The ratio is 3 to 1. The “3” is how much Medicare recipients are receiving. The “1” is what they paid.
Still though, you can see from this NPR report why most people call Medicare an entitlement.
According to a study from the Urban Institute, an average worker starting Medicare in 2010 paid close to $55,000 in Medicare taxes. That same person’s lifetime Medicare benefit (from age 65 until death) is projected to total $161,000. You can see here how taxes and benefits for Medicare and Social Security vary between 1960 and 2030.
Rather similar to other pay-as-you go systems, taxes from current wage earners pay for current Medicare recipients. And therein lies the problem. Baby boomers, who far outnumber all other generations, have just started turning 65. Meanwhile, birth rates are falling and longevity is rising.
Solutions? Higher taxes? Lower benefits? Cost control? Privatization? More borrowing through U.S. bond sales to China and Japan?
The Economic Lesson
During 1965, President Lyndon Johnson called Wilbur Mills, chairman of the House Ways and Means Committee, and said, “Wilbur, I’ve just been looking through the polls here, and I’ve only got a few weaknesses, and the worst of them is that I’m not doing anything for the old folks. I need some help from you.
The result? Congress passes Medicare Parts A and B.
An Economic Question: Which new incentives would you suggest for the Congress, for Medicare recipients, and for healthcare providers to solve the Medicare problem?