Cost of Funding Medicare Programs
Medicare programs are intended to meet the healthcare cost of approximately 37 million Americans aged 65 and above and 7 million people with disabilities. The Federal Hospital Insurance Trust Fund (HI) and the Federal Supplementary Medical Insurance Fund (SMI) take care of the financial transactions of the Medicare programs. HI Trust Fund covers the expenses under Part A, which includes the inpatient hospital, home health, skilled nursing facility, and psychiatric hospital and hospice care services. The Medicare Board of Trustees assesses the financial health of the HI Trust Fund by making a comparison of the projected income with the projected expenditure of the funds.
The HI Trust Fund derives its funds from the payroll tax paid by the employers and employees each at the rate of 1.45 percent of total wages. Self-employed individuals are mandated to pay 2.9 percent of their total wages. While the Social Security Taxes are collected as a percentage on the earnings above a certain ceiling, the Part A Medicare fund cost is collected as a percentage of total wages of the employees. Payroll tax revenue accounted for 91 percent of the income of the HI fund (Caplan, 2004).
The SMI Fund consists of two separate accounts. One is Part B, which covers the cost of physicians and other outpatient health services and the other is Part D, which pays for the cost of outpatient drugs. Beneficiaries of Part B and D of Medicare have to pay monthly premiums. These premiums are usually deducted from the Social Security Benefits of the individual beneficiaries. The revenue from the premiums covers 25% of the cost of supplementary medical insurance.
The premium charged for Part B benefit is $ 96.40 per month. The benefits under Part D entail an average premium of $ 28 per month. The amount of premiums each year will rise in proportion to the expenditure met by the programs. In the case of beneficiaries with an annual income of $ 82,000 or more, they have to pay an additional premium in proportion to their income towards Part B premium. Remaining cost of both Parts B and D are financed from the income taxes paid by the taxpayers (Waters, 2008).
The beneficiaries of the programs are made responsible for covering a part of the cost of their care in the form of deductibles and coinsurance for covered health services. However, costs of routine dental care, eyeglasses, hearing aids and most long-term care are to be met by the beneficiaries themselves.
Present Financial Status of Medicare
According to the intermediate assumptions of the Trustees of Medicare Funds, Hospital Insurance Trust Fund is expected to be run in deficit from the year 2010. The current income and trust fund reserves are expected to meet the expenditures under hospital insurance funds until the year 2019 and from this year, the reserves will start depleting. At that point of time, if there are no changes effected in the whole Medicare programs the scheduled income from HI Funds are expected to cover only up to 78 percent of the total estimated expenditures.
The SMI Fund does not suffer much, since it is usually adequately financed by matching the beneficiary premiums and general revenue contributions suitably so that the expected costs of Parts B and D are covered for the ensuing year. However, the program costs are increasing rapidly, which in turn would make the demand on both the beneficiaries to pay more premium and the taxpayers to pay more to cover the additional requirements of general revenue.
References
Caplan, C. (2004). Medicare Financing. Web.
Waters, P. N. (2008). Medicare Brief No 18. National Academy of Social Insurance Policy.