What’s social security and medicare?

Social Security and Medicare are federal government-run safety programs that serve retired and disabled Americans. Workers contribute to both programs during their working years through payroll taxes, and they become eligible to receive benefits when they meet the eligibility criteria for each benefit. Here is what to expect from both programs when applying for benefits.  

Both Social Security and Medicare provide benefits to specific categories of people. Social Security provides financial support to retired workers, disabled workers, and survivors of deceased workers, while Medicare offers subsidized healthcare services to help beneficiaries cover medical treatments, doctor visits, and hospital stays. If you are receiving Social Security benefits, SSA will automatically sign you up for Medicare when you reach age 65.

What is Social Security?

Social Security is a safety net program that is managed by the Social Security Administration (SSA), and it pays benefits to Americans who qualify based on age or disability. Usually, workers pay into the Social Security system over their working years through taxes. You qualify to receive Social Security when you meet the eligibility requirements. The Social Security payments you receive depend on your earnings history. 

What is Medicare?

Medicare is a health insurance program that helps pay for medical care services such as inpatient hospital stays, physician visits, hospice care, prescription drugs, etc. You qualify to receive Medicare benefits when you reach 65 years, or if you have a chronic disability. You must have paid Medicare taxes for at least 10 years to be eligible for the coverage; if you worked for less than 10 years, you can purchase Medicare coverage, or get coverage based on your spouse’s work history.

Medicare is available in four parts i.e. Parts A, B, C, and D. Medicare parts A and B are known as hospital insurance and medical insurance respectively, and you get automatically enrolled in the two parts if you receive Social Security and you are above 65. On the other hand, Medicare Part C is known as Medicare coverage, and it is sold by private insurance companies that work with Medicare to offer coverage, while Part D offers coverage for prescription drugs.

Eligibility for Social Security and Medicare

Both Social Security and Medicare are managed by different organizations and have different eligibility requirements. Social Security is managed by the Social Security Administration while Medicare is managed by the Center for Medicare and Medicaid Services. SSA determines eligibility for Social Security benefits, and it also manages most of the administrative functions for Medicare.

You may be eligible for Social Security if you are at least age 62 or older and you have enough work credits. You earn up to four credits per year, and you need 40 credits to qualify for Social Security. Though Social Security kicks in at 62, you will be entitled to the full benefits when you claim benefits at the full retirement age.

You may qualify for Medicare if you are age 65 or older, and have a certain medical condition or disability. If you are younger than 65, you may qualify for Medicare if you have a disability, permanent kidney failure, or end-stage renal disease. You are eligible for Part A of Medicare if you are 65 or older, and you or your spouse worked and paid into Medicare for at least 10 years. If you enroll for Part B of Medicare, you must pay for the premiums. Part B premiums of beneficiaries receiving Social Security will be deducted from the monthly payments.

Enrolling in Social Security and Medicare

You can enroll for Social Security benefits starting from age 62, but you will receive a reduced benefit. If you want to receive 100% of your benefits, you can enroll for Social Security at the full retirement age which ranges from 66 to 67. If you delay taking benefits after the full retirement age, your Social Security benefits will increase by 8% for each full year you wait until age 70. SSA calculates benefits based on the 35 highest-earning years. You can apply for Social Security by requesting benefits on your My Social Security account, calling SSA, or visiting the local Social Security Office.

In comparison, Medicare eligibility starts at age 65. If you are receiving Social Security at age 65, you will be automatically enrolled in Medicare Parts A and B. SSA will send you are Medicare package at the start of the initial enrollment period, which begins three months to the month you turn 65. If you are not receiving Social Security benefits at 65, you will need to apply for Medicare during the initial enrollment period. If you decide to opt out of Part B of Medicare, you will pay permanently higher premiums if you sign up later.   

Funding for Medicare and Social Security?

Social Security and Medicare are funded by payroll taxes that are split between employees and employers. You can see the amount of taxes you pay to each program by looking at your pay stub. Social security and Medicare payroll taxes are known as FICA taxes.

You will pay a Social Security tax of 6.2% of your gross income, and the employer matches the 6.2%, totaling 12.4%. You won't pay Social Security taxes if your annual income exceeds $147,000. On the other hand, the Medicare Tax is 1.45% of your gross income, and the employer matches the 1.45%.

Medicare also gets funding from other sources other than payroll taxes. The program receives funding from income taxes on Social Security benefits, premiums paid on Medicare Parts A and B, interest on investments made by the Medicare Trust Fund, and other funds authorized by Congress.