03 Jan Analysis illustrates big gap between Medicare taxes and benefits

The Washington Post | January 2 – Nearly three out of five people said in a recent Associated Press-GfK poll that people who paid into the system deserve their full benefits – no cuts.

But an updated financial analysis shows that the amount workers have paid does not come close to covering the full value of the medical care they can expect to receive as retirees.

Consider an average-wage two-earner couple together earning $89,000 a year. Upon retiring in 2011, they would have paid $114,000 in Medicare payroll taxes during their careers. But they can expect to receive medical services – including prescriptions and hospital care – worth $355,000, or about three times what they put in.

The estimates by economists Eugene Steuerle and Stephanie Rennane of the Urban Institute think tank illustrate the huge disconnect between widely held perceptions and the numbers behind Medicare’s shaky financing. Although Americans are worried about Medicare’s long-term solvency, few realize the size of the gap.

“The fact that you put money into the system doesn’t mean it’s there waiting for you to collect,” Steuerle said.

By comparison, Social Security taxes and expected benefits come closer to balancing out.

The same hypothetical couple retiring in 2011 will have paid $614,000 in Social Security taxes, and can expect to collect $555,000 in benefits. They will have paid about 10 percent more into the system than they are likely to get back.

Updated periodically, the Urban Institute estimates are part of an effort that Steuerle and others began several years ago to try to illustrate the complicated finances of Medicare and Social Security in a format that the average taxpayer could grasp. The Washington-based institute is a public policy center that focuses heavily on budget and economic issues. Its analysis is accepted among other policy experts in Washington, including economists in government.

Many workers may believe their Medicare payroll taxes are going for their own insurance after they retiree, but the money is actually used to pay the bills of seniors currently in the program.

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