Date and Time
February 12, 2003
1:30 PM - 3:00 PM

Availability
Open to the public
No RSVP required

While Medicare was ostensibly set up to benefit the poor, there has been much debate over whether it achieved this objective. Since the poor die earlier, have lower demands for medical care, and have faced a regressive Medicare tax system for most of its history, some have concluded that the returns to Medicare, are much higher for the rich than the poor. Using new data, we find that this judgment is premature, and that the returns to Medicare are considerably higher for the poor than the rich. These new results appear to owe themselves to our measurement of socioeconomic status at the individual level, in contrast to the aggregated measures used by previous research. Our calculations are based on data that has not previously been used for this purpose. We use the Health and Retirement Study, linked to Social Security Earnings Records, to construct a lifetime earnings (and tax) history for the cohort born between 1931 and 1941. This allows us to estimate the net present value of Medicare taxes paid over the life of this cohort. We then use the Medicare Current Beneficiary Survey to estimate an age-profile of Medicare expenditures. We discount taxes paid and benefits received by the probability of surviving to pay taxes or receive benefits at a particular age. Mortality is allowed to vary across education groups. We construct education-specific life tables based on Social Security life tables, adjusted by mortality differentials across education groups taken from the 1993 National Mortality Followback Survey. We estimate that male high school dropouts born between 1931 and 1941 received a real annual internal rate of return around 4.5 percent on their Medicare investment, while female high school dropouts received a return above 5 percent. Both these numbers exceed estimates of the real risk-free interest rate, of around 3 percent. In contrast, male college graduates received a 1.5 percent real internal rate of return. In effect, the Medicare program represents a transfer from the educated to the less educated, and (to a lesser extent) from men to women.