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Quick Highlight: Medicare Math

December 6, 2011

Today’s Note highlights a provocative article in Forbes.com. The article, “Medicare Is Increasingly A Benefit Enjoyed By The ‘One Percenters.'” asks us if we are comfortable with programs like Medicare supporting an increasingly large share of their benefits going to older, and more financially secure, Americans.

The author, Sally Pipes, whose self-described biography tells us she is “president, CEO, and Taube Fellow in Health Care Studies at the Pacific Research Institute, a San Francisco-based think tank.” [all italics are mine, and denote quotes from the article.]

Pipes is explaining that the share of Medicare that actually goes to low-income recipients is dropping. On the surface, that would seem to be a bad thing. Pipes explains that this means that “a substantial chunk of benefits flowing to people that could probably pay for some of them themselves.” She suggests that “By tightening program enrollment standards, raising the eligibility age, adopting premium support, and introducing some level of means testing, policymakers could put our nation’s entitlement programs on sounder financial footing and better focus their efforts on caring for the truly needy.

This is a hard call to make. Pipes is convincing when she notes:

Indeed, it’s worth asking whether subsidizing the health care and income of relatively wealthy seniors is really the wisest use of limited taxpayer resources. In 2009, the average household headed by an adult older than 65 had 47 times as much net worth as the typical household headed by someone younger than 35. By contrast, in 1984, the wealth gap between seniors and the young was just ten to one.

In other words, America’s present entitlement structure forces the young and relatively poor to subsidize the lifestyles of the old and relatively wealthy through their Social Security and Medicare taxes.

At the same time, haven’t these wealthy older Americans paid into the system for years to earn the right to these benefits? It’s not their fault that they rode decades of raising real estate prices and Dow gains, and younger Americans have had to struggle with more than a decade of lackluster economics. True, younger Americans may be more needy than senior citizens today. Does that change their obligation to subsidize wealthier older Americans? These are hard questions. Pipes writes an insightful, but not particularly balanced article. Read it and try to decide what you think.

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