The Medicare Facts

January 7, 2013

Medicare is a sensitive political topic. Today’s seniors are understandably protective of their benefits, and future seniors are worried those benefits won’t be there when they become eligible (whether the eligibility age is increased or not).

But for all the political sensitivity, there isn’t much understanding of the actual value of Medicare as a benefit to those who have it—or are likely to have it in the future.

For a long time, I’ve been looking for data to compare how much we pay in taxes for Medicare with what we get back in benefits—and here it is, in a study done by the Urban Institute.

For those who don’t want to wade through the tables, the bottom line is: in every age cohort and income bracket noted, individuals contribute far less to Medicare in a lifetime than they receive back in benefits. For example, the average wage-earning single male that turned 65 in 2010 contributed approximately $61,000 in dedicated Medicare taxes over his lifetime (including the part that the employer pays) and can expect to receive $180,000 in lifetime benefits. A married couple with roughly average earnings would pay about $122,000 in dedicated Medicare taxes through the payroll tax and receive about three times as much—$387,000, adjusted for inflation—in benefits. Growing health care costs make the projected gap even larger for younger people.

Given these data, it would seem we could have an informed discussion about adjusting contributions to Medicare. That is, given how much more we get back in benefits than we contribute in taxes, wouldn’t it make sense—at least for those with higher wages—to increase contributions somewhat to protect the long term fiscal viability of the program?

The fact that we cannot seem to have an informed, somewhat dispassionate dialog about this seems to speak to our issue with innumeracy and its impact on public policy (I wrote about this last year in regards to the Affordable Care Act).

David Loenhardt tried to clarify these issues in his December 15, 2012 post in the New York Times “Politics” blog, and it was through him I found the Urban Institute source. His article is terrific—a must-read for anyone who wants to understand Medicare. (He dispels many other Medicare myths as well.)

The core question is, of course, will his informative article make a difference in the current (or any near-term) policy debate?

The answer to that question is: it probably won’t make a difference to those who are convinced they deserve their Medicare benefits because they have “paid for them.” Witness the unhelpful dialog about the $716 billion in cuts to the Medicare program over 10 years as it was discussed in the 2012 Presidential Campaign.

But to policy leaders, it should. The Urban Institute’s study provides important facts for policy makers, and facts should have an impact on policy. The discussion in Washington about the financial health of the country has not been a stellar example of policy-making based on facts, but perhaps, in a less fraught time, we can take a more dispassionate look at the Medicare issue.

After all, in the end, we have to hope that policy makers will lead with the facts—the alternative for the long term is just too discouraging.