One of the challenges of good entitlement reform (or even bad entitlement reform) is that recipients think they’ve “earned” benefits.
If you tell them that programs such as Medicare are unsustainable and need to be changed, some of them suspect you’re trying to somehow cheat them. After all, they were forced to cough up payroll taxes during their working year.
That’s true, but the real issue is how much did they pay in tax and how much are they getting back.
Here’s a very sobering chart from the recently released Long-Term Fiscal Outlook from the Congressional Budget Office.
It shows that people in their 50s, 60s, and 70s paid, on average, between $45,000-$65,000 of taxes into Medicare. That’s a big chunk of money, but it’s far less than the $160,000-$270,000 that Medicare will spend on them.
I’m tempted to say that current retirees and older workers are being charged for a hamburger but they’re getting a steak.
But that’s not accurate. As most recipients will tell you, Medicare leaves a lot to be desired, which is what you might expect with a government-run system.
So the right way to look at the program is that recipients are being charged for a hamburger, they’re getting a hamburger, but taxpayers (the ones who make up the funding gap) are being charged for a steak.
Which is why structural reform is the only good way of dealing with the program’s giant unfunded liability. As explained in this video from the Center for Freedom and Prosperity.
As discussed in the video, the reform (which has been part of the Ryan budget that’s been approved by the House) basically leaves the program as is for current retirees and older workers, but younger workers are allowed to move to a new system that gives them – upon retirement – the ability to choose their preferred health policy.
P.S. Don’t forget that we also need to reform Medicaid and Social Security, the other two big entitlement programs.
International Liberty 
[…] while the Ryan budgets included genuine Medicare reform (and much-needed spending restraint), they did not address Social Security reform. So the report was wrong on that as […]
[…] enacted laws (everything from the tax code’s exclusion of fringe benefits to programs such as Medicare and Medicaid) that have produced a system overwhelmingly based on third-party […]
[…] such as Medicare and Medicaid, along with the tax code’s healthcare exclusion, have created a system where […]
[…] such as Medicare and Medicaid, along with the tax code’s healthcare exclusion, have created a system where […]
[…] reimbursement rates to doctors and hospitals. That could happen in theory, but exploding costs for Medicare, Medicaid, and Obamacare show that it doesn’t happen in […]
[…] specific benefits. This type of spending is sometimes referred to as “earned benefits” (though in many cases recipient receive much more than they […]
[…] benefits. This type of spending is sometimes referred to as “earned benefits” (though in many cases recipient receive much more than they […]
[…] you can’t avoid the massive unfunded liabilities of Social Security, Medicare, and Medicaid by moving across state […]
[…] Unfortunately, you can’t avoid the massive unfunded liabilities of Social Security, Medicare, and Medicaid by moving across state […]
[…] According to Sanders and other advocates, the government’s health system is a good role model: People pay a tax while working and they get health care when they’re old. But there’s a not-so-slight problem with that approach. For every dollar that Medicare recipients paid to the program, taxpayers are financing three dollars of spending. […]
[…] According to Sanders and other advocates, the government’s health system is a good role model: People pay a tax while working and they get health care when they’re old. But there’s a not-so-slight problem with that approach. For every dollar that Medicare recipients paid to the program, taxpayers are financing three dollars of spending. […]
[…] According to Sanders and other advocates, the government’s health system is a good role model: People pay a tax while working and they get health care when they’re old. But there’s a not-so-slight problem with that approach. For every dollar that Medicare recipients paid to the program, taxpayers are financing three dollars of spending. […]
[…] (with Medicare, by contrast, people are charged for a hamburger and they receive a hamburger but taxpayers pay for a steak that nobody […]
[…] In effect, Professor Siegel has been forced to pay for a steak and he’s getting a hamburger. Which is a good description of how all entitlement programs operate. […]
[…] c’est pourquoi ces programmes sont mal conçus. Par exemple, le bénéficiaire moyen de Medicare coûte 3$ à la société alors qu’il cotise 1$. Le rapport coût/dépense de la Sécurité Sociale n’est pas aussi asymétrique mais elle a […]
[…] people benefits, so the programs are poorly designed. The average Medicare recipient, for instance, costs taxpayers $3 for every $1 that recipient paid into the program. Social Security isn’t that lopsided, but the program desperately needs reform because of […]
[…] if you want (what I think) is a very good description of the program, it’s that Medicare charges seniors for a hamburger and gives them a hamburger, but taxpayers are […]
[…] if you want (what I think) is a very good description of the program, it’s that Medicare charges seniors for a hamburger and gives them a hamburger, but taxpayers […]
[…] Medicare: Recipients Pay for Hamburger, They Get a Hamburger, but Taxpayers Are Being Charged for a … […]
First point- Social Security should always be stated with the term “Insurance” on the end. It was meant as insurance for those who outlived their expected life spans or who were handicapped prior to this expected end. As Dan points out, it has instead become a planned retirement income, and an expected “investment return”. Ironic that the same individuals pay for automobile insurance their whole lives and expect no investment return when they do not crash their cars. Insurance is a term all understand.
