Medicare reform: Who pays and who benefits?

Health Affairs

Volumn 18, Issue 1, 1999, Pages 48-62

  McClellan, Mark ^a,b   Skinner, Jonathan ^c  

^a STANFORD UNIVERSITY   (United States)

^b NATIONAL BUREAU OF ECONOMIC RESEARCH   (United States)

^c DARTMOUTH MEDICAL SCHOOL   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

AGED; ARTICLE; BUDGET; ECONOMICS; FEMALE; HEALTH CARE COST; HEALTH CARE POLICY; HUMAN; INCOME; LEGAL ASPECT; MALE; MEDICARE; TAX; UNITED STATES;

AGED; BUDGETS; FEMALE; HEALTH CARE REFORM; HEALTH EXPENDITURES; HEALTH POLICY; HUMANS; INCOME; MALE; MEDICARE; TAXES; UNITED STATES;

EID: 0032608321     PISSN: 02782715     EISSN: None     Source Type: Journal    
DOI: 10.1377/hlthaff.18.1.48     Document Type: Article

References (41)

1. Or about $200 in 1998 dollars. Testimony by Paul E. Hanchett, "Private Health Insurance for the Elderly," Senate Special Committee on Aging, vol. 4 (88th Congress, 1964), 1631.
2. T.R. Marmor, The Politics of Medicare (Chicago: Aldine, 1973).
3. U.S. House Ways and Means Committee, Green Book (Washington: U.S. Government Printing Office, 1998); and Congressional Budget Office, Economic and Fiscal Outlook Update (Washington: CBO, August 1998).
4. U.S. House Ways and Means Committee, Green Book (Washington: U.S. Government Printing Office, 1998); and Congressional Budget Office, Economic and Fiscal Outlook Update (Washington: CBO, August 1998).
5. V. Fuchs, "Provide, Provide: The Economics of Aging," in Medicare Reform: Issues and Answers, ed. T.R. Saving and A. Rattenmaier (Chicago: University of Chicago Press, forthcoming); and CBO, Long-Term Budgetary Pressures and Policy Options (Washington: CBO, May 1998).
6. V. Fuchs, "Provide, Provide: The Economics of Aging," in Medicare Reform: Issues and Answers, ed. T.R. Saving and A. Rattenmaier (Chicago: University of Chicago Press, forthcoming); and CBO, Long-Term Budgetary Pressures and Policy Options (Washington: CBO, May 1998).
7. Other key government health insurance programs include the Medicare enti-tlement through disability insurance or the end-stage renal disease program and Medicaid insurance. Although we do not do so here, our methods could readily be extended to analyzing these programs. For the reasons discussed above, we suspect that the benefits of these programs are likely to extend beyond the low-income population.
8. Only 15 percent of single elderly men in the bottom third of the income distribution had health insurance in 1962, compared with 80 percent of elderly couples in the highest third of the income distribution. See National Center for Health Statistics, Health Insurance Coverage, Series 10, no. 11 (Hyattsville, Md.: NCHS, August 1964); and L. Epstein and J. Murray, The Aged Population of the United States: The 1963 Social Security Survey of the Aged (Washington: Department of Health, Education, and Welfare, 1967).
9. Only 15 percent of single elderly men in the bottom third of the income distribution had health insurance in 1962, compared with 80 percent of elderly couples in the highest third of the income distribution. See National Center for Health Statistics, Health Insurance Coverage, Series 10, no. 11 (Hyattsville, Md.: NCHS, August 1964); and L. Epstein and J. Murray, The Aged Population of the United States: The 1963 Social Security Survey of the Aged (Washington: Department of Health, Education, and Welfare, 1967).
10. For an exception, see R.J. Vogel, "An Analysis of the Welfare Components and Intergenerational Transfers under the Medicare Program," in Lessons from the First Twenty Years of Medicare, ed. M.V. Pauly and W.L. Kissick (Philadelphia: University of Pennsylvania Press, 1988).
11. L.J. Haas, "Fiscal Catastrophe," National Journal (7 October 1989): 2453-2456.
12. This is not to say that were Medicare payroll taxes erased, workers would experience a full 2.9 percent "raise" in after-tax earnings. The magnitude of their increased net earnings would depend on the ratio of the elasticity of demand for workers and the elasticity of supply by workers. See H. Rosen, Public Finance, 5th ed. (New York: Irwin McGraw Hill, 1998).
