How Do My Taxes Pay for Medicare?

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Contributor, Benzinga
April 11, 2022

Are you grumpy because you are paying Uncle Sam a fortune in income taxes every year? If you are, it would be hard to argue with you.

But are you also angry because you are paying so doggone much for Social Security and Medicare? And are you even angrier because you are not yet old enough to collect Social Security or Medicare, so you are contributing tons of money and not yet getting anything in return?

If that is the way you feel about paying for Social Security and Medicare, we have to say that we really don’t agree with you, for a few reasons. If you are already getting Social Security and Medicare coverage, we bet you are not displeased. And if you are not yet old enough to enjoy those benefits, we think you will change your mind when you are. When those Social Security payments start to roll in and when you become eligible for Medicare that provides good health care coverage (better than you expect) and works well, we don’t think you will be complaining either.

But there is another reason you shouldn’t be angry about paying for Medicare . . .

Paying for Medicare Costs You Less than You Think . . . Possibly Much Less

How Medicare is Funded

Medicare is funded by the Social Security Administration through taxes mandated by the Federal insurance Contributions Act, or FICA.

How much are you and I paying into FICA if we are working? Hold onto your hat because we pay only 1.45% of our annual earnings into FICA.

Then our employers match that contribution and pay an additional sum that is the equivalent of 1.45% of our earnings into FICA. (Your employer pays that second 1.45%, you don’t, so don’t get grumpy about that either.)

So even if you aren’t very good at math, you will quickly see that a sum that equals 2.9% of your annual income is being allocated to fund two programs that will pay for your retirement income (through Social Security), not to mention your health care coverage (through Medicare) after you reach your so-called “golden years.”

So if you want to get angry, go ahead. But please remember that to fund Social Security and Medicare, you aren’t paying 20% or 30% of your annual income. You are paying 1.45%.

How Does the Government Pay for Medicare?

If you want to know what happens to that 1.45% of your income that you pay annually in FICA taxes before Uncle Sam pays it out to people who are currently receiving Social Security and Medicare, we are going to tell you now.

The Centers for Medicare & Medicaid Services (the CMS, a federal agency) collects your money. It doesn’t just toss it into a pot and take some out every year to pay for other people’s Medicare and Social Security. No, because the government is at work, it’s more complicated than that. However it works pretty well. Here’s how.

The Centers for Medicare & Medicaid Services (CMS), the federal agency that runs the Medicare Program, is a branch of the Department of Health and Human Services (HHS).

In addition to supervising Medicare, CMS also monitors Medicaid programs, which are health coverage programs administered at the state level.

How much money is CMS doling out annually to pay for these programs?

In fiscal year 2020, CMS paid $776 billion to fund Medicare - about 12 percent of the total federal budget. The number of people enrolled in Medicare has tripled since 1970, climbing from 20 million in 1970 to nearly 63 million in 2020, and it is projected to reach about 87 million in 30 years.

Where Does the Government Keep the Funds It Uses to Pay for Medicare?

Medicare is paid from two trust fund accounts in the U.S. Treasury. By law, these funds can only be used for Medicare. They are:

  • The Hospital Insurance (HI) Trust Fund, which is used to pay for Medicare Part A (Hospital Insurance).
  • The Supplementary Medical Insurance (SMI) Trust Fund, which is used to pay for Part B and Part D benefits, as well as for some of the administrative costs of running the Medicare program.

So, Are You Still Grumpy?

We hope not, because there aren’t any other federal programs that give you more for an annual contribution of 1.45% of your annual income. (If you can think of any, please let us know.)

But whether you are grumpy or not, it is still smart to do all you can to make sure you are getting everything you should be from Medicare and Social Security. You are right to want to get the biggest benefits possible from the 1.45% of your annual income that you just contributed.

Want to learn more? Visit they’ll help you find the right Medicare coverage that you deserve. Reach out today and start finding the best Medicare plan for you. is a digital-first health insurance platform focused on Medicare. The company’s mission is to make Medicare more transparent and accessible for America’s 60 million Medicare beneficiaries. They aim to simplify a traditionally confusing and complex decision by delivering you a simple, delightful, and comprehensive enrollment experience.