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How Is Medicare Advantage Funded?

Medicare Advantage, Part C, allows Medicare recipients to receive more services with lower deductibles and co-pays than original Medicare Parts A and B. Beneficiaries enroll in Advantage plans and receive all services through plan-approved medical care providers.

  1. Medicare Trust Funds

    • Medicare has two trust funds, the Medicare Part A Hospital Insurance (HI) fund and the Supplementary Medical Insurance (SMI) fund, which contains two accounts, also--the Medicare Part B Medical Insurance account and the Part D Prescription Drug Plan account. Medicare Advantage plans provide the services of Medicare Parts A and B and receive funding from the HI and Part B account of the SMI funds.

    HI Trust Funding

    • The Hospital Insurance fund receives 86 percent of its income from the 1.45 percent tax that employees and employers pay from wages, plus the 2.9 percent paid by the self-employed. Income taxes paid on Social Security benefits supplies 5 percent. Interest on the fund's assets--$321.8 billion as of 2008--supplies 7 percent. A small amount comes from premiums and general revenues.

    Part B Funding

    • The Part B account in the SMI fund receives 25 percent of revenues from Part B premiums. Transfers from general revenues cover about 73 percent and a small percentage comes from interest on account assets of $59.4 billion, as of 2008.

    Funding for Advantage

    • In 2008, the Hospital Insurance fund provided $50.6 billion and the Part B account of the Supplementary Insurance fund provided $47.6 billion to fund Advantage plans.

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