Are You Paying Your Fair Share for Medicare?


Tuesday January 11th, 2011   •   Posted by Craig Eyermann at 8:02am PDT   •  

Medicare Trust Fund Bankruptcy (Source healthreform.gov)Just in time for the end of 2010, the Associated Press released a story suggesting that retired Medicare beneficiaries are being promised way more in medical care than what than they’ll have paid for during their working careers:

What you paid in Medicare taxes shows up on your W-2 income tax form every year. So when you retire, you want your money’s worth.

That’s how most Americans see it. In an Associated Press-GfK poll nearly 6 out of 10 said they paid into the system so they deserve their full benefits—no cuts.

But a newly updated financial analysis shows that what people paid into the system doesn’t come close to covering the full value of the medical care they can expect to receive as retirees.

Two researchers at the Urban Institute, Eugene Steuerle and Stephanie Rennane, ran the numbers:

Consider an average-wage, two-earner couple together earning $89,000 a year. Upon retiring in 2011, they would have paid $114,000 in Medicare payroll taxes during their careers.

But they can expect to receive medical services—from prescriptions to hospital care—worth $355,000, or about three times what they put in.

The estimates by economists Eugene Steuerle and Stephanie Rennane of the Urban Institute think tank illustrate the huge disconnect between widely-held perceptions and the numbers behind Medicare’s shaky financing. Although Americans are worried about Medicare’s long-term solvency, few realize the size of the gap.

“The fact that you put money into the system doesn’t mean it’s there waiting for you to collect,” said Steuerle.

That would be the key difference between a real investment and a government “investment,” which works much differently from how most people may think it does:

Many workers may believe their Medicare payroll taxes are going for their own insurance after they retiree, but the money is actually used to pay the bills of seniors currently on the program.

That mistaken impression complicates the job for policymakers trying to build political support in coming months for dealing with deficits that could drag the economy back down.

That misconception has real consequences, especially as the working population whose taxes will have to support the now beginning-to-retire Baby Boom generation is so much smaller in comparison, with 2.3 workers to each Medicare beneficiary in just 20 years, down from today’s ratio of 3.5 workers per Medicare recipient. Steuerle provides the bottom line:

“With Medicare, we are all still making out like bandits, shoving all those costs to future generations,” said Steuerle. “At another level, we know that this system is totally unsustainable.”




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