I often get asked, "Why isn't Medicare free?" A common misconception is that Medicare should be free because we've paid taxes into the system throughout our working lives. Recently, while explaining this to someone approaching Medicare, I got curious about how much the average person might contribute to Medicare over their career—and the numbers may surprise you.
Medicare taxes are based on income. Currently, employees pay 1.45% of their earnings in Medicare taxes, with an additional 0.9% for high-income earners above certain thresholds. Employers match this contribution. These taxes primarily fund Medicare Part A (hospital insurance).
The total amount someone pays into Medicare varies depending on income and career length, but we can estimate it using a simple example:
Average Salary: $70,000 per year
Medicare Tax Rate: 1.45% of income (plus an equal amount from the employer)
Working Career: 45 years (from age 20 to 65)
Calculation:
Annual Medicare Tax: $70,000 x 1.45% = $1,015
Total over 45 Years: $1,015 x 45 = $45,675 (plus an additional $45,675 from the employer)
While these figures are rough estimates and can vary based on actual earnings, years worked, and changes in tax policy, they provide a sense of how much an individual might contribute.
So, why isn’t Medicare free? As this example shows, based on the income level used, the total contribution isn’t that high when spread over a lifetime. This is why there are premiums, deductibles, and coinsurances associated with original Medicare. It’s also important to note that higher earners may pay more in both taxes and premiums.
The purpose of this post is to continue educating and offering perspectives on Medicare. While everyone’s situation is unique, I believe the example above sheds light on Medicare costs and encourages us to think critically about our future health expenses as we approach or navigate Medicare age and beyond.
The information in this post is for educational purposes only. Medicare Solutions or it's affiliate RJ Premier Solutions LLC is not connected with or endorsed by the United States government or the federal Medicare program.
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