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Looking beyond Medicare lifetime taxes and benefits
Posted By Lina Walker On June 13, 2013 @ 11:28 am In Public Policy Institute | Comments Disabled
You may have seen the reports (2012 update  and Alternative Assumptions ) by Eugene Steuerle and Caleb Quakenbush from the Urban Institute showing lifetime taxes paid and benefits received from Social Security and Medicare. The authors estimate that an average male who earns the average wage during his working years and turns 65 in 2020 will pay $77,000 in Medicare taxes and receive $232,000 in Medicare benefits. These numbers vary by gender, marital status, age, and year in which the person turns 65, but the general story is the same –benefits received exceed taxes paid.
Unfortunately, some newspaper articles and policymakers have zeroed in on the gap between taxes and benefits and sounded an alarm about the sustainability of the Medicare program.
The limitation of just looking at the lifetime taxes and benefits for an average worker is that many people are not “average” and thus these numbers do not represent their experience. Some may not even live to 65. According to the Social Security actuaries’ life tables , of the 1.6 million males who reached 65 in 2012, 26,000 will not survive to age 66, 70,000 will not survive to 68, 123,000 will not live to 70, and so forth. You get the picture; many people will have less than average life expectancy. For them, their lifetime Medicare benefits would be lower – significantly lower for some – than the average worker. The reverse is true also; many people may live longer than the average worker and have higher than average lifetime Medicare benefits.
Furthermore, the average doesn’t capture the higher taxes and higher Medicare premiums paid by high-income individuals, who make up about five percent of the Medicare population. It also doesn’t account for differences in health status – healthier individuals using fewer benefits and sicker individuals using more. In fact, because the average is actually an expected value calculation – a number that is based on the chance of survival and not what a person will actually receive – it doesn’t represent any one person’s experience.
The other, more significant, limitation of a dollar-in/dollar-out assessment of the Medicare program is its emphasis on whether you are getting your money’s worth from the program rather than what’s behind the numbers. This is particularly problematic for lifetime benefit estimates. Some experts have argued that up to 30 percent of Medicare spending is wasteful and does little to improve health. These lifetime benefit estimates, therefore, include wasteful spending.
The problem with focusing on the difference between what the average worker contributes to Medicare and what he gets back is that it inevitably calls for either increasing taxes or cutting benefits, or both, without addressing the underlying inefficiencies in the system. Yet, that is exactly where we should be putting our energy.
Many in the health care community are embracing the goals of the Triple Aim – better care for individuals, better population health, and more affordable health care – and participating in initiatives such as Accountable Care Organizations and patient-centered medical homes that advance those goals. Clinicians, purchasers, insurers, and government are working to create a system with greater accountability and transparency to support higher quality of care for consumers at lower cost. As the health care system transforms itself and wrings out inefficiencies, healthcare spending growth rates will likely fall and, correspondingly, the gap between Medicare taxes paid and benefits received will likely narrow.
In my view, this should be the first course of action to take.
About the author: Lina Walker directs the Health team at the Public Policy Institute, where she spends the majority of her time working on Medicare issues. Her background includes research on Medicaid, long-term care, economic security, and private pension reform.
[Photo courtesy of: LEOL30 /Flickr]
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URL to article: http://blog.aarp.org/2013/06/13/looking-beyond-medicare-lifetime-taxes-and-benefits/
URLs in this post:
 Image: http://blog.aarp.org/wp-content/uploads/2013/06/2568935346_9fb0deee23_b.jpg
 2012 update: http://www.urban.org/publications/412660.html
 Alternative Assumptions: http://www.urban.org/UploadedPDF/412661-Alternative-Assumptions-for-Present-Value-Calculations-of-Lifetime-Medicare-Benefits.pdf
 life tables: http://www.ssa.gov/oact/STATS/table4c6.html
 Image: http://blog.aarp.org/wp-content/uploads/2013/05/Walker_headshot.jpg
 LEOL30: http://www.flickr.com/photos/lwr/
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