13. In 1986, the most recent published figures, the elderly paid 14 percent of total federal income taxes. Internal Revenue Service, Individual Income Tax Returns (Washington: U.S. Government Printing Office, 1986). With Part B premiums financing 25 percent of Part B program costs, as a rough approximation the elderly pay just over one-third of a $1 increase in Part B spending (.25 + .75 × .14), of which 70 percent (25/35) is a lump-sum assessment.
14. Consistent with trends over the past two decades, we assume that earnings grow in real terms at the rate of 1 percent for high school dropouts, 1.5 percent for high school graduates, and 2 percent for college graduates.
15. Lifetime tax payments, expressed as a fraction of annual income, are 32 percent for the lowest-income decile and 19 percent for the highest.
16. Part B premiums are assumed to grow in real terms at 2.5 percent per year. A higher growth rate (consistent with projected rates legislated in the BBA) would reduce the degree of progressivity.
17. A. Auerbach, J. Gokhale, and L.J. Kotlikoff, "Social Security and Medicare Policy from the Perspective of Generational Accounting," in Tax Policy and the Economy, vol. 6 (Cambridge, Mass.: NBER and MIT Press, 1992).
18. J.S. House et al., "Age, Socioeconomic Status, and Health," Milbank Quarterly 68, no. 3 (1990): 383-411.
19. K. Davis and R. Reynolds, "Medicare and the Utilization of Health Care Services by the Elderly," Journal of Human Resources 10, no. 3 (1975): 361-377; C.R. Link, S.H. Long, and R.F. Settle, "Equity and the Utilization of Health Care Services by the Medicare Elderly." Journal of Human Resources 17, no. 2 (1982): 195-212; and J. LeGrand, The Strategy of Equality (London: George Allen and Unwin, 1982).
20. K. Davis and R. Reynolds, "Medicare and the Utilization of Health Care Services by the Elderly," Journal of Human Resources 10, no. 3 (1975): 361-377; C.R. Link, S.H. Long, and R.F. Settle, "Equity and the Utilization of Health Care Services by the Medicare Elderly." Journal of Human Resources 17, no. 2 (1982): 195-212; and J. LeGrand, The Strategy of Equality (London: George Allen and Unwin, 1982).
21. K. Davis and R. Reynolds, "Medicare and the Utilization of Health Care Services by the Elderly," Journal of Human Resources 10, no. 3 (1975): 361-377; C.R. Link, S.H. Long, and R.F. Settle, "Equity and the Utilization of Health Care Services by the Medicare Elderly." Journal of Human Resources 17, no. 2 (1982): 195-212; and J. LeGrand, The Strategy of Equality (London: George Allen and Unwin, 1982).
22. A. Geronimus, J. Bound, and L. Neidert, "On the Validity of Using Census Geocode Characteristics to Proxy Individual Socioeconomic Characteristics," Journal of the American Statistical Association 91, no. 434 (1996): 529-537. For a study comparing Medicare use by ZIP code and survey income, see M.E. Gornick et al., "Effects of Race and Income on Mortality and Use of Services among Medicare Beneficiaries," New England Journal of Medicine 335, no. 11 (1996): 791-799.
23. A. Geronimus, J. Bound, and L. Neidert, "On the Validity of Using Census Geocode Characteristics to Proxy Individual Socioeconomic Characteristics," Journal of the American Statistical Association 91, no. 434 (1996): 529-537. For a study comparing Medicare use by ZIP code and survey income, see M.E. Gornick et al., "Effects of Race and Income on Mortality and Use of Services among Medicare Beneficiaries," New England Journal of Medicine 335, no. 11 (1996): 791-799.
24. The link between income and mortality is well established. H.O. Duleep, "Mortality and Income Inequality among Economically Developed Countries," Social Security Bulletin (Summer 1995): 34-53; P. Menchik, "Economic Status as a Determinant of Mortality among Nonwhite and White Older Males: Or, Does Poverty Kill?" Population Studies 47, no. 3 (1993): 427-436; and G. Pappas et al., "The Increasing Disparity in Mortality between Socioeconomic Groups in the United States," New England Journal of Medicine 329, no. 2 (1993): 103-109.
