A University of Alabama Law School Clinical Program funded in part by West Alabama Regional Commission

Financing the Four Medicare Parts and Beneficiary Premiums

Part A

Financing is largely from payroll taxes paid by employees and employers (1.45% each). A few funds come from copayments and deductibles, some from premiums.

Beneficiaries with at least 40 quarters of creditable Social Security coverage: no Part A premium. The great majority of beneficiaries pay no premium.
For those over 65 who have 30-39 quarters of creditable Social Security contributions: monthly premium $244 (2009)
For those 65 or over who have 29 or fewer quarters of coverage: monthly premium $443 (2009).

Part B

Financed by general federal revenues and to some extent by co-payments, annual deductible of $135 (in 2009), and monthly premiums paid by beneficiaries. Since 2007, high-income beneficiaries have paid higher monthly premiums. Premiums cited here are for 2009. Most beneficiaries are not expected to see an increase in 2010.

Basic monthly Part B premium in 2009 : $96.40.
Second tier of premiums in 2009: $134.90 per month
Individuals with annual incomes of $85,000 - $107,000
Couples with incomes of $170,001 - 214,000
Third tier of premiums in 2009: $192.70
Individuals with incomes of $107,001 - $160,000
Couples with incomes of $214,001 -$320,000.
Fourth tier of premiums in 2009: $250.50
Individuals with incomes of $160,001 - $214,000
Couples with incomes of $320,001 - $ 426,000
Married individuals filing separately with incomes of $85,001 - $128,000
Final tier of premiums in 2009: $308.30
Individuals with incomes above $214,000
Couples with incomes above $426,000
Married individuals with incomes above $128,000

Income is determined by federal tax returns. As of fall 2009, the basic premium is not expected to change in 2010, but premiums may increase for new participants and those with high incomes.

Part C

Plans can provide services through Health Maintenance Organizations (HMOs); Preferred Provider Organizations (PPOs); Special Needs Plans (SNPs) for those eligible for both Medicare and Medicaid; Private Fee-for-Service Organizations (PFFOs) which operate much like Original Medicare but are less regulated and may charge high Premiums; and several other types of plans, including Medicare Savings Plans (MSPs) which service only a small percentage of Medicare Advantage participants.

All Medicare Advantage plans receive a specified amount for each beneficiary enrolled in their plan ("capitation").

Companies submit annual bids outlining their plans. They are measured against benchmarks based on average medical costs in an area. The law includes provisions designed to encourage plans to restrain costs while providing additional services. However, HMOs are the only Medicare Advantage plans whose actual costs average slightly less than those under Traditional (or Fee-for-Service) Medicare.

There has been considerable criticism of the generous payments to Medicare Advantage plans, which average approximately 14% higher than those under Fee-for- Service or Original Medicare + Medigaps. Current health care plans being debated propose to eliminate this inequity, which costs billions of dollars annually. CMS (Centers for Medicare and Medicare Services) expects to limit increases in 2010 payments, which should reduce the disparity with Traditional Medicare.

Part D

Beneficiary premiums are set to cover 25.5% of the costs of prescription drug plans, with Medicare subsidizing the rest based on bids submitted by plans for expected benefits provided to enrollees. Plans receive extra subsidies for low-income enrollees, and additional payments for high-risk beneficiaries.

Based on the law passed in 2003, Medicare is prohibited from negotiating drug prices directly with drug companies. Plan providers do negotiate with drug companies. Plans are required to include in their formularies, or lists of drugs covered, some of the most- prescribed drugs from each of six categories.

Go back