Taxes pay for the entirety of Medicare part A.
For the optional or supplemental policies which fall under the Medicare moniker, a regular premium may be due, but it’s still better than what premiums would look like if there were no Medicare. The Social Security Administration (website—here), which is funded by taxes deducted from your paycheck under FICA, or as part of the “self-employment tax,” administers both Social Security and Medicare.
As with Social Security, the idea is that each person will pay into their own future benefit pool through mandatory taxes, but in practice it looks more like healthy, working people are paying for the medical expenses of older, more infirm people. Medical expenses are one of the largest costs looming on the horizon for people entering retirement, with many estimates assuming that the average retiree will pay well over $200,000 just for out-of-pocket medical expenses as they grow older.
As of 2016, 1.45% of your income goes towards Medicare, unless you earn a high income, which subjects you to the 0.9% additional surtax. Baby boomers are entering retirement more and more, so that the over 80 population is the fastest-growing population segment, and the government is interested in protecting the finances of this large population group.
Part A does not have premiums for someone has work about 10 years in their life and paid into FICA. If the person has not paid into the system already, he or she can get a Medicare policy by paying a premium of $413 a month, as of 2016. There is a deductible which must be met in either case, of $1,316 for each benefit period (hospitalization), but so-called Medigap policies can cover the deductible.
Should I buy a Medigap policy?
How much will health insurance cost in retirement?