5. Medicare Parts B and D: who pays¶
Short answer: premiums pay about a fifth to a quarter of the cost; general revenue pays about three quarters. Parts B (doctors and outpatient care) and D (prescription drugs) are paid from the Supplementary Medical Insurance (SMI) trust fund. That fund has no dedicated tax. By law, enrollee premiums and a matching transfer from the Treasury's general fund are set each year to cover the next year's expected costs, so "each account within SMI is automatically in financial balance under current law" (Medicare TR 2026, PDF p. 40). The Trustees put the consequence plainly: "the trust fund will always be in balance and there will always be a net draw on the federal budget" (PDF p. 223).
| Calendar year 2025, $ billions | Part B | Part D | SMI total |
|---|---|---|---|
| Spending | 584.3 | 181.5 | 765.8 |
| Income | 580.5 | 183.3 | 763.8 |
| General revenue (general fund contributions) | 422.9 (72.9%) | 148.8 (81.2%) | 571.7 |
| Enrollee premiums | 150.3 (25.9%) | 14.9 (8.1%) | |
| State payments | 19.1 (10.4%) |
Table 5. Percentages are shares of each account's income. Source: 2026 Medicare Trustees Report, PDF pp. 13, 88, 90, 108-109. Part B premiums are $150.3 billion in the Part B narrative and $150.7 billion in Table II.B1, which also counts premiums from Medicare Advantage enrollees (PDF p. 18). The SMI general-revenue total ($571.7 billion) is the sum of the two accounts (data/derived.json). The Trustees summarize SMI as about 75 percent general revenue and about 22 percent premiums (PDF p. 19).
Scale. General revenue for Parts B and D equaled 1.9 percent of GDP in 2025 and is projected to reach 3.7 percent of GDP by 2100 under current law (PDF p. 31). Across all of Medicare, transfers from the general fund were 47 percent of non-interest income in 2025, the largest single source, ahead of HI payroll taxes (33 percent) and premiums (14 percent) (PDF p. 197). Total Medicare spending was $1,210.1 billion, 3.9 percent of GDP (PDF pp. 13, 17).
Part B premiums¶
- The standard premium is set at about 25 percent of average Part B spending for enrollees aged 65 and over (PDF p. 97). For 2026 it is $202.90 a month, up from $185.00, and the annual deductible is $283 (CMS fact sheet, Nov. 2025).
- Higher-income enrollees pay an income-related premium covering 35, 50, 65, 80 or 85 percent of average cost instead of 25 percent (PDF p. 215). In 2026 it starts at $109,000 of income for an individual return and $218,000 for a joint return (PDF p. 215); the top total premium is $689.90 a month (CMS fact sheet). About 5.1 million beneficiaries paid it in 2025 (PDF p. 214), roughly 8 percent of people with Part B (CMS fact sheet).
- A hold-harmless rule limits the dollar increase in a person's Part B premium to the dollar increase in their Social Security benefit (PDF p. 216). About 30 percent of Part B enrollees are not protected by it: new enrollees, people who do not receive Social Security checks, and people paying the income-related premium (PDF p. 94).
- The premium figure counts "premium payments by (or on behalf of) enrollees" (PDF p. 88), so it includes premiums that someone else, such as a state Medicaid program, pays for an enrollee. The Trustees Report does not say how much of it is paid that way; that split is an open question for a later investigation.
Part D premiums and state payments¶
- The Part D base beneficiary premium is meant to cover, on average, 25.5 percent of the cost of standard coverage (PDF p. 258). Since 2024 it is the lesser of that and the previous year's premium increased by 6 percent (PDF p. 113): the Inflation Reduction Act of 2022 limits its growth to 6 percent a year from 2024 through 2029 (PDF p. 154; CMS fact sheet).
- For 2026 the cap decided the premium: $38.99 a month ($36.78 × 1.06). The 25.5-percent formula alone would have produced $75.38 (CMS bid memo, July 28, 2025, PDF pp. 1 and 4). The difference is paid by Medicare, that is, by general revenue.
- The same law lowered the out-of-pocket threshold to $2,000 in 2025, indexed afterwards (PDF p. 214); it is $2,100 in 2026 (CY2026 Rate Announcement, PDF p. 95).
- A three-year voluntary Part D Premium Stabilization Demonstration began in 2025; its premium reductions are paid for by a larger Medicare direct subsidy (PDF p. 155). For 2026 CMS cut its uniform base-premium reduction from $15 to $10 a month (CMS fact sheet, July 2025). Part D premium income fell substantially from 2024 to 2025 because of it (PDF p. 109).
- State payments (often called the "clawback") are made by states because Medicare took over drug costs that Medicaid used to pay for people enrolled in both programs (PDF p. 116). They were set at 90 percent of states' forgone Medicaid drug costs in 2006, phasing down to 75 percent by 2015 (PDF p. 197).
- Part D has a flexible appropriation that allows more general-fund money if costs run higher than expected (PDF p. 43).
The Medicare funding warning¶
Federal law requires the Trustees to make a "determination of excess general revenue Medicare funding" when the difference between Medicare spending and its dedicated financing sources is projected to exceed 45 percent of Medicare spending within the first seven years of the projection (Medicare TR 2026, PDF p. 32; the rule is section 801 of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, CRS RS22796, PDF p. 5). The share is expected to exceed 45 percent in fiscal year 2026, the first projection year (PDF p. 32). Two such determinations in consecutive reports make a Medicare funding warning (CRS RS22796, PDF p. 5).
The 2026 report says this is "the tenth consecutive year that a determination of excess general revenue Medicare funding has been issued, and the ninth consecutive year that a Medicare funding warning has been issued" (PDF p. 17). Determinations were made in the 2006-2013 and 2017-2025 reports, and warnings issued in the 2007-2013 and 2018-2025 reports (PDF p. 198). A warning requires the President to propose legislation within 15 days of the next budget submission and Congress to consider it on an expedited basis (PDF p. 17). The Trustees project the gap to reach 53.9 percent of Medicare spending by 2050 and 54.1 percent by 2100 (PDF p. 199).