Ouch: The (personal) economics of Medicare.

Over the years, I’ve anteed about $250,000 into the Medicare tax kitty.

And, you may have  thrown in more than you think!
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Motivated by Medicare for All hype coming from far-left-leaning Dems presidential candidates, I finally took a serious look at the buckos that I’ve thrown into the Medicare kitty over the years.

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I’d like to say that I was surprised, but I really wasn’t.

Here are the details…

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Medicare Payroll Taxes

In July 1965, Congress enacted Medicare to provide health insurance to people age 65 and older.

To fund the program, the Feds started docking paychecks  .35% of earnings.

Over the years, the Medicare payroll tax rate rate has been progressively increased to its current 1.45%.

Now, 1.45% doesn’t sound like a lot … and, it gets buried in the pot of payroll deductions that most people ignore to prevent nausea.

But over time, the rules have also changed to  increase the load on payroll taxpayers.

Social Security payroll taxes have income caps.  Currently, only the first $128,400 of wages  are subject to Social Security payroll taxes.

Medicare payroll taxes don’t have income caps.

On top of that,, there’s a .9% tax surcharge on earnings over $200,000 … bumping the rate to 2.35%

While the rates may sound like rounding error, over the years, they add up to some statistically significant numbers.

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A personal example

The Social Security Administration offers all taxpayers a “My Account” webpage that provides a lot of personalized information, including:

  • A complete history of your payroll taxed earnings by year
  • A report of your FICA taxes paid each year – split between Social Security and Medicare.

There’s even a nifty summary  that recaps the cumulative amount that  you and your employers (on your behalf).

 Note: Everybody should set up a “My Account” with Social Security.  It contains a lot of seriously important information … with the specific numbers that the Feds have in their system for you personally.

For example, during my 5 decades of work, I paid about $80,000 in Medicare payroll taxes.

My employers matched that amount.

So, total taxes paid on my behalf were about $160,000.

Technical note: Economists argue that payroll taxes paid by employers are taxes paid indirectly by employees since employees are, in effect, foregoing additional wages.

The $160,000 is  in “nominal” terms … i.e. not adjusted for inflation.

Applying inflation factors to restate  in “2018 dollars” … the $160,000 grosses up to about $250,000.

You can think of that $250,000 as a joining fee to get the eventual Medicare benefits … or, as prepaid insurance premiums to get those Medicare benefits.

BTW: What irks me most with the Medicare for All plans being pitched is that they, in effect, waive the “joining fee” for new recipients … even the non-citizens.

Will I get my joining fee refunded?

I’m betting the under on that one.

Spread those prepaid premiums over an average post-65 retirement life and it amortizes to about $10,000 per year.

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So what?

Many people — probably most — live under the misconception that once they hit 65, Medicare insurance is free.

Not so, grasshoppers.

As illustrated above, the premiums that wage earners prepay through cumulative Medicare payroll taxes is, depending on income level, roughly the equivalent of  $10,000 per year in premiums over a retiree’s post-65 life span.

That’s hardly “free”.

And, oh yeah, did you know that once you retire, you have to pay additional Medicare insurance premiums to the Feds?

More on that tomorrow.

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