Medicare Math Problem: Taxes - Benefits = Trouble An average 66-year-old couple kicks in about $100,000 in Medicare taxes over the course of their lives. They've paid in, so they expect Medicare to pay out. — and it does, to the tune of $300,000, on average. So how did the system become so unbalanced?
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Medicare's Math Problem: Taxes - Benefits = Trouble

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Medicare's Math Problem: Taxes - Benefits = Trouble

Medicare's Math Problem: Taxes - Benefits = Trouble

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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(Soundbite of bingo)


GUY RAZ, host:

Every week, 78-year-old Milton Jones calls Bingo at his local senior center in Pittsburgh.

Mr. JONES: G, 51.

RAZ: For 31 years, Milton worked in Pittsburgh steel mills.

Mr. JONES: From 18 years old, I worked in (unintelligible) and we made the steel and I worked in a lower level, where we poured the steel.

RAZ: Now, like most folks over the age of 65, Milton depends on Medicare. And like most Medicare beneficiaries, he believes he's simply getting what he paid for.

Mr. JONES: Do I feel like I earned it? I imagine so. I paid taxes all my life.

(Soundbite of music)


And our cover story today, Medicare's Math Problem. Now, the word entitlement, at least in a legal sense, means something very simple: It means a right granted to you. That's Medicare.

In Washington speak, it's called an entitlement program, meaning that you and me and every single American is entitled to receive guaranteed health care once we turn 65. It's our right. And most of us believe it's simply a return on a lifetime of paying for it from our weekly or monthly paychecks. That's basically what the government has led us to believe.

Mr. JONES: I paid taxes all my life.

RAZ: But the numbers just don't add up.

Mr. JONES: (Unintelligible) 37.

RAZ: A few chairs away from Milton Jones in that same Pittsburgh senior center, 70-year-old John Fury(ph) is also playing Bingo. For 30 years, he delivered the mail, maybe even yours.

Mr. JOHN FURY: I worked about seven miles a day, about 1,200 steps every day.

RAZ: And every week, like every single other American, a modest chunk of his wages was taken out, the Medicare tax.

Mr. FURY: It was on my pay receipt.

RAZ: He's a Medicare beneficiary now and, like Milton, he told us he'd paid up over his career.

Mr. JONES: That's a good Bingo.

RAZ: Same with Diane Rosolowsky. She's a retired librarian from Seattle.

Ms. DIANE ROSOLOWSKY: Oh, yes. Well, I have been paying into the Medicare system since 1966.

RAZ: Every paycheck of her life.

Ms. ROSOLOWSKY: That's exactly it.

RAZ: And for part of her career, she works at her husband's veterinary clinic.

Ms. ROSOLOWSKY: And when I was paying people when my husband had his own practice, they would say, what's that? What's that? And I'd say, that's your prepaid medical care for when you are a senior citizen.

RAZ: We also called up Elane Shapiro in Brookline, Massachusetts.


RAZ: And for most of her life, she was covered under her husband's insurance.

Ms. SHAPIRO: But then when he died, I had cancer and it called for surgery. I didn't have to pay huge medical bills. I was taken care of by Medicare. I've always paid taxes. I think most people feel the way I do. If anyone talks about changing Medicare, we get very nervous.

RAZ: And some people get more than nervous.

Representative PAUL RYAN (Republican, Wisconsin): Ours is 35 percent. Hey, come on, everybody...

Unidentified Man #1: (Unintelligible)

Unidentified Man #2: (Unintelligible)

RAZ: You are hearing angry voices here.

Unidentified Man #3: You are wrong.

RAZ: It comes from a recent town hall meeting in Wisconsin hosted by Congressman Paul Ryan.

Rep. RYAN: If you're yelling, I just want to ask you to leave.

RAZ: Paul Ryan is the architect of a Republican plan to fundamentally change the way health care for seniors is paid for. His idea would essentially phase Medicare out.

In its place, the government would give each person over the age of 65 a voucher worth a certain amount of money that you could then use to buy private health insurance.

Rep. RYAN: The price controls Medicare today are causing doctors to stop seeing patients. And Medicare is the biggest contributor to skyrocketing health care costs.

RAZ: The argument Paul Ryan and President Obama both make is that Medicare basically hands a blank check to hospitals and doctors, and critics of Medicare say that system actually encourages wasteful and unnecessary tests and procedures that cost billions of dollars.

President Obama argues the government can rein in costs by curbing what it's willing to pay for, elective surgery, for example. And Paul Ryan says his plan will do the same thing, except put it in the hands of the private sector.

Now, whatever you think about either of these ideas, most economists agree on this: neither will solve Medicare's long-term funding problem because almost nobody in America, including those seniors we just heard from, has paid for the Medicare benefits they'll receive.

Mr. EUGENE STEUERLE (Senior Fellow, Urban Institute): An average couple retiring today has paid just a little over $100,000 in Medicare taxes, and they'll get about $300,000 in benefits.

RAZ: That's Eugene Steuerle. He's a former Treasury Department official and he decided to look at all the medical taxes Americans have paid over the past 50 years.

And he found out that the vast majority of people on Medicare today put in less than half of what they'll receive, and he's adjusted for inflation and factored in both employer and employee taxes.

And he's not just picking on older folks. For a guy like me, I make out even better. By the time I'm eligible for Medicare in 2039, if the government continues to borrow cash and run massive debt, I'll get about four times the value in benefits than I paid in taxes. So how do we get to the point today where Medicare taxes don't even begin to cover health care costs for seniors? Here's Eugene Steuerle.

