Monday, June 4th, 2012
One of the arguments for re-vamping Medicare is that it is becoming an unfair burden on younger Americans, especially as the Baby Boomers retire.
Some estimates are that the average “Baby Boomer” married couple will have paid $114,000 in Medicare taxes when they retire, and they will receive about $350,000 in Medicare benefits after they retire. Critics of the Medicare program complain that Medicare is a transfer of wealth from younger to older Americans that is increasingly unfair to the younger folks.
One might argue that it’s not so much a transfer of wealth from younger to older Americans as a transfer of wealth from younger Americans to the health care industry, for the benefit of older Americans. I doubt many of us think of bypass surgery or arthritis treatment as “wealth.”
So let’s look at this argument more closely.
Of course, the aging process causes more health problems as people get older. Many conditions disproportionately affect older people, such as mesothelioma, Alzheimer’s disease, and hearing loss. This is not Medicare’s fault, but nature’s.
But for this reason, private insurance companies don’t want to insure seniors. There is no way to make health insurance for the elderly both affordable and profitable, unless government is subsidizing it as with Medicare Advantage.
According to the Kaiser Family Foundation, Medicare Part A, the hospital insurance fund, is mostly funded by payroll (FICA) taxes. In 2011, 84 percent of the Part A’s trust fund income was from payroll taxes. The remainder came from interest on trust fund investments (8 percent) taxes paid on Social Security benefits (6 percent), and payments from states for people with dual Medicare/Medicaid eligibility (2 percent). General revenue funds do not go directly into paying for Part A.
By contrast, 83 percent of the income for the Medicare Part D prescription drug program came out of general revenue in 2011, and the rest came from premiums and payments from states. Further, 74 percent of Part B (out of hospital) Medicare is funded from general revenue. Subsidies to private insurance companies offering Medicare Advantage policies are paid out of the parts A and B trust funds.
All together, according to the Kaiser Family Foundation, 42 percent of Medicare is being funded out of general revenue and not the trust funds. In 2011, Medicare spending was 15 percent of the federal budget.
The argument is, then, that Medicare is just too expensive and is too much of a tax burden on younger people. And that makes sense, until you consider the alternative.
If the average Boomer couple will need $350,000 in medical care after retirement, how are they going to pay for that? And without something like Medicare, how much of those bills will be left to their children to pay? If our concern is keeping seniors’ health care from being a financial burden on the young folks, wouldn’t eliminating Medicare make things worse?
The fact is, it’s not the cost of Medicare that’s a problem. It’s the cost of all medical care. Endlessly carping on the cost of Medicare is missing the big picture.