I don't know about you but nothing frosts me more than comments--mostly by Democrats but often by Republicans--that Medicare is a free handout to seniors from the government. Do a little math and you find that Original Medicare is funded at least 50% -- if not more -- by we seniors that use Medicare. And how high it goes above 50% depends on your age.
Not to scale. Average cost/payback; applies to Medicare beneficiary over 65 that worked and contributed full time while working and lived average years after 65. Does not apply to those that enrolled in Medicare before 65 because of disability but that is balanced -- to extent unknown -- by those that contributed over a working life and died before reaching 65 or shortly thereafter (and therefore had no or very little healthcare costs paid for by Medicare). Includes both payroll and income tax contributions as well as Part B premiums (paid for by Medicaid for about 15% of beneficiaries among those born before 1940).
As illustrated, if you are on Medicare and over 80 (born in 1933 or before), on average the amount you paid in premiums since you retired and payroll/income taxes you paid when working funded only a percentage of your benefits1. This was an intentional decision by the Democratic Congress that passed the Medicare law in 1965 (as opposed to waiting until you had paid in a sufficient amount, the way Social Security was designed in 1935). For today's Democrats to criticize us seniors today for LBJ's decisions is only one example of Democratic Party hypocricy.
On the other hand, if you are just turning or about to turn 65, on average the amount you will pay in premiums once retired (which happens later and later compared to the 1965 official retirement age) and paid in payroll/income taxes when working (you are probably still working) will cover all of your benefits unless you live past 90. (In addition, you overpaid Social Security in taxes versus what you will get back so basically between the two programs-- the government breaks even on you.)
And if you follow the trendline above, if you were born well after 1950, you will lose your shirt on your lifetime of Medicare taxes
Here is the breakdown:
- 25% of the annual funding (round numbers) for Part B comes from we seniors when we pay our monthly $105 (2014) premium after joining the program
- All but about 85% of us pay the standard monthly premium
- The remaining 15% of us have our Medicare premiums paid for us by Medicaid but of course we also paid into Medicare as described below if we ever worked
- Some of the 85% above paying $105 a month also pay a Medicare premium surtax because they are deemed high income
But that's only the beginning of what you paid for Medicare, what you paid for what some call a "free handout to seniors."
- The costs of our Medicare Part A was paid for by we seniors via 45-50 years of payroll taxes "put aside" (see NOTE) for us in the Medicare Part A Trust Fund
- And many of us are still working and still paying in
- And a few of us will pay a really big surtax into the Part A trust fund if we are lucky enough to have a big investment that pays off
That leaves the remaining Medicare funding that comes from the money in the Part B Trust Fund, which is where your monthly premiums go. This is the only portion of Medicare spending that arguably comes from the government, not we seniors. But is it really a handout to us seniors? I don't look at it that way because we seniors on Medicare also paid general income taxes for 45-50 years and often still pay general income taxes.
So the next time someone says that Medicare is a free handout from the government to seniors, do the math for them.
NOTE: Just like with Social Security, the money we put in for 45-50 years is not really there in the trust fund anymore. But that's how the Original Medicare program is supposed to work.
1It's also important to understand that those Medicare benefits you paid for while working and will continue to pay for are not very good. On average, they will only cover about half of your healthcare needs if you live into your 80s. Almost 100% of Medicare beneficiaries make other arrangements, mostly for supplemental private insurance (85% of us) but in some cases welfare (15% of us). Those percentages also vary by age cohort.