Social Security and Medicare: A Teachable Moment for Robert Samuelson?

Print
Thursday, 27 January 2011 21:53

Washington Post columnist Robert Samuelson told readers that this is a teachable moment when it comes to Social Security and Medicare. Let's see if he is right.

In his column he takes issue with the idea that people pay for their Social Security and Medicare benefits:

"Consider a man who turned 65 in 2010 and earned an average wage ($43,100). Over his expected lifetime, he will receive an inflation-adjusted $417,000 in Social Security and Medicare benefits, compared with taxes paid of $345,000, estimates an Urban Institute study."

However if we look at this Urban Institute we study that this man will have paid $290,000 for his Social Security benefits. According to the study, he will only get $256,000 back. In other words, he will have paid $34,000 more in taxes than he will get back in benefits. (This calculation assumes that the taxes earn an interest rate that is 2 percentage points above the inflation rate.) So, contrary to what Samuelson implies, the Urban Institute study shows that this middle income person will have more than paid for the Social Security benefits that he is scheduled to receive under current law.

The study does find that this man will get back more in Medicare benefits than what he paid. It estimates the value of his Medicare benefits at $161,000 for which he will have paid $55,000 in taxes. However, the idea that this person is getting some big giveaway from the government is a bit misleading. People in the United States pay more than twice as much per person for their health care as people in Canada, Germany, and other wealthy countries. This means that the money is not really going to the beneficiary, it is going to the pharmaceutical industry, high-priced medical specialists, and other sources of waste in the U.S. health care system.

If our health care costs were in law with those in other countries (all of which enjoy longer life expectancies), then Medicare benefits and taxes would be more nearly in line. More generally, if per person health care costs were in line with costs in the rest of the world, then the United States would be looking at huge budget surpluses, not deficits. This is the reason that honest budget analysts and commentators focus on fixing the health care system, not Social Security and Medicare.