Generational aspects of Medicare

David Cutler and Louise Sheiner

No 2000-09, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: This paper examines the generational aspect of the current Medicare system and some stylized reforms. We find that the rates of return on Medicare for today's workers are higher than those for Social Security and that the Medicare system is shifting a greater share of the burden on future workers than is Social Security. Nonetheless, the rates of return on Medicare, using the Medicare Trustees assumptions, are still not that high--roughly 2 percent for today's youngest workers. But forecasting future Medicare expenditures is quite difficult. Under an alternative higher-cost baseline, which we consider plausible, rates of return for today's youngest workers will exceed 3 percent. Putting Medicare on a sustainable basis by raising the payroll tax or reducing benefits would greatly reduce the rate of return for today's workers. Under the Trustees assumptions, for example, the payroll tax would have to be increased by 2.0 percent of payroll to put the Medicare system in balance in perpetuity. This policy would reduce the rate of return on today's youngest workers to about 1.3 percent.

Keywords: Medicare; Social security (search for similar items in EconPapers)
Date: 2000
New Economics Papers: this item is included in nep-cdm and nep-hea
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Generational Aspects of Medicare (2000)
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