An overall health care program for elderly people, the US Medicare program, taxed workers 1.45% of their total earnings in 2011, an amount their employers had to match. In addition, the employer pays 1.45% of their total salary from their own funds, and self-employed pay 2.90%. The taxes are paid through the mechanisms set up by the Federal Insurance Contribution Act (FICA), and both employers and taxpayers combine the amounts paid when filing their annual tax returns.
When did medicare began?
Medicare began in 1966 with a tax rate of 0.35% applied only to the first $ 6,600 US Dollars (USD) of Americans earnings per year, with a matching amount to be paid by their employers. Thus, one who earns $ 6,600 or more in 1966 had $ 23.10 USD in Medicare tax withheld by his salary during the year and this amount was offset by his employer. The self-employed paid the same rate as other employees – 0.35% – and without matching contributions for those payments this apparent inequality in the plan was a frequent target of critics.
Once the program was established, Medicare rates and the associated earnings cap grew rapidly. In 1973, the interest rate for employees was nearly tripled to 1%, and earnings cap had risen to $ 10800. The maximum Medicare tax an American worker paid in 1973 had risen to $ 108 USD, which was matched by his employer.
Self-employed also paid a maximum of $ 108 USD, with no employer match
Medicare rates for employees and self-employed were lowered to 0.90% in 1974, but earnings cap continued to rise so the total paid tax annually by workers earned more than the CAP, also continued to rise. The rate returned to 1% in 1978, reaching 1.35% in two steps over the next three years. Earnings cap also increased every year and before the end of 1981 had reached $ 29700 USD. Over the next five years, Medicare rates rose to 1.45% on employees and self-employed and the earnings cap rose to $ 42,000. In 1984, the injustice of the rate paid by the self-employed was corrected as Congress doubled the rate applicable to that group.
Ever since, the self-employed have paid both the employee’s share and the employer’s share of Medicare tax
The 1.45% rate has been stable since 1986, but the earnings cap, the same used for calculating Social Security taxes, has steadily increased. Before 1991, the same earnings cap applied to both Medicare and Social Security
In 1991, even though the Social Security earnings cap rose to $ 53,400, while Medicare’s earnings cap skyrocketed to $ 125,000 USD. The cap rose to $ 135,000 over the next two years, after which it was lifted completely.
Although Medicare rates have been set by Congress in a political climate, their considerations have been informed by the same economic conditions in insurance companies when determining health insurance premium rates. Medicare tax withheld from workers’ wages, along with Part B premiums collected from retirees, Richard Cory of the Medicare program, is not only for a growing population of participants, but also for escalating health care costs. This is the main reason for the dramatic increase in Medicare tax cap in the early 1990s, followed by the removal of the cap completely.