following hospital stays. The cost of your medical care depends on various factors such as the type and severity of illness, who is providing it (e.g., in-home health aides or skilled nursing facilities), and what level they qualify to provide that care at.
What is the Supplementary Medical Insurance Trust Fund?
SMI (The Supplementary Medical Insurance Trust Fund) is for Medicare Part B needs. SMI consists of Medicare Part B and Medicare Part D. Medicare Part B helps pay for physicians, outpatient hospitals, and other services for individuals who have voluntarily enrolled. At the same time, Medicare Part D provides subsidized access to drug insurance coverage. Voluntarily for all beneficiaries and premium and cost-sharing subsidies for low-income enrollees. Medicare also has Medicare Advantage which is called Medicare Part C. This serves as an alternative to Original Medicare Part A and Medicare Part B coverage. Under this option, beneficiaries can enroll in and receive care from private Medicare Advantage plans and certain other health insurance plans.
How are PACE Programs Funded?
Medicare Advantage and Program of All-Inclusive Care for the Elderly (PACE) plans receive prospective, capitated payments for such beneficiaries from the HI and SMI Medicare trust fund accounts; the other plans are paid from the accounts based on their costs. The money in this account comes from contributions made by individuals who are enrolled with the program and interest earned on those funds. In addition to earning their contribution of monthly premiums, these members also contribute a percentage of any Social Security benefits they receive during retirement age into the Supplementary Medical Insurance Trust Fund (SMI-TF).
The Supplementary Medical Insurance Trust Fund draws its income primarily from four sources:
(1) Taxes on Social Security benefits.
(2) Excise tax of 2% imposed on certain manufacturers’ sales.
(3) Interest payments made by general revenue to cover shortfalls in OASDI payroll contributions due to employment shifts among younger workers into lower-paying jobs that are not covered under social security programs but still contribute through federal taxation
(4) Provider-based assessments for home health care or skilled nursing facility stay do not have an explicit reimbursement rate structure between providers and insurers.
How Is Medicare Part A Paid For?
The Medicare revenue is distributed to the hospital insurance trust fund. The payment mainly consists of payroll taxes, which you can see in this chart from the report. Payroll taxes accounted for 285.1 billion dollars. I found this chart pretty interesting, detailing the income and expenditures. I won’t go through it here entirely, but it’s located on page 10 of the document if you like charts like me. The proverbial bottom line here is how much gets spent per Medicare enrollee for Medicare Part A, Medicare Part B, Medicare Part D, and the total. You can see the total expenditure per Medicare enrollee in 2019 was $13,879. If you’re asking about where’s Medicare Part C? It looks as if the expenditures accounting for Medicare Part C go under Medicare Part A and Medicare Part B. And is labeled Private health plans (Part C).
How is the Medicare Part B Program Paid?
Medicare Part B is supplementary insurance that provides coverage for expenses not covered by Medicare Part A. It’s paid through the Supplementary Medical Insurance Trust Fund. This fund is financed partly from monthly premiums given to cover this supplemental medical service, with additional funds from income taxes collected on all hard-working Americans!
How is Medicare Part C Funded?
Like I mentioned, you can see Medicare Part C has its expenditures coming out of Medicare Part A and Medicare Part B. So it makes sense that the funds for Medicare Part C come from the same income sources as Medicare Part A and Medicare Part B.
How is Part D Funded?
The Medicare Part D that you receive coverage through funds by the Supplementary Medical Insurance Trust Fund and your monthly premiums. Most of the funding comes from premiums and general revenue. I am able to help you find the exact right Medicare Part D program for your needs. It is easiest to contact me at 800-910-3382!
What will Medicare Cost in 2021?
Medicare costs adjust each year. However, the 2020 Medicare Trustees Report predicts that it will be difficult to predict future expenses because of changes in technology or advances in medicine. With premiums, copays, coinsurance all being subject to change every year, there is a lot of uncertainty, which makes predicting future costs hard when so many factors affect them already.
Now that we know a little about how Medicare is funded let’s look a little closer at some of the costs you will be responsible for as a Medicare beneficiary.
How to Qualify for Premium Free Medicare Part A?
If you or your spouse worked 40 quarters (10 years) or more. You will qualify for premium Medicare Part A. If you don’t qualify for premium-free Medicare Part A and you elect to enroll in Medicare Part A, the premium will be as high as $471 per month. Depending on the amount of time you and/or your spouse paid FICA taxes.
The Medicare Part A deductible in 2021 is $1,484 per 60 day benefit period. If you are in the hospital between 61 and 90 days you are responsible for $371 coinsurance per day of each benefit period! For stays lasting longer than 91 days. You are responsible for $742 coinsurance per each “lifetime reserve day” after day 90 for each benefit period (up to 60 days over your lifetime).
At this point, let’s have the Skilled Nursing Facility stay. In 2021, you pay $0 for the first 20 days of each benefit period, $185.50 per day for days 21–100 of each benefit period, and all costs for each day after day 100 of the benefit period. If you max out the full 100 days in the skilled nursing facility, you are responsible for $14,840. There are Medicare Supplement Plans you can buy from private insurance companies that pay all of these costs. If you want to know more about Medicare Supplement Plans, you can click here for our blog post and video.
How Much is Medicare Part B Premium 2021?
In 2021, most people will pay a basic monthly premium of $148.50, which is 2.7% higher than 2020’s premium at 144.60. There are income thresholds to determine your final Medicare Part B premium costs. With each new income bracket, premiums will increase accordingly. The highest premium is for those with incomes over $500K a year. This will be at least $504.90 per month in 2021! In addition to an increase in cost, there’s also been an increased deductible. The Medicare Part B deductible in 2021 is $203. If your Medicare Part B premium is higher than the standard Part B premium of $148.50, your Part B deductible will not be higher.
