“Now, I realize there are some in my party who don’t think we should make any changes at all to Medicare and Medicaid, and I understand their concerns. But here’s the truth: Millions of Americans rely on Medicare in their retirement. And millions more will do so in the future. They pay for this benefit during their working years. They earn it. But with an aging population and rising health care costs, we are spending too fast to sustain the program. And if we don’t gradually reform the system while protecting current beneficiaries, it won’t be there when future retirees need it. We have to reform Medicare to strengthen it.”
—President Barack Obama, September 8, 2011, Address to a Joint Session of Congress
Claim: “They pay for this benefit during their working years. They earn it.”
Fact: Actually, current taxpayers, not the seniors who contributed during their working years, are primarily paying for Medicare benefits. A single woman who retired in 1980, after earning average wages throughout her career, could expect to receive medical care worth about $74,800 over the rest of her lifetime. A comparable woman retiring in 2010 can expect services worth $181,000 (adjusted for inflation). These estimates, by economists Eugene Steuerle and Stephanie Rennane of the Urban Institute, illustrate the huge disconnect between widely-held perceptions and the numbers behind Medicare's shaky financing. Consider an average two-earner couple who together earn $89,000 a year. Upon retiring in 2011, they would have paid $114,000 in Medicare payroll taxes during their careers. But they can expect to receive medical services – from prescriptions to hospital care – worth $355,000, or about three times what they paid into the program during their career.
Claim: “But with an aging population and rising health care costs, we are spending too fast to sustain the program.”
Fact: This is true, but other factors are also at work. When Medicare was created in 1965, the average life expectancy was just above 70 years old. At that time, roughly 4.6 workers supporting each beneficiary receiving benefits. However, because of improvements in medical innovation and public health, today life expectancy is above 80 years old, and there are an average of 3.8 workers per beneficiary. With current trends and a wave of retiring baby boomers, in 2050 the program is only expected to have about 2.2 workers per beneficiary.
Claim: “If we don’t gradually reform the system while protecting current beneficiaries, it won’t be there when future retirees need it.
Fact: Actually, current retirees who depend on Medicare are already threatened by a broken Medicare system. The 2011 report of the Medicare Board of Trustees estimates that under a best-case scenario, by the time a 65-year-old today is 78, the program will be insolvent. Troublingly however, the program’s actuary recently said that in a worst-case scenario, Medicare’s hospital insurance program could be exhausted in 2016.
Claim: “We have to reform Medicare to strengthen it.
Fact: Yes, one thing that Democrats and Republicans should be able to agree on: we have to reform Medicare to strengthen and save it. It’s not a matter of personal opinion, it’s basic math. The nonpartisan CBO estimates that the program is just nine years away (2020) from not being able to pay out current benefits. The Medicare Actuary’s official estimate of the date of insolvency is 2024, though a more realistic assessment from the Actuary’s office suggests the program could be insolvent as soon as 2016.
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