Washington, D.C. — A new series of papers by the American Institutes for Research (AIR) reexamines a perennial policy question, particularly in an election season: Is Medicare sustainable?
The four papers break down the sometimes dense calculus behind the $650 billion social insurance program that protects 56 million people. Led by Marilyn Moon, director of AIR’s Center on Aging and a former public trustee of the Social Security and Medicare trust funds, the papers conclude that several claims at the heart of most debates on Medicare’s future rest on faulty assumptions.
“Medicare does face challenges as the population ages, and it’s important to control the program’s costs,” Moon said. “But we should have this important debate without making misleading claims.”
The publication of the papers coincides with the release of the annual report of the Social Security and Medicare Board of Trustees and will be the subject of an AIR symposium on June 20.
Among the paper’s conclusions are three basic tenets:
- Medicare recipients are footing the bill for a substantial chunk of program costs and their share of the total is rising. Per-recipient Medicare cost in 2015 was $12,174. Beneficiaries bear just under one-third of this burden and taxpayers two-thirds. But, when deductibles and co-pays are added in, the elderly’s burden jumps to 42 percent. This sizeable share will rise as older adults increasingly stay on the job and continue to pay income and payroll taxes.
- Taxpayer’s Medicare burden over time is bearable. Although it’s true that the ratio of Medicare beneficiaries to workers is shrinking, payroll taxes aren’t the major funding source for Medicare. Moon and coauthors Jing Guo and Yan Wang argue that it makes more sense to gauge financial burden by estimating taxpayers’ contributions to Medicare compared to their financial resources. In 2015, the average amount of taxes came to $2,334 per person ages 20 to 64. Annual per capita gross domestic product for adults—a good proxy for living standards—totaled $75,277. Deducting the amount that young adults pay annually for Medicare leaves $72,943. This burden as a share of resources will rise only slowly over time, the authors found, and will not lead to the dramatic drop in living standards for the young that some have projected.
- Medicare’s lifetime value is not out of kilter with its costs. Medicare was created in 1966 as insurance, not as an investment program. Yet politicians often compare how much Americans pay in to Medicare with how much they get out of it, implicitly arguing for breaking even. The report suggests that such comparisons are both misleading and based on faulty calculations. Only 40 percent of Medicare costs are funded by payroll taxes, and those fund only hospital and skilled nursing stays, not such crucial services as physician visits or prescription drugs. If tweaked in a way that compares apples to apples, the formula proves less daunting. Total lifetime benefits come to $82,000 (in 2015 dollars) for men turning 65 in 2030 and $87,000 for women. A low-wage worker will have paid $51,000 to the program over his lifetime. A high-wage worker, in contrast, will have paid $104,000—more than the dollar value of the benefits, but not that much.
The four papers can be found on AIR’s website.
Established in 1946, with headquarters in Washington, D.C., the American Institutes for Research (AIR) is a nonpartisan, not-for-profit organization that conducts behavioral and social science research and delivers technical assistance both domestically and internationally in the areas of health, education and workforce productivity. For more information, visit www.air.org.