Once you meet the Part B deductible, there is an 80/20 coinsurance split. Meaning, Medicare will pay 80% of the Medicare Part B amounts. You are responsible for 20% of the Medicare Part B amounts. So again, this is where purchasing a Medicare Supplement plan can help you control costs. In my opinion, using an Independent agent like myself is a great way to get unbiased information about each of the companies providing Medicare Supplements and helping you get the best possible plan at the best possible price. The right Medicare Supplement plan can pay the entire 20% Medicare Part B coinsurance.
What is Medicare Part C Consist Of?
Medicare Part C is a Medicare Advantage plan that provides an alternative option to Original Medicare. These plans offer coverage for Medicare Part A and Medicare Part B. They also can provide additional coverage for dental, vision, hearing benefits, and more. If you have read my other blogs, you know one plan I represent will help pay to board a pet for an inpatient hospital stay. These extras are something that Original Medicare or Medicare Supplements don’t cover. Most Medicare Advantage plans are HMO’s and one thing that makes them attractive is many have a $0 monthly premium while including extra coverage. Original Medicare doesn’t cover and can include Medicare Part D prescription coverage as well.
In general, the expenses of Medicare Advantage are a pay-as-you-go system. Meaning there is an assigned copay for each service or procedure you get. For example, a primary physician copay might be $20. What is important to know is the copays for different services can be different with each company. Using an independent agent will greatly help you get more unbiased information to pick out the exact right plan for you. I am here to help you look at and compare Medicare Advantage Plans.
How does Medicare Part D Cost Change?
The cost of Medicare Part D can change depending on which plan a person chooses. People pay based on their income and the type of coverage they choose. Moreover, it’s important to know every detail about your options before making an informed decision. A premium is required and an adjusted monthly fee increases with the amount earned per year. For example, someone who earns more than $88,000 annually will have to pay an additional adjustment on top of the standard premium.
Each Medicare Part D plan is different from company to company. This means that a specific prescription you take can have a different deductible and copay with each company. Hence, when shopping for Medicare Part D plans, paying more in premiums doesn’t necessarily mean getting a so-called better plan. It would be best to look for a Medicare Part D plan that covers all of your prescriptions. Just because you get a high premium plan doesn’t mean it has to cover your particular prescription.
They are supplemental health insurance policies available for those who already have Medicare Part A and Medicare Part B, also known as Original Medicare. Medigap is optional and can pay for certain gaps that Original Medicare doesn’t pay for, like deductibles and co-pays. You can purchase these plans from private companies to suit your needs best! For a person with Medigap, the premium for this policy, plus that of Medicare Part B, will be paid. Furthermore, for the standard customer who doesn’t have any supplemental coverage to their Original Medicare, it can be difficult to have enough funds to pay the out-of-pocket deductibles and copays I outlined earlier.
How Do I Choose an Independent Insurance Agent?
In my opinion, it’s extremely advantageous to use the services of an independent broker to help shop for a Medicare Supplement plan. This is directly from Medicare’s document Guide to buying a Medicare Policy. And it states, “Cost is usually the only difference between Medigap policies with the same plan letter sold by different insurance companies.” What this means is different companies can charge different premiums for the same coverage. This is where I come in to help you find the exact right plan with the best possible company. Even so, the only difference is the price, that doesn’t mean you should get the cheapest company. This is where my experience and expertise with representing all the major Medicare Supplement providers can really help you. And as always, all of my services are free to you. Click here to receive a free anonymous quote. MedicareRateQuote.com
Conclusion — Medicare Trust Fund | How to Make Your Best Choice
It is important to stay informed on what can happen next with the Medicare trust fund. The two Medicare trust funds are the Hospital Insurance Trust Fund (HIT) and the Supplementary Medical Insurance Trust Fund (SMI). Medicare trust fund sources include premium payments from beneficiaries, payroll taxes paid by employers and employees, self-employment taxes. After reading my blog post today, you should have a better understanding of the Medicare trust fund.
I hope that this has been helpful to you, and I encourage your feedback in the comment section below. Is there something I’ve forgotten? What other concerns do you have about Medicare or its financing sources? Let me know!
About The Author — Christopher Duncan
I’m Chris Duncan, your specialist Medicare Advisor and owner of Trusted Benefits Direct. I own an Independent Medicare Agency. I do not work for insurance companies; instead, I work for you, and all of my resources are free of cost. Since I am independent, I get to endorse various contributions of companies, ensuring that you make the best choice regarding your needs. Among other things, I help with Medicare Supplements, Medicare Advantage, Medicare Part D, Final Expense life insurance, and retirement security. It’s easy to communicate with me. You can reach me toll-free at 800-910-3382, or you can get a free Medicare Supplement Quote at MedicareRateQuote.com. Additionally, you can fill out my contact form on my main website at www.trustedbenefitsdirect.com.
Important YouTube Channel Specifics
Please subscribe to my website if you consider this article interesting. I also have a YouTube channel, so please like, subscribe, and hit the bell icon to be notified whenever I upload new videos! What are your thoughts and opinions? Please leave a message or share it on Facebook or Twitter. I constantly share blogs, related news, and updates to assist with Medicate basics, Medicare Made Clear, Medicare Explained, Medicare 101, and others. As always, thanks for reading, and I expect to see you on my next blog!