The Kaiser Family Foundation (KFF) recently highlighted some common questions and answers about how the Medicare program is funded. According to the KFF FAQ, Medicare spending accounts for 21% of national health care spending and 12% of the federal budget. Its funding comes primarily from general revenues, payroll taxes, and premiums paid by beneficiaries.
Different Parts of Medicare are funded differently—Part A, which covers inpatient hospital stays, some home health care, and hospice, is financed primarily through a tax on earnings paid by employers and employees. Payroll taxes accounted for 88% of Part A revenue in 2019. Part A has been the focus of some significant conversation recently because the Medicare Hospital Insurance (HI) trust fund, out of which Medicare Part A benefits are paid—is projected to be depleted in 2026, just five years from now.
The FAQ answers common questions about Medicare financing, including questions about the HI trust fund, what depleted means, what happens if there is a shortfall, whether this has happened before, what factors affect the trust fund, and what the long-term outlook is for Medicare financing.
Crucially, the report highlights that while some reports describe the trust fund as heading towards “bankruptcy” or “going broke,” “it is important to note that the Medicare program will not cease to operate if assets are fully depleted, because revenue will continue flowing into the fund from payroll taxes and other sources. Based on data from Medicare’s actuaries, in 2026 Medicare will be able to cover 94% of Part A benefits spending.”
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