Mr. STEUERLE: Well, the way we designed health insurance, when health costs were very low is that when you and I went to the doctor, we bargained over what everybody else would pay. So you're the doctor, I'm the patient. We decided I need additional MRI. Okay, we send the bill to the taxpayers. You and I decide we need an expensive knee surgery, we send the bill to the taxpayer.

RAZ: Hip replacement.

Mr. STEUERLE: Right. And so the incentive for me as a consumer to worry about the cost isn't very high.

RAZ: There's no incentive.

Mr. STEUERLE: For the most part.

(Soundbite of laughter)

Mr. STEUERLE: There are some - over time, there had been gradual increases in co-payments but not very much. But the incentive for providers is also a little strange, too, because the providers have this incentive to keep listing as many services as possible. Because the more services the hospital can list, the more they can collect.

RAZ: Why is it the health care costs have risen so dramatically, especially in comparison with inflation?

Mr. STEUERLE: There are actually three factors involved. We have more and more beneficiaries relative to workers paying into a system. That's driving up the cost to the system and the taxes we have to collect to pay for it.

The second one is that we have more and more years of benefits. We're living longer. That's a modest factor over any short period of time. But over decades, it starts adding up quite a bit.

The biggest factor in health, which extends far beyond any other system, is that no one really is in charge of saying no to the prices and the services that we're going to receive. And so this medical cost inflation, as it's sometimes described, is out of control under the current system.

RAZ: So Medicare taxes that people pay, that we all pay out of our paychecks every week or two weeks or month, however we're paid, that covers what percentage of Medicare costs?

Mr. STEUERLE: The Medicare tax per se covers about a third.

RAZ: A third.

Mr. STEUERLE: And the premiums the elderly pay may be covered another six.

RAZ: So the shortfall is made up from other sources of revenue.

Mr. STEUERLE: That's right.

RAZ: Money that you could argue could be spent on education or infrastructure or other things.

Mr. STEUERLE: Well, not just other sources of revenues. Today, it's also borrowed out in China and Germany and a lot of other countries.

RAZ: So essentially when people say it's my money, I paid my whole life in payroll taxes, that is a myth. They have been lied to or they have been led to believe something that is just not true.

Mr. STEUERLE: What they paid for is their parents'. They paid for their parents' health care. And if their parents' health care was relatively cheap, that was a good thing. The question then arises, how much can they demand from their children because they paid for their parents?

Let's take a simple case. Suppose you have a household with three children and they cover their parents' health cost. And the health costs are low. And now, the next generation comes along and they only have two children and they say, well, I paid for my parents', you should pay for me. But now, there's fewer children around to pay for it. And, in fact, my health costs are a lot higher. So to what extent does that mean that I am entitled - from my children - to have all my health costs covered?

RAZ: What you're describing to me sounds, in another context, like a pyramid scheme.

Mr. STEUERLE: I'm more likely to use that term in part because it is possible to have one generation pay for the previous generation and the next generation to pay for the current one. I mean, in some sense, before we had our elderly programs, that's what we did offer to families, right?

The question is not whether you want to have a system where children help support their parents even through a tax system. The question is whether the level of benefits that we're requiring each generation to pay makes sense.

RAZ: Eugene Steuerle, let me just bring in your colleague who worked with you on this research. Stephanie Rennane, who is a research associate at the Urban Institute.

Stephanie, I don't want you to contradict your boss here. But I know that you did a lot of this research as well. How old are you, by the way?

Ms. STEPHANIE RENNANE (Research Associate, Urban Institute): Twenty-five.

RAZ: Twenty-five. Do you believe that you will receive Medicare?

Ms. RENNANE: Well, you know, I mean, when you're surrounded - if I talk to my friends, other people who are 25 right now, they say, forget it. It's not going to be around for us. I think the system probably will be retained in some way, probably won't look like what it does today.

RAZ: Were you surprised to see how little, in comparison to what you receive, how little people pay in taxes over the course of their careers and then what they actually receive? Did that surprise you?

Ms. RENNANE: Yeah. It surprised me, initially. I mean, when you think about it, it makes sense, but it's not what you kind of assume when you think about the system, you know, from an outside perspective.

RAZ: Eugene Steuerle, let me ask you this. A lot of people listen - who listen to this program are beneficiaries, Medicare beneficiaries. So forgive me if this is going to anger you, but I want to ask - Eugene, I want to ask you this question. In order to make this system solvent, will people currently on Medicare and people about to receive Medicare, will they have to also make sacrifices?

Mr. STEUERLE: I don't see any way we can exempt any broad portion of the population from tackling our broad budget issues.

RAZ: And when you say tackling those issues, you're talking about?

Mr. STEUERLE: I'm talking about everything. I'm talking about higher taxes. I'm talking about possible cuts. But let me be clear, and this is very misleading, when we're talking about cuts in things like health care and even elderly support programs, we're basically talking about cuts in a rate of growth.

So if health care is going to grow by a hundred billion next year and we only let it grow by 80 billion, we don't say that's an increase of 80 billion. We define it as a $20 billion cut.

What we have to do to get this budget under control is to bring health costs and, to some extent, retirement programs down to a rate of growth that's sustainable, but it doesn't mean, for instance, that your children aren't going to get more health care in the future. They are, partly because we're going to invent a lot better things to provide them. It just means the rate of growth that we now promise is totally unsustainable.

RAZ: That's Eugene Steuerle. He's a former Treasury Department official and now fellow at the Urban Institute. You can find all of this research at the website,

Eugene Steuerle, thanks so much.

Mr. STEUERLE: Thank you very much. Thank you.

RAZ: And, Stephanie Rennane, thank you.

Ms. RENNANE: Thanks.

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