Last week we received numerous questions about how Medicare is funded. The questions were brought on by the launch of Tax Day and confusion over why Social Security and Medicare showed up in charts on how your income taxes were spent in 2011.
As many of you pointed out, there are special taxes taken out of our paychecks specifically to fund the Medicare program, and those taxes are separate from your income taxes. To be specific, you and your employer each pay 1.45 percent of your wages as Medicare taxes. (That's part of your payroll taxes, also known as FICA. Read this to learn about taxes and your paycheck.) Those Medicare taxes are then put into a trust fund, and that money can only be used to pay for Medicare.
But. All the revenues from those special Medicare taxes aren’t enough to cover the costs of the Medicare program, and that's been true for decades. In fiscal 2013, President Obama’s budget predicts that revenues from Medicare will total $214 billion. It also predicts that Medicare will cost $530 billion— well over twice the amount of revenues. So, how do we make up the difference? The rest is paid for out of federal funds, which mostly come from your income taxes.
The fact that such a large (and growing) chunk of federal funds is dedicated to Medicare has prompted discussions over how to control health care costs. It’s a tricky issue.
But there are proposals to help control costs, and we wrote about one such initiative that could be successful at doing so— check out "Controlling Costs" in this piece on health spending in President Obama's fiscal 2013 budget.