Does Medicare have it's own trust fund that's supposed to be completely separate from the rest of the treasury, similar to how Social Security does?
Or does medicare costs just come out of the main fund?
Medicare is paid for through 2 trust fund accounts held by the U.S. Treasury. These funds can only be used for Medicare.
Yes, Medicare has two trust funds. No, Medicare costs (I.e. expenditures) are not exclusively paid out of those trust funds.
Medicare's two funds are the Hospital Insurance (HI) and Supplementary Medical Insurance (SMI). Those funds are separate from the general fund and are used exclusively to pay Medicare costs, but the reverse is not true. The general fund also covers some Medicare costs, namely the majoriry of Medicare Part B and Part D. PolitiFact covers the details here:
The program is financed through two separate trust fund accounts: the Hospital Insurance (HI) Trust Fund and the Supplementary Medical Insurance (SMI) Trust Fund. Medicare payroll taxes go to the HI trust fund, which is primarily used to pay for inpatient hospital stays (otherwise known as Medicare Part A). The SMI trust fund is used to pay for physicians visits, outpatient care and prescription drug benefits (Medicare Part B and Part D). The SMI trust fund is funded primarily (about 75 percent) through general revenue, with most of the rest coming from patient premiums. [...]
According to the 2011 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and the Federal Supplementary Medical Insurance Trust Funds, Medicare expenditures came to $523 billion in 2010. Here's a breakdown of the revenue side of the equation:
- Payroll taxes, $182 billion
- Premiums, $61 billion
- Taxation of benefits, $13.8 billion
- General revenue, $205 billion
- Transfers from states for prescription drug benefits, $4 billion