Medicare: the chain letter

Is Medicare a good deal? 

In terms of dollars in and dollars out, Medicare breaks down this way:

• A typical 85-year-old is going to get back $2.69 in benefits for every dollar paid into the system in the form of premiums and taxes—a good deal by any measure.
• People turning 65 today don’t do nearly as well — they get back $1.25 for every dollar they pay in.
• The average worker under age 50 loses under the system — with a 45-year-old getting back only 95 cents on the dollar.
• That’s better than the deal 25-year-olds get, however; they can expect to get back 75 cents for every dollar they contribute.

Why does Medicare favor the old and discriminate against the young? Because like Social Security, Medicare finances work like a chain letter. Although workers have been repeatedly told that their payroll taxes are being securely held in trust funds, they are actually being spent—the very minute, the very hour, the very day they arrive in the Treasury’s bank account.
No money has been saved. No investments have been made. No cash has been stashed away in bank vaults. Today’s payroll tax payments are being spent to pay medical bills for today’s retirees. And if any surplus materializes, it’s spent on other government programs. As a result, when today’s workers reach the eligibility age of 65, they will be able to get benefits only if future taxpayers pay (higher) taxes to support them.
Just as Bernie Madoff was able to offer early investors above-market returns, early retirees got a bonanza from Social Security and Medicare. That’s the way chain-letter finance works. But in the long run, there’s no free lunch. That’s why things look so dismal for young people entering the labor market today.