25. The link between income and mortality is well established. H.O. Duleep, "Mortality and Income Inequality among Economically Developed Countries," Social Security Bulletin (Summer 1995): 34-53; P. Menchik, "Economic Status as a Determinant of Mortality among Nonwhite and White Older Males: Or, Does Poverty Kill?" Population Studies 47, no. 3 (1993): 427-436; and G. Pappas et al., "The Increasing Disparity in Mortality between Socioeconomic Groups in the United States," New England Journal of Medicine 329, no. 2 (1993): 103-109.
26. The link between income and mortality is well established. H.O. Duleep, "Mortality and Income Inequality among Economically Developed Countries," Social Security Bulletin (Summer 1995): 34-53; P. Menchik, "Economic Status as a Determinant of Mortality among Nonwhite and White Older Males: Or, Does Poverty Kill?" Population Studies 47, no. 3 (1993): 427-436; and G. Pappas et al., "The Increasing Disparity in Mortality between Socioeconomic Groups in the United States," New England Journal of Medicine 329, no. 2 (1993): 103-109.
27. McClellan and Skinner, "The Incidence of Medicare."
28. The present value of Medicare is the expected total amount of lifetime program payments per beneficiary, discounted back to the present time.
29. Congressional Budget Office, Long-Term Budgetary Pressures and Policy Options (Washington: U.S. Government Printing Office, May 1998).
30. Auerbach et al., "Social Security and Medicare Policy."
31. J. Lee, M. McClellan, and J. Skinner, "The Distribution of Medicare Benefits," in Tax Policy and the Economy, ed. J. Poterba (Cambridge, Mass.: MIT Press, forthcoming). The possible redistributive effects of higher Medicare spending among the low-income population will also be offset by increasing divergences in income-based mortality. Finally, the permanence of the qualified Medicare beneficiary (QMB) and specified low-income Medicare beneficiary (SLMB) programs are in question past 2002. M. Moon, B. Gage, and A. Evans, An Examination of Key Medicare Provisions in the Balanced Budget Act of 1997 (Washington: Urban Institute, September 1997).
32. J. Lee, M. McClellan, and J. Skinner, "The Distribution of Medicare Benefits," in Tax Policy and the Economy, ed. J. Poterba (Cambridge, Mass.: MIT Press, forthcoming). The possible redistributive effects of higher Medicare spending among the low-income population will also be offset by increasing divergences in income-based mortality. Finally, the permanence of the qualified Medicare beneficiary (QMB) and specified low-income Medicare beneficiary (SLMB) programs are in question past 2002. M. Moon, B. Gage, and A. Evans, An Examination of Key Medicare Provisions in the Balanced Budget Act of 1997 (Washington: Urban Institute, September 1997).
33. McClellan and Skinner, "The Incidence of Medicare." The principal reasons for the difference in insurance value across income groups include the relatively greater value of reduced variability in medical spending and the relatively lower availability of risk pooling (for example, through retiree health insurance plans) for the low-income elderly.
34. Moon et al., An Examination of Key Medicare Provisions. This assumes (as they do) that QMB and SLMB programs do not cover the future Part B premiums among lower-income households.
35. M. Moon and C. Kuntz, Increasing Medicare's Part B Premium (Washington: Urban Institute and Commonwealth Fund, November 1996).
36. M.J. Klag et al., "End-Stage Renal Disease in African-American and White Men: 16-Year MRFIT Findings," Journal of the American Medical Association (23-30 April 1997): 1293-1298.
37. H.J. Aaron and R.D. Reischauer, "The Medicare Reform Debate: What Is the Next Step?" Health Affairs (Winter 1995): 8-30.
38. Of course, high-income persons might still receive more in dollar terms over their lifetime because of a longer life expectancy.
39. P. Ferrara, The Next Steps for Medicare Reforms (Washington: Cato Institute, April 1998).
40. Transition is difficult and may require a gradual phase-in, because working-age cohorts must both save for their own Medicare benefits as well as finance Medicare benefits for the current elderly. Supporters of prefunding argue that investing account funds in equities allows a rate of return sufficiently high to mitigate the transition problem.
41. McClellan and Skinner, "The Incidence of Medicare."