Medicare vs. Social Security: Clearing Up the Confusion

Professional Confusion

Just last week, a client informed me he was warned by a “professional” at the local Social Security office that he could not receive Medicare benefits without first drawing social security. My immediate response was shock—that someone working in the Social Security administration did not understand Medicare any better than that, and, worse, would dispense patently false information to people depending on his “expertise.” But that illustrates the type of confusion that exists regarding the relationship between Medicare and Social Security. Well, it’s time to eliminate the misunderstanding.

Medicare and Social Security are two of the most significant social insurance programs in the United States, designed to assist elderly and disabled individuals. Both are funded by payroll taxes and serve vital, yet distinct, roles in providing financial security and healthcare benefits. Here’s a breakdown of how each program works:

Medicare

• Purpose: Medicare is a federal health insurance program primarily for people who are 65 or older, although younger individuals with certain disabilities or permanent kidney failure may also qualify.
• Funding: It is funded through two trust funds held by the U.S. Treasury: the Hospital Insurance Trust Fund (funded by a part of the payroll taxes collected from workers and their employers) and the Supplementary Medical Insurance Trust Fund (funded by Congress, premiums from people enrolled in Medicare, and other sources).
• Benefits: Medicare covers hospital care (Part A), medical services like doctor’s visits and outpatient care (Part B), prescription drugs (Part D), and offers an option to receive these benefits from a Medicare Advantage Plan (Part C), which is an alternative provided by private insurance companies approved by Medicare.
• Costs: While Part A is usually premium-free for individuals who have paid Medicare taxes for a certain length of time, Parts B and D require participants to pay premiums. The costs can vary based on income, and there are deductibles and co-pays for services.

Social Security

• Purpose: Social Security provides retirement, disability, and survivor benefits. It aims to replace a percentage of a worker’s pre-retirement income based on their lifetime earnings.
• Funding: The program is funded through payroll taxes collected under the Federal Insurance Contributions Act (FICA) or the Self Employment Contributions Act (SECA).
• Benefits: The benefits are calculated using a formula that considers a person’s 35 highest-earning years, adjusting for inflation. The retirement benefits are available from age 62, with full retirement age varying depending on the year of birth (currently between 66 and 67 for most people). Benefits increase if retirement is delayed up to age 70.
• Costs: There are no direct costs to receive Social Security benefits, but they are considered taxable income under certain circumstances, depending on the beneficiary’s total income and filing status.

Key Differences

• Benefit Type: Medicare provides health insurance to cover hospital stays, medical care, and prescription drugs, whereas Social Security offers financial support to replace income lost due to retirement, disability, or death.
• Eligibility Age: Generally, Medicare is available at age 65, while Social Security retirement benefits can start between ages 62 and 70, with varying full retirement ages.
• Funding Sources and Costs: Both are funded by payroll taxes, but Medicare also requires premiums for certain parts, and Social Security benefits may be taxable.

Together, Medicare and Social Security form the backbone of the U.S. social safety net for older adults and disabled individuals, helping them to manage healthcare costs and maintain a degree of financial security in their later years.

The Connection between Medicare & Social Security

So, what is the relationship between the two? The correlation concerns whether one qualifies for getting Medicare Part A for a zero premium or has to pay a premium to get it.

An individual becomes eligible for Part A at no cost if he or she is entitled to receive Social Security benefits or railroad retirement benefits, or if that person’s spouse (living or deceased, including divorced spouses) is eligible to receive Social Security or railroad retirement benefits (or if the individual is the dependent parent of a fully insured [under the Social Security program] deceased child). To simplify, if one works ten years (or 40 quarters) in jobs that deduct Social Security taxes, he or she qualifies for premium-free Medicare Part A.

Can I Get Medicare Part A?

But what if you have not met that qualification; can you still get Medicare Part A? The answer is yes. You may qualify for premium-free Part A based on the work record of your spouse. (In that case, your spouse—either your current, deceased, or even divorced spouse—needs to have met the 40-quarter qualification and needs to be at least 62 years of age.)

Otherwise, if you’re 65 or older, you can buy into Medicare by paying monthly premiums for Part A hospital insurance. This premium can cost up to $411 per month, depending on the amount of qualified quarters you worked. (By acquiring Part A, you can also get Part B by paying the same premiums as other people.)

Don’t Fall for the Wrong Information

Now we return to the government worker’s false statement: You can’t get Medicare without, first, drawing Social Security. Many of our clients get Medicare at age 65 but delay their Social Security benefits until 66 or later. (A very small minority of them wait until 70.) So, yes, you can benefit from Medicare coverage long before drawing Social Security. The key here is: If you qualify to receive Social Security benefits—no matter when you choose to draw Social Security—you will also qualify to receive Medicare Part A at a zero premium. If you are in that category, congratulations! But don’t fall for someone telling you that you have to draw your Social Security before you can get on Medicare; that simply is not true.