Today is a big day. I have just managed to get on welfare.
It is not that lucrative right now, but over the next couple of decades I may get $300,000 or more out of the program, tax-free. A really neat thing about this program is that it doesn’t depend on my being poor. Despite the fact that over the past decades, my wife and I consistently had incomes in the top 15 percent or so of all households, or that our net worth puts us in the 5 percent, my eligibility for this welfare is not limited at all. There is no “means test” as there is for most other welfare programs.
Moreover, absolutely no social stigma is attached. It is unlike food stamps, where recipients about to swipe their EBT cards in supermarket checkout lines may see people behind them in line disapprovingly scanning their purchases for T-bones and crab legs. I can tell my friends about my good fortune while holding my head high, secure in the knowledge that no one will reproach me as “a taker rather than a maker.”
Finally, and unfortunately for the nation, despite the fact that this year, federal spending on this particular program will surpass outlays for the whole Defense Department, the odds that it will be cut or be modified so that its largesse for people like me is limited is close to zero politically.
The astute reader will recognize that I turn 65 this month and thus went on Medicare this week. And yes, I know many will be outraged that I characterize the popular program that pays for health care for me and some 55 million others as “welfare.” I will get angry letters and emails.
But that reaction is emblematic of the root of an unaddressed national problem.
We have this huge income redistribution program, one that outweighs Temporary Assistance to Needy Families, the Supplemental Nutritional Assistance Program and Supplemental Security Income outlays combined several times over. It is one that, on average, takes money from poorer households and gives it to richer households. Yet there is broad resistance even to acknowledging these facts or talking about them openly.
That may reflect political realities. The one-sixth of the population nursing on this particular nipple of the U.S. Treasury udder is far more likely to vote than the 15- to 30-somethings who pay FICA for Medicare on virtually every dollar of income they have and for whom payroll taxes in general constitute the largest component of all taxes they pay. But this enormous transfer of wealth, more than $400 billion a year, from younger to older, regardless of the income and wealth of the beneficiary, is a source of injustice in our society, albeit one that even the most justice-espousing elected officials refuse to face squarely.
The crux of the problem is that Medicare was intended to be a “social insurance” program like the Old Age, Survivors and Disability Insurance program that is Social Security. It was not intended to make enormous transfers of wealth between different generations. But economic, technological and political circumstances have been such that this is how it has turned out.
I know that nearly all the angry messages I get will say “I paid taxes for Medicare all my working life, and now I am just getting back what I already paid for.”
This is partly true. Anyone who earns wages or a salary pays into Medicare.
The problem is that the average person gets back about three times as much in benefits as the actuarial value of the taxes they and their employer paid in over their working lives. Recipients grumble that some health care is not covered and that they have to pay premiums for Parts B and D. But except for very high-income people, most will make out like bandits.
I certainly will. The past couple of decades have been comfortable. But back in the 1970s, I farmed and spent some years as a graduate student. Neither involved much income. So the total amount of Medicare taxes nominally paid by me and my employers is quite low, even if one adds some imputed interest over the years. If I had to buy private medical insurance at market rates, the cost would eat up this pot in just a few years. And that is true for most people.
The core idea of social insurance programs, conceived as a conservative alternative to more redistributive socialism, is that they be self-financing and not dependent on general tax dollars. Each birth cohort should pay an amount in earmarked taxes over the working life of its members that should roughly cover the benefits that age group will receive. It need not be precise to the penny, but the FICA taxes paid, for example, by those of us born from 1948 to 1952 should roughly equal the retirement, disability, survivors and Medicare benefits our group eventually gets. The problem is that my birth cohort will get at least two to three times that in the Medicare component. People older than us got even higher returns.
Some conservative critics deride Social Security and Medicare as “Ponzi schemes” that function only because new entrants pay in enough to pay off the first people in. This is not inherently accurate. But especially for Medicare, the early years of the program involved very high levels of benefits relative to taxes paid by the first beneficiaries. This made no actuarial sense, but the money was there, the recipients were seen as deserving and it certainly was politically popular.
For example, if someone paid Medicare taxes on the maximum earnings subject to withholdings for Social Security itself over the first 25 years of the program, the total paid by them and their employers by 1991 would have totaled only $15,087. Impute compounded interest at 6 percent and it goes up to about $24,000. For someone earning the median household income, the sums would be $10,333 and about $17,000. Yet those amounts gave one, or often two, people the right to Medicare benefits lasting 15 or 20 years or more. And half of all households have income below the median.
Unit costs of medical services have increased sharply over the past three decades. And many more procedures and therapies are available now. But while private health insurance premiums have risen sharply, the tax rate for Medicare has been frozen for 29 years. Yes, the incomes this rate applies to have risen, and thus revenues with them, but not nearly as fast as health costs.
And yes, Medicare beneficiaries have seen their out-of-pocket costs rise. But outlays on their behalf have risen faster.
The roots of the problem are complex as are possible responses, so I will continue discussing this in next week’s column.
St. Paul economist and writer Edward Lotterman can be reached at email@example.com.