Secondly- my wife has been forced into Medicare as a result of an incapacitating accident. It is not a policy any of us would want on its own. Medicare dictates your benefits, and is quite skilled at first refusing EVERYTHING. I have learned tricks I should never have had to know. Can you write a letter of medical necessity? If not, I suggest you learn – should O’care become the law. She was also forced into SSI. Note that her private long-term care policy subtracts out the amount that SSI pays so that it is in effect a moot point of having paid for that for so many years.
Thank goodness I have private insurance to cover the differences. This also means I will never retire, because I am forced into a position of NEEDING insurance for the rest of her life at the least. O’care now has me worried that my company will drop spousal coverage, and delete this option. I worry.
Yes, I would also have been better off. But the government has invested and managed, or lost my money. That is the first problem, individual accounts would make us all better off. The real question is how to transition.
In spite of what people may tell you SS is a ponzi scheme. As long as the base of the pyramid continues to grow the scheme will continue to work. The base isn’t growing any more and slowed down along time ago. To fix this you need to implement a whole new system.
You thing we have it bad? My children believe they will pay in for all of their life and get nothing in return. And they are right unless the system is changed. Individual accounts are the only hope for them.
The more things that we can get way for the federal government the better. Other than things called for in the Constitution the only thing the federal is good at is at good mismanagement.
Why don’t we all have good pensions? We have all worked the years to retire or will. Because of the way the federal law is written. There are only two major questions with most of these issues.
1) How do we transition from where we are to what we should be doing.
2) How do we get enough members of congress to pull their heads out of some where the sun doesn’t shine. And actually understand and fix problems.
We have problems such as with pensions, which will greatly decreases the stress on Social Security that they don’t understand. And they have no clue as how to fix them.
Yes, but the overwhelming majority of voter-lemmings are already in the pyramid scheme. They will thus hang in there tooth and nail, in the hope of pushing the pyramid’s collapse past their lifetimes. In doing so, they will join the rest of the voter-lemming Western World into an irreversible path of flatter effort-reward curves, and thus slower growth, permanently pushing the fabulous upcoming existence of a more prosperous, more technologically advanced and much-much longer lived humanity further and further into the future.
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But I want to mention something slightly different and perverse about the two programs.
According to myopic short term voter-lemming consensus, SS and Medicare are primarily about compassion. Far from it, they yet are about more self-serving voter-lemming coercive behavior.
Social Security and Medicare are regressive wealth transfer systems where the unlucky to die young (and also more cheaply) subsidize the lucky long lived who must be guaranteed a decent old age, regardless of their contribution to overall prosperity. Not only will you live long, but you are de-fact entitled to live well, according to some western world norm that puts your old age standard of living amongst the privileged top 15% of this planet. The money of the unlucky ones who will die young is yours to keep, and you and your voter-lemming buddies will get together and ensure that it stays so. Why? Because you are the majority.
Imagine being a forty five year old with something like irreversible diabetes, whose life expectancy according to actuarial medical consensus is another couple of decades. “The people” have forced you to contribute to their Social Security and Medicare funds, but you will get no benefit. Not only will you have the misfortune of dying young, but you will also get nothing back. What you have contributed will be reserved not for your own welfare but rather for the benefit of those lucky ones to outlive you by two or three decades. To add insult to injury, the fact that the public will not release your funds forces you to continue working, AND continuing to contribute to the same two social welfare programs for the remainder of your short life. That is the perverse compassion of socialism. What you need is not ObamaCare, but rather a release of your coercively collected Medicare and SS funds, so that you may pay for both medical care, and be able to ameliorate your short remaining life. Instead, you get nothing. Why? Because you are a minority. Those who die young are a minority — or to be more precise, those who will die younger and are aware of it for a significant proportion of their life, and thus get the chance to vote accordingly, are a minority. And… well… we know what happens to minorities.
Yes, medicare was an insurance policy against long-term whatever. I did not write the bill yet have paid into SS & Medicare and could have invested the money on my own and if I die before I receive a dime then Mr Mitchell or some dumb ass congressman will receive my benefit money. Insurance is a risk and we are entitled to receive those benefits by law. Public unions be dammed.
I think you have missed a significant componemt in your calculation. If you take a nominal interest return on investment for the amount paid in compounded for the period of “deposits” made into the Medicare account, then the numbers that you show would swell significantly. I paid the maximum into Medicare for my entire working career. If I had invested that money I would have had a greater return than that provided by Medicare. Don’t forget that the governement “borrowed” deposits made into Medicare and spent it on other programs. If they had left the fun intact then the current problem would likely not exist.