Medicare Explained

  1. How much of my salary goes to pay for Medicare?  
  2. What is the difference between Medicare Part A, B, C and D?
  3. What is a donut-hole? [hint: They don’t have them at Dunkin’ Donuts]

The Incidental Economist has a concise, easy-to-understand three-part series of posts on Traditional Medicare, Medicare Advantage, and Medicare Prescription Drug Plans.  It will help you answer all these questions and more.  You can also see my prior posts on the ‘Genesis and Development of Medicare‘ and ‘How to Pick a Medicare Plan.’

  • Answers:  1) 2.9%, half paid by the employee, half by the employer; 2) A – hospital coverage, B – outpatient care, C – Medicare Managed Care (aka Medicare Advantage), D – Prescription Drug Plan; 3) a coverage gap in your health insurance benefit.


  1. RE: #1 – Technically correct, but in reality doesn’t it depend on the elasticity of the labor market? More substitutes for labor = more cost shifting to employees and vice-versa.

  2. Good point. Employers could simply absorb the 1.45% employer contribution by lowering their own profits. I would guess, however, that most of the tax is simply transfered to employees in the form of lower wages. This is what Gruber (1994) found after states enacted mandatory maternity benefits.

  3. This is a very difficult prloebm. If people don’t pay for anything, then they get too much treatment. If they pay for everything, they don’t get enough and end up in the emergency room costing the system even more. The solution is somewhere in the middle with preventive care being covered 100%, but other procedures covered 60-80% until you reach a limit of five to ten thousand where it should be 100% covered.

Leave a Reply

Your email address will not be published. Required fields are marked *