How Is Medicare Part D Financed?

Medicare Part D, Medicare's Prescription Drug Program, has provided access to prescription drug coverage for Medicare beneficiaries since 2006. Prior to 2006 Medicare did not offer prescription drug coverage. Beneficiaries needing coverage either joined Medicare Advantage plans or purchased supplemental insurance.

Revenue Sources

• Medicare has two trust funds--the Hospital Insurance Fund, and the Supplemental Medical Insurance Fund which contains separate accounts for Medicare Part B Medical Insurance and Medicare Part D, Prescription Drug Plan. The Part D account receives financing from premiums paid by Medicare beneficiaries and states that pay premiums for their Medicare-eligible Medicaid recipients. The main financing source is federal general revenues.

Revenue Amounts

• The Part D account received $49.4 billion income in 2008. Premiums paid by beneficiaries provided $5 billion; state-paid premiums amounted to $7.1 billion. Remaining funds needed to finance 2008 expenditures of $49.3 came from federal general revenues--$37.3 billion. Financing is "dedicated" meaning that premium and federal transfer increases are mandated by law, ensuring Part D always receives necessary financing.

Projected Financing

• The Boards of Trustees of the Medicare Trust Funds project the Medicare Part D account's income from premiums will increase from $7.2 billion in 2010 to $17.7 billion in 2018. State premiums payments will rise from $8.3 to $15.4 billion. Federal general revenue transfers needed to finance expenditures will grow from $50.7 to $107.8 billion.