The Ash Twins Blog

According to Andrew Biggs at the American Enterprise Institute,

A new Republican talking point in the healthcare debate defends Medicare as an earned right. Seniors, according to this argument, have paid for their Medicare benefits through the taxes, and the president’s plan to cut Medicare to finance expanded health coverage for the uninsured breaches a moral obligation. These cuts have spurred seniors’ opposition to the administration health plans, graphically illustrated at town hall meetings.

Minnesota Republican Rep. Michele Bachmann, appearing on the Fox News Channel, echoed these concerns, putting Medicare cuts in terms of fairness to those who paid for them. Going further, this ad from the conservative 60 Plus Association plays the Greatest Generation card to the hilt, with images of the Great Depression and D-Day telling of the sacrifices seniors made on behalf of the country…

According to the 2009 Medicare Trustees Report, the average Medicare benefit per person in 2008 was $11,012. From this, we subtract the average Medicare premium of $1,288 to produce an average net benefit of $9,724. I’ll assume that this person collects the average Medicare benefit from age 65 through age 83 (his life expectancy as of age 65)…

To make taxes and benefits comparable, I convert each to present value terms, assuming a real interest rate of 3 percent. This means that taxes paid in the past have 3 percent interest added each year, to account for the fact that these taxes could otherwise have been invested. Likewise, future benefits have 3 percent annual interest deducted, to account for the fact that retirees must wait to receive them.

So what do we get? This typical person paid around $64,971 in Medicare payroll taxes over his lifetime. Likewise, after netting out Medicare premiums, he’ll receive around $173,886 in lifetime Medicare benefits. The net? He can expect to receive around $108,915 more in benefits than he paid in taxes over his lifetime.