Chapter 6: Social Security & Medicare

Current State of Medicare

-Medicare is already spending more than it takes in. -Medical costs are skyrocketing -New high-tech treatments are expensive -There seems to be few effective controls on cost -Fraud is expensive, and so are old people -A large uninsured population will need to be served

Social Security and taxes

-Social Security benefits are taxable as income. -Social Security pays out more than it collects. -Employers' contributions for FICA and Medicare are a tax deductible expense for the employer. -The employee's contribution is not tax deductible. -You do not need to be poor to receive Social Security

Social Security definition

An entitlement program. Full retirement benefits are currently available at age 66. Early reduction benefits are available at age 62. Anyone is eligible or "entitled" if they: -Reach the age of eligibility -Have 40 quarters of covered employment -Earned at least $1,130 each quarter -Are an American citizen or legal immigrant -Social Security is a pay-as-you-go plan, not an endowment.

Demographics

By 2030, 20% of the population will be over 65. About 40% of all the money the federal government currently budgets is for senior citizens. The amount you pay into the system and the number of quarters you work largely determines the $ benefits you receive

Social Security benefits

Divorcees are entitled to the higher of their own benefit or half of their ex-spouses benefit, whichever is larger, but only if they were married for 10 years or more.

FICA

Federal Insurance Contribution Act aka Social Security

Social Security funding

Funded by a payroll tax of 12.4% tax on a person's earned income up to a current cap of $113,700. 6.2% is paid by the employee, and the other 6.2% is paid by the employer.

Definition of medicare

Medicare is an entitlement program. Everyone is elegible at age 65 who is an American citizen or legal immigrant.

Medicare Funding

Medicare is paid by a 2.9% tax on all earned income. 1/2 is paid by the employee (1.45%) and 1/2 by the employer (1.45%). There is no cap.

Medicare Part B

Part B: Is optional and means tested. Financed by monthly premiums paid directly or deducted from a Social Security check. -Benefits are the same regardless of what you pay per month. -Elegible benefits include the doctor, outpatient medical services, lab work...etc.

Medicare Part D

Part D: Is optional and means tested: It is a prescription drug plan provided only by private insurance companies -25% of its budget is financed by monthly premiums and 75% from taxes. -Premiums vary widely and may be different in every state. some states have over 40 different plans just for residents of that state. -High income earners pay up to a $69 per/month surcharge to Medicare just for the right to purchase Part D coverage. -Part D covers prescription drugs only and currently requires co=payments up to $2,840 until $4,550 -It is confusing.

Means Tested

People who earn more, pay more

Medicare Part A

There are 3 parts: Part A: Currently financed by a 2.9% payroll tax on all earned income paid by all workers with no salary "cap". 1.45% is paid by the employer, and 1.45% by the employee. -Benefits cover (not 100%) hospital, skilled nursing, home-healthcare, hospice etc. -The current Part A payroll tax will increase under the new Health Care Reform Act for higher-income earners.