2015 marks the 50th anniversary of the passage of Medicare and the 80th for Social Security. It would be nice to use 2015 to explain to those that are under age 50 the history and philosophy behind both programs as well as to make sure that those born after Medicare began understand that neither program will alone provide them very good protection in their retirement.
- Social Security (SS)
- SS was designed by President Roosevelt to pay for itself; it was true social insurance. Tax collections began in early 1937 but the first payouts were not make until 1940 once the fund had built up enough resources to pay benefits (it didn't pay much in benefits and it didn't pay many people because most people died before they could collect in those years).
- Ironically, the first recipient of Social Security had once been an administrative assistance to Calvin Coolidge (but long before he was Governor of Massachusetts and President of the United States).
- Currently you pay about 12% of your income up to about $110,000 a year for your future Social Security benefit. The payouts are fixed so that those that made less during their working years get proportionately more in benefits, just the opposite of the way most private pension plans work.
- Medicare
- Medicare on the other hand was intentionally designed by President Johnson with bipartisan support in the 1965 Congress not to pay for itself until those born after 1945 began to use it (which just began three years ago). This group, now 69 and younger paid payroll and income taxes their entire working lives and paid about 3% of their income -- with no upper limit -- for just the Medicare hospital coverage. About 60% of them also pay a $105 premium monthly (in 2015; it can change annually) after joining Medicare for as long as they live. About 20% pay a substantial surtax on top of that monthly premium and about 20% receive Medicare for no premium because of low income (this latter group likely paid income taxes during their lives however so they are not getting Part B "free" as many often claim).
- Those born before 1945 -- particularly President Truman, who received the first Medicare card -- received Medicare benefits even though they paid no or limited payroll and income taxes before getting their coverage. But even they had to/have to pay a premium monthly. It started at $2.40 a month in 1966.
Another thing to explain to those under 50 is that a considerable amount of the resources of both programs do not go to so-called senior citizens. Large portions of both programs were added over time for the disabled and others. Those under 50 should understand that when wonks talk about the financial income/outflow problems of both programs, it is the expense of these other programs and the healthcare expense of those born before 1945 that is causing the shortfall, not them.
Also you do not have to be retired to take advantage of the programs. You can get SS as early as age 62; until full retirement age however there is a penalty if your income other than SS is too high. So-called SS full retirement age for anyone born after 1965 is 67 and even then you don't actually have to retire to get the money (and after FRA, there is no penalty). Medicare on the other hand -- absent disability -- is not available until age 65 no matter when you start collecting SS. Many of us seniors cannot afford to retire even with SS and Medicare. And many of us can but do not want to.
At the time Social Security began almost no one received a pension based on their employment history. A handful of states had SS-like programs. On the other hand, at the time Medicare began, about 60% of people over 65 already had health insurance, typically from a former employer (at a time when only 75% of people under 65 had health insurance; remember health insurance was not a big deal at the time, particularly for people like President Truman who was born in the 19th century).
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