Who pays for Medicare?

Date posted: December 13, 2011

As our federal elected officials look for ways to reduce the growth in the national debt, big federal medical programs like Medicare have come under scrutiny.  Why is Medicare being included in these discussions? N.C. State University economist Mike Walden weighs in.

“Well, I think for the simple reason — it is, has been, and is one of the big drivers in federal spending. And I think the reason’s obvious.  Medicare is a program that helps pay for the medical expenses of older people — people over age 65, and of course people over age 65 have been increasing as the most rapidly growing demographic component of our population. Also, medical costs have been going up.

“So this is a program that spending has just skyrocketed over the last few decades and is expected to continue to skyrocket. Therefore it is a program that folks who are looking for ways to moderate the federal budget. It’s a program that’s … on the chopping blocks quite frankly.

“Now in terms of where Medicare gets its money, it really is funded by three sources: One, a payroll tax that’s part of FICA. Two, direct payments (that is, people who participate in Medicare do pay co-payments and deductibles). But there’s also help from general tax revenues.

“So it is supported by all taxpayers, by general tax revenues. And one proposal that’s been floated, certainly this has not been adopted, but I think listeners should, should pay attention because this may be on the table in the future.  One proposal is to change Medicare and make it what’s called means tested.  That is to say if you’re above certain income levels when you retire, you would not get quite as much help from Medicare as you do now.  But clearly, I don’t think this issue’s going to go away.  For all of us who will soon be on Medicare this is a program that we have to watch because probably cost controls somehow will be put in place.

 

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