Social Security and Medicare

Editor's Note: Understanding Social Security and Medicare basics.

Tracy MorleyOverview: Social Security covers approximately 96 percent of Americans and represents a significant retirement benefit to most retirees. Railroad workers covered by the Railroad Retirement Act, federal employees hired before 1984 and some state and local government employees are not covered.

An individual becomes eligible for Social Security benefits by working long enough and earning enough to accrue 40 quarters of coverage. These quarters are totaled to determine eligibility. The quarters do not determine the benefit amount. Benefits provided under Social Security include: (i) retirement benefits; (ii) disability benefits; (iii) death benefits; and (iv) survivor benefits.

Social Security is funded by taxes paid by both the employee and the employer and is calculated as a percentage of salary up to an annual maximum.

Medicare is a federal health insurance program that covers individuals age 65 or over, disabled workers under age 65 and individuals with end-stage renal disease. The Medicare program is funded by taxes paid by both the employee and the employer and is calculated as a percentage of salary with no annual maximum.

Medicare is made up of four programs:

  • Hospital insurance (Medicare Part A);
  • Medical insurance (Medicare Part B);
  • Medicare Advantage Plans (Medicare Part C); and
  • Prescription drug insurance (Medicare Part D).

Eligibility for Medicare benefits begins at age 65. Employees that work past age 65 are still eligible for Medicare. If an active employee is covered under both Medicare and the employer's group health plan, the group health plan is considered the primary health plan. For retirees, Medicare is considered the primary insurance and any coverage under an employer's health plan is secondary.

Trends: With baby boomers reaching retirement age, the financial strain on Social Security and Medicare is likely to increase.

Author: Tracy Morley, SPHR, Legal Editor

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HR guidance on Social Security and Medicare.