The Definition of the Medicare Trust Fund

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Medicare is a U.S. government program that provides health insurance coverage for Americans older than age 65. According to the 2013 Annual Social Security and Medicare Trust Fund Report, Medicare provided health insurance coverage for 50.7 million people during 2012. The U.S. government has set up separate trust funds to handle the assets and payments for the Medicare program.

Medicare Trust Funds

Payments for medical services covered under Medicare come from two trust funds. The Hospital Insurance fund covers Medicare Part A payments to hospitals and the Supplementary Medical Insurance fund pays the doctor and outpatient medical expenses covered under Parts B and D of Medicare. The trust funds take in the money designated to pay for the Medicare services and make payments to the health care providers when claims are submitted.

Trust Fund Funding

The Hospital Insurance trust fund is financed from the Medicare payroll taxes paid by employees and employers. As of 2013, the HI tax rate was 1.45 percent of salary for employees and employers or 2.90 percent for the self-employed. The Supplementary Medical Insurance trust fund is funded by the Part B Medicare premium paid by retirees and money from general government revenues.

Trust Fund Assets

The two Medicare trust funds primarily pay for medical services with the money that comes in from funding sources during the year. At the end of 2012, the HI trust fund had assets of $220.4 billion and had disbursed $266.8 billion during the year. Income for the HI trust in 2012 was $243 billion. The SMI trust has a smaller ongoing asset base. This trust finished 2012 with $67.2 billion in assets. During the year, the SMI trust took in $293.9 billion and disbursed $307.4 billion.

Annual Trust Fund Report

Each year the Board of Trustees for the Medicare and Social Security trust funds issue a report on financial status of the trusts. The Trustees report shows the current assets of the trusts and projects the future expenditures and income from taxes and fees. The report is used to determine if sufficient funds will be available in future years to pay Medicare benefits or if Congress and the government need to make changes in the program.

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