Thursday, August 18, 2011

Medicare Report - Part I - The Existing Medicare Program

By: Dan Reed, American Citizen

Conservative politicians constantly complain about Medicare and campaign on why Medicare needs significant reforms. These same politicians falsely say that Medicare spending is draining the U.S. Treasury. Based on these claims, I decided to investigate.

The following three-part report reviews the existing Medicare Program, outlines the Republican Medicare Reform proposals, and compares the costs of the FICA Medicare system with the costs of Private Health Insurance.  

Medicare: Program, Financing, and FICA Trust Fund
For three decades politicians, business interests, and media people have presented a drumbeat of negative misinformation about Medicare, which has caused some people to believe that Medicare is welfare for seniors, and generational thief! So I begin this three part series with an accurate overview of: why Medicare was established, what makes up Medicare parts A, B, C, and D, how Medicare is really financed, and how the Medicare FICA trust fund operates

Medicare Program

President Lyndon B. Johnson signed Medicare into law on July 30, 1965. Medicare is a social insurance program administered by the Federal Insurance Contributions Act (FICA), which was established in 1935 as part of legislation that created Social Security. Medicare was established to solve a problem between the high costs of private medical care, combined with old peoples generally low retirement incomes!

Medicare provides health insurance coverage to people over the age of 65, people under 65 who are permanently disabled, and people who meet other special criteria. The Medicare program also funds residency-training programs for the vast majority of physicians in the United States. Medicare benefits are grouped into four coverage categories: Part-A, Part-B, Part-C, and Part-D, with each being funded in a different manner.

Medicare Financing

Medicare covers 80% of Medicare-approved medical cost, with the remaining 20% being paid by either the Medicare recipient, or a “supplemental insurance plan” purchased from a private Health Insurance Company.

Financing Medicare - Medicare is partially financed by payroll taxes collected by the Federal Insurance Contributions Act (FICA), and the Self-Employment Contributions Act of 1954. The Medicare payroll tax rate is 2.9% of the gross wages, salaries and other employment compensation, which is split between the employee and employer. Self-employed individuals must pay the entire 2.9% tax on net earnings, but may deduct half of the tax from income when calculating their income tax. High-income Social Security beneficiaries also pay income tax on their Social Security income, some of which goes toward Medicare. Beginning in 2013, the 2.9% hospital insurance tax will apply to the first $200,000 of income for individuals or $250,000 for couples filing jointly, and will rise to 3.8% on incomes in excess of those amounts.

Medicare Part A – Covers hospital benefits, and is financed from FICA payroll taxes collected from employers (1.45%) and employees (1.45%). About 99% of Medicare beneficiaries do not pay a Medicare Part-A premium because they have earned least 40 quarters of Medicare covered employment. Those individuals with 30 to 39 quarters can buy into Medicare Part A at a monthly rate of $248 to $450.

Medicare Part B – Covers doctors, treatment, and medical equipment costs, and is partially financed with $110 monthly fees withheld from each retirees monthly Social Security check, and co-pays. These fees cover approximately 25% of Part-B Medicare benefits. General revenues of the Federal Government subsidize the balance of Medicare Part B benefits.

Medicare Part C – With the passage of the Balanced Budget Act of 1997, Medicare beneficiaries were given the option to receive their Medicare benefits through private health insurance plans, instead of through the original Medicare plan (Parts A and B). These programs were known as “Medicare + Choice” or “Part-C” plans. Pursuant to the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, “Part-C” plans were made more attractive to Medicare recipients by the addition of prescription drug coverage and became known as “Medicare Advantage Plans”. Medicare Advantage plans are required to offer coverage that meets or exceeds the standards set by the original Medicare program. Medicare Part-C is partially financed by insurance premiums withheld from each participating retirees monthly social security check. General revenues of the Federal Government directly subsidize each private health insurance company that provides Medicare Part C benefits.

Medicare Part D – Insurance premiums are directly paid to private insurance companies by Medicare recipients, for either a stand alone prescription drug plan, or as a portion of the premium for their Medicare Advantage plan. General revenues of the Federal Government partially subsidize Drug companies that provide Medicare Part-D benefits. 

The FICA Trust Fund 

The FICA is a solid non-profit organization, with a 76-year history of efficiently administering both the Social Security and Medicare Trust Funds! All FICA Medicare collections go into a trust fund, which is used to pay doctors, hospitals and private insurance companies when Medicare patients use their Medicare medical benefits. The FICA administers both Social Security and Medicare. Because of this “dual role”, FICA administrative costs are about 30% less than those of private health insurance companies. 

Full Story: of reven
Republicans and the media continue to “Label Medicare an Entitlement”, like government provided welfare. This is hogwash! The truth is Medicare Parts A, B, C and D, which provides health care for more than 45 million American seniors are partially paid by lifetime payroll tax deductions, partially paid by retirees monthly Social Security withholdings, and partially subsidized by federal tax revenues! 

Republicans falsely claim that Medicare already consumes about (12.5%) of federal spending, and “costs” are set to explode as the baby boomers begin retiring in 2011! Again, this is hogwash! Republicans only mention the spending side! They conveniently omit monthly payroll tax collections and existing Medicare FICA trust fund surpluses. The Medicare FICA trust fund has taken in more than it paid out for years, and currently has a “surplus” that will last until 2024!

Does anyone ever question why progressive politician’s claim Medicare is solvent through 2024, while conservative politician’s claim Medicare is almost broke? The American people need an accurate AUDIT before any Medicare Reform is undertaken! 
  • How much has been collected by FICA Medicare payroll taxes since 1965?
  • How much has been collected from retirees Social Security checks since 1965?
  • How much will be collected from the FICA Medicare payroll taxes in the future?
  • How much will be collected from future retirees Social Security checks?
  • How much has been paid out of the FICA trust fund?
  • How much additional revenue is needed to balance Medicare spending, Medicare trust fund surpluses, future FICA payroll tax revenues, and retirees withholdings?

Without this “AUDIT”, Republican hype about Medicare spending is just pure crap!


  1. Hi Dan,

    Nice to see you the other day. This is good

  2. Just read it again. Thanks again!


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