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How Much Are You Really Paying for Medicare?

written by: Tim Plaehn•edited by: Rebecca Scudder•updated: 6/14/2011

Data from the Security Administration and the Census bureau allows the calculation of the amount of money spent on Medicare for each adult and child in the U.S.

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    Medicare is the U.S. government provided health insurance program for retired Americans. The program is funded through payroll taxes and premiums paid by those enrolled in Medicare. Medicare consumes a large amount of money, and here we will explore the cost per citizen of Medicare.

    Medicare money flows through two trust funds set up by the government. The trust funds ensure the taxes and premiums collected to fund Medicare are used to pay for Medicare benefits. The trust funds are the Hospital Insurance trust fund, which pays for what is known as Part A of Medicare, and the Supplemental Medical Insurance trust fund, paying the costs of Part B.

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    Medicare Logo 

    Each year the trustees of Medicare send a report to the U.S. Congress providing the status of the Medicare and Social Security trust funds. The 2010 Trustees Report provides the inflows and outflows of the Medicare trust funds for 2009.

    In 2009 the Hospital Insurance trust fund had out flow of $242.5 billion. The Supplemental Medical Insurance trust fund spent $266.5 billion. Total Medicare expenditures for 2009 were $509 billion, half a trillion dollars. During the year 46.3 million people were covered under Medicare. A little division shows that Medicare spending was $11,000 per medicare beneficiary.

    Note: The Medicare Part B premium paid by each Medicare beneficiary was about $100 per month in 2009, or about 10 percent of the cost of Medicare for each recipient.

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    Medicare per Citizen

    The next step is to divide the Medicare spending by the total population and also by the number of working people. The U.S. Census Bureau website has the population of the United States at 311 million in January 2011. The Bureau of Labor Statistics - BLS - has lots of good data, and the number of employed people at the end of 2009 was 138 million.

    Math Time:

    • Dividing the $509 billion spent on Medicare in 2009 by the 311 men, women and children in the U.S. gives a per citizen Medicare spending amount of $1,640 per citizen for the year 2009.
    • The same math dividing by the 138 million working people gives a Medicare spending amount of $3,690 for each person in the U.S. who has a job.
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    Medicare is primarily funded through payroll taxes. Everyone who is employed has a tax of 1.45% withheld from salary or wages. Employers pay a matching 1.45% for a total Medicare tax rate of 2.90%. The self-employed get to pay the whole 2.90% load on self-employment earnings.

    Using our math skills once again, here is the amount paid for in Medicare taxes for a working person at several income levels:

    • Salary: $25,000, total Medicare taxes: $725.
    • Salary: $50,000, Medicare taxes paid: $1,450.
    • Salary: $100,000, Medicare taxes: $2,900.

    Note that someone earning $100,000 per year does not pay in, plus the employer contribution, enough money to cover one Medicare recipient.

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    References Trustees Report Summary FICA and SECA Tax Rates Labor Force Statistics Population Clocks