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Medicare must be reformed

Posted: November 10, 2011 11:24 a.m.
Updated: November 11, 2011 5:00 a.m.

Medicare beneficiaries sometime tell me they are entitled to Medicare benefits because they earned them by contributing to the system for their careers.

In a purely legal sense that is true. The law provides that a person pay Medicare taxes for at least 10 years.

However, few actually put in enough into the Medicare system to pay for their own benefits.

Consider an employee who entered the workforce in 1965 and retired in 2010, and assume that employee earned the country median income throughout his career. That person and his employer would have paid about $23,000 in Medicare taxes by the time the employee retired.

If the amount contributed each year had been put into a saving account earning 5 percent interest, there would have been a balance in the employee’s account at the end of the employee’s career of about $50,000.

The annual average benefit paid to Medicare participants today is about $11,700. Of that amount, most Medicare beneficiaries pay an annual premium of about $1,200, leaving a net average cost of just over $10,000. So it would only take about five years to exhaust the contributions made by the employee, assuming that those contributions would have been placed in a savings account.

The federal government currently estimates that after deducting the premiums Medicare beneficiaries pay, the total cost for the average beneficiary for his or her lifetime will be more than $250,000. Even if we discount those future benefits to their current net value (basically the amount you would need in savings to pay for the average employee’s contributions), it still cover less than one third of the cost.

Even most of those with higher incomes have not paid in nearly enough to cover their own likely benefits.

Until 1993, the total amount of income subject to the Medicare tax (2.9 percent) was capped. Since 1993, 100 percent of the earned income has been subject to Medicare tax.

If a person earned the maximum taxable amount or more from 1966 to 1993, the total contributions plus interest earned on contributions by 1993 would have been about $35,000. To have enough to cover his own Medicare costs, the employee would have had to continue earning at least $135,000 annually after 1993 until retirement in 2010.

Obviously, only a small percentage of American workers earn this amount of money. So if we are not paying for our own health care, who is? Our children.

But with increasing life expectancies and ever-expanding medical options for enhancing the quality of life in our latter years, we must face the reality that we are simply asking future generations to shoulder too large a burden.

And then we need to ask ourselves how comfortable we are with that image.

The plain fact is that we, as a generation, have decided we would rather our children and grandchildren pay for health care than pay it ourselves.

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