• Lifetime Benefits and Contributions

    Gene Steurle and Stephanie Rennane have a nice policy brief put out by the National Institute for Health Care Management on the lifetime contributions and benefits of Social Security and Medicare. This is mostly familiar stuff, with lifetime Medicare benefits consistently being several times larger than contributions to the pay-as-you-go program, and Social Security lifetime contributions and benefits being more similar for singles and two-earner couples. However, one thing jumped out from this figure (circled):

    The profound subsidy of marriage that is inherent in how Social Security determines benefits for spouses who do not pay Social Security taxes in earlier life. As Steurle notes:

    While a single woman who worked a full career at the average wage can expect to receive Social Security benefits roughly in line with her payroll contributions, a married woman who never worked but whose husband paid the same taxes as the single woman can expect to receive about $180,000 in spousal and survivor benefits. Unlike private pensions, these additional benefits are essentially free but only to those who are married, regardless of need, contributions or any child rearing.

    The subsidy would be the same if the gender roles were switched.

    update: I failed to give a nod to Brad Flansbaum for sending me this figure.

    • Note that Medicare was never designed for current, let alone prior, dedicated revenue to fully fund payouts. Payroll taxes are dedicated to Part A only.

    • Interestingly the higher the marginal tax rate the more like it is for a spouse to work provide in family consumption rather than work in the taxed sector of the economy.

    • These Medicare figures are more likely to mislead than illuminate. Roughly three-quarters of the cost of Parts B and D are paid by general revenues, but Gene and his co-author don’t include these general revenue conributions in their calculations. Thus, they understate what people have paid for Medicare. (I guess that’s implicit in Austin’s comment.) The main reason that Medicare beneficits exceed contributions, though, is the continued growth of health care costs in excess of income growth. And that’s a systemic problem–not one that’s unique to Medicare.