What is Medicare?

Medicare is the federal health insurance program in the United States established in 1965 under the Social Security Act and administered by the Centers for Medicare & Medicaid Services (CMS). The program primarily serves individuals aged 65 and older, but it also provides coverage for younger people with designated long-term disabilities, as well as individuals suffering from End-Stage Renal Disease (ESRD) or Amyotrophic Lateral Sclerosis (ALS). Medicare acts as a critical safety net, ensuring that retirees have access to essential medical services without facing catastrophic healthcare costs.

Medicare is divided into four distinct parts, each covering specific aspects of healthcare. Part A (Hospital Insurance) covers inpatient hospital stays, skilled nursing facility care, hospice, and some home health care. Part B (Medical Insurance) covers outpatient medical care, doctor visits, preventive services, and medical supplies. Parts A and B are collectively referred to as 'Original Medicare.' Part C (Medicare Advantage) allows beneficiaries to receive their Part A and Part B benefits through private, Medicare-approved insurance plans. Part D covers prescription drugs. Enrollment in Part A is premium-free for most individuals if they or their spouse paid Medicare payroll taxes for at least ten years (40 work credits).

The program is primarily funded through a 1.45% payroll tax levied on both employees and employers, with no upper limit on taxable wages. High earners are subject to an <a href="/articles/high-income-fica-additional-medicare-niit-math" class="text-emerald-600 dark:text-emerald-400 hover:text-emerald-700 dark:hover:text-emerald-300 hover:underline font-semibold transition-colors duration-200">Additional Medicare Tax</a> of 0.9% on wages exceeding $200,000 for single filers or $250,000 for married couples filing jointly. Furthermore, high-income retirees must pay an Income-Related Monthly Adjustment Amount (IRMAA) surcharge, which increases their monthly Part B and Part D premiums based on their Modified Adjusted Gross Income (MAGI) from two years prior.