Page Reviewed / Updated – August 10, 2020

Medicare Advantage, a health plan provided by private insurance companies, is paid for by federal funding, subscriber premiums and co-payments. It includes the same coverage as the federal government’s Original Medicare program as well as additional supplemental benefits.

What is Medicare Advantage?

Medicare is a federal health insurance plan for adults aged 65 and over. Original Medicare is provided by the federal government and covers inpatient and home health care (Part A), as well as medically necessary services (Part B).Seniors can also choose Medicare Advantage plans through approved private insurance companies. These plans may bundle Part A and Part B coverage with additional benefits for dental, vision, hearing and wellness (Part C), as well as prescription drugs (Part D).

Funding for Medicare Advantage

Private insurance companies receive a set amount of federal Medicare funding for providing Part A and Part B coverage through Medicare Advantage plans. Each insurance company is approved and contracted by Medicare and must fulfill guidelines for coverage as established by the government.

Medicare Advantage plans are also financed by monthly premiums paid by subscribers. The premium amounts vary by company and plan. Subscribers may also be asked to pay a certain amount of their expenses in the form of a deductible or copayment.

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Where Does Federal Medicare Funding Come From?

Funding for federal health insurance comes from two trust funds which are dedicated to Medicare use and held by the U.S. Treasury.

The Hospital Insurance Trust Fund is funded by federal payroll taxes and income taxes from Social Security benefits. It’s used to pay for Medicare Part A expenses such as hospital, skilled nursing, hospice and home health care.

The Supplementary Medical Insurance Fund is composed of funds approved by Congress and Part B and Part D premiums paid by subscribers. It’s used to pay for Medicare Part B expenses such as medically necessary and preventive services such as doctor’s visits and lab tests.Medicare cost $705.9 billion in 2017 and covered more than 58 million Americans.