That makes me think a little about my disagreement with a certain radio economic advisor who thinks it is wrong to get all your parents’ assets safe before Medicare can take them away.
On the surface, that seems to undercut my general assent to the “getting back what they paid in” argument you raise.
But it is not getting what I paid in, it is getting a return on my investment.
But then I have to wonder, how much would these hypothetical recipients have if they had invested that 55k steadily over their working lives?
Now, my figuring may have some issues, which I would like to have pointed out to me by anyone who can think this through more knowledgeably, but here is what I am thinking:
This is 55,000 put in total over the person’s working life, adjusted for inflation, etc, in 2010 dollars (note no wage gap assumed for male versus female!:)?
If I divide that 55k by 30 years then I have put in an average of 1833 per year, or 152.78 per month.
Going to moneychimp’s compound annual growth rate calculator yields a CAGR of 7.69 for the S&P 500 for the years 1980-2010, and an “average” return of 9.16.
Dave Ramsey’s Investment Calculator says that 152 a month for 30 years at 7% would yield over 184,000 - at 9% it would be 271K.
Now, if the individual worked for 40 years before retiring in 2010, the CAGR and “average” returns are lower (5.39 and 7.03 respectively), but the additional ten years of investment yield over 173K for the low figure, and 292K for the higher “average.”
In any of these scenarios, the taxpayer would have come out about the same at worst, and way ahead at best, to have invested that 55K in the market, with a lot more choice for how his health care was run.
Of course, my understanding of the figures may be completely off base, but given that the projected expenditures for men and women over the course of their remaining (future) lives is based on completely unknowable factors, it is probably at least as meaningful of an interpretation of what’s going on.
I also admit that hindsight calculations are irrelevant to making a past decision (forced) to invest in a government backed and guaranteed (maybe) insurance plan. On a certain level, the guarantee would be worth the lost possible income (if it were run by competent people), as no one wants to have uncertainty about their healthcare in their latter years. But we still have that uncertainty with Medicare and the ACA.
Further, if it is viewed as insurance, not an investment, no one pays a monthly premium their insurance company hoping “they will get back what they paid in,” they pay it knowing (hoping) that they will get back *more* than they paid in if there is a catastrophic occurrence in their lives. Otherwise they would simply save the money themselves, or not bother.
It is up to the actuaries at the insurance companies to determine the risk and likelihood of their product being needed. If they fail to make accurate predictions, they go under or get bailed out. If they are government, they print more money, or change the rules, or steal from the public at large or doctors in specific.
But any thoughtful person should have realized from the inception that Medicare was neither an investment nor an insurance program, but a forced Ponzi scheme with kickbacks and votes on the line for the enforcers.
We need to find a way to scrap it while honoring previously made payments, not kick the can further down the road.
The problem with that reasoning is that you put in $152.78 a month from the very beginning of joining the system. The contribution rates have changed over time. In 1966 the rate was .350 of income. In 1973 it was 1 percent. In 1981 it was 1.3% and from 1986 onwards it has been 1.450.
In any of these scenarios, the taxpayer would have come out about the same at worst, and way ahead at best, to have invested that 55K in the market, with a lot more choice for how his health care was run.
The reality is that the vast majority of the public does not have the fiscal discipline or the resources to put that sum of money aside for future healthcare costs. Also, under Mecicare, the spouse is eligible even if he/she never made any contributions.
Further, if it is viewed as insurance, not an investment, no one pays a monthly premium their insurance company hoping “they will get back what they paid in,” they pay it knowing (hoping) that they will get back *more* than they paid in if there is a catastrophic occurrence in their lives. Otherwise they would simply save the money themselves, or not bother.
In most cases. people buy insurance (auto, flood, wind, hail, etc.) hoping they never have to use it. Healthcare is different. They know they will use it. And 9 out of 10 Medicare recipients carry Medigap insurance to cover the costs Medicare doesn't.
Unfortunately. people have come to expect that their insurance should cover all costs. Government involvement has fueled that expectation. Healthcare insurance would be much cheaper if we had higher deductibles. Obamacare has raised deductibles, but it has also expanded covered services and taxpayer subsidies. And it has expanded the Medicaid rolls where all expenses are covered.
But any thoughtful person should have realized from the inception that Medicare was neither an investment nor an insurance program, but a forced Ponzi scheme with kickbacks and votes on the line for the enforcers. Medicare and SS are Ponzi schemes. You are making my point. Today's seniors are at the top of the pyramid. We get much more out than we contributed. Our children and grandchildren will not be as lucky. They will see reduced benefits and higher taxes.
We need to find a way to scrap it while honoring previously made payments, not kick the can further down the road.
Never happen. Medicare has become so embedded that there is no political will to change it. The politicians will have to come up with a solution that saves the system. There are some ways of doing it, but they are all painful to various constituencies. But something must be done or Medicare and SS will bankrupt the country consuming the entire federal budget. Right now, Medicare and SS consume 41% of the federal budget and it is growing as 10,000 baby boomers retire every day for the next 20 years,