Wednesday, June 20, 2012

Medicare Costs Again

Over the past few years I have examined in detail the costs of Medicare. The conclusion was simple, yes some people benefit, while others over pay by a significant amount.

One of the many economists I have been following details his analysis, weak as it is, and he fails as do most others by not examining the details; again engineers and economists.

He states:

I get the impression that many Americans believe Medicare is financed like Social Security. They know that a portion of payroll taxes goes to Social Security and a portion goes to Medicare. So they conclude workers are paying for Medicare benefits the same way they are paying for Social Security benefits.

That isn’t remotely true, as new data from the Congressional Budget Office demonstrate.
In 2010, payroll taxes covered a little more than a third of Medicare’s costs. Beneficiary premiums (and some other earmarked receipts) covered about a seventh. General revenues (which include borrowing) covered the remainder, slightly more than half of total Medicare costs.

 Last year I published a revised version of my White Paper after a discussion in the Washington Post. Details do mater. But I want to raise another issue.

1. Suppose a couple is married and files jointly. Assume both are over 65. Assume they make jointly $350,000 of income.

2. They pay 3% of the gross for Medicare or $10,500 of their salary.

3. They pay $100 per month plus $150 in addition per month due to their salary. Thus combined they pay $500.00 per month in addition to the Medicare tax. That is $6,000 per year.

4. Combined they pay $16,500 directly for their care. Yes they had paid into Medicare for 40+ years already but we put that aside.

5. They cost the system $11,000 each or a total of $22,000 pa.

6. Net they cost $5,500 which is attributed to a Medicare Fund, which they paid into.

7. Now if they are still working they most likely are still healthy and will probably stay that way thus they really cost nothing and they are penalized $16,500 pa!

This is a strange system but after all it was invented in Washington. And it will only get worse!