Medicare is funded by the Social Security Administration. Which means it's funded by taxpayers: We all pay 1.45% of our earnings into FICA - Federal Insurance Contributions Act, if you're into deciphering acronyms - which go toward Medicare. Employers pay another 1.45%, bringing the total to 2.9%. (If you're self-employed, you must cough up the entire 2.9%.) The Medicare deduction on your paycheck might say FICA-HI. The HI refers to Health Insurance, and it's your premium cost for all Medicare coverage.
While our FICA taxes to cover payments into the Social Security system are levied only on the first $106,800 in earnings for 2010, the Medicare tax is levied on every penny you earn.
You will also pay some Medicare costs yourself when you start using the plan.
