The personal cost of Medicare – it ain’t cheap

“Medicare for all” has become a frequent refrain from health care advocates. This sound bite statement implies that the U.S. would be better off if all citizens were covered under the government-run Medicare program. Currently, eligibility for Medicare is limited to those age 65 and over; some age pre-65 with certain disabilities; and people with End-Stage Renal Disease. With this post I would like to explore the personal cost of Medicare to each citizen – as it currently exists – and the benefits of the system. Comparing the cost and benefits of Medicare to private health insurance is an eye opening experience: Medicare ain’t cheap and it doesn’t cover much unless you pay more.

The Cost of Medicare before eligibility at age 65
Currently, every worker in the United States must pay 1.45% of every dollar earned for Medicare. Additionally, every employer must pay 1.45% of every dollar paid to a worker for Medicare. Accordingly, every worker is paying 2.9% of his salary for Medicare. Assuming someone starts working at age 15 and begins receiving Medicare at age 65, he will have worked for 50 years. Paying roughly a 3% tax for 50 years means that a person will have paid 150 percent of the average annual wages earned for Medicare. Stated another way, all of the wages that a U.S. worker earns in one-and-a-half years goes to pay for Medicare.

The 2007 median family income in the USA was $50,070. Multiplying $50,070 by 1.45 (2.9% Medicare tax times 50 years of work) totals $72,600 that the average wage earner will pay for Medicare.

Medicare doesn’t cover much – unless you pay more
After working a year and a half to pay for Medicare, what do you get? You get hospitalization coverage with a $1,068 deductible. This is called Part A and if you stay in the hospital 60 days you’ve got good coverage. Of course very few people spent that long in a hospital. Medicine has changed since Medicare was invented in 1966. Back then hospitals were like hotels and people stayed there to get better. Now, people take lots of medicine and avoid the hospital. Medicare only covers prescription medicine if you pay more. You’ve got to purchase a Part D plan if you want prescription medicine paid. Similarly, you’ve got to pay more if you want to see a doctor outside of the hospital – which is the most common type of medical treatment. You’ll need to purchase a Part B plan plus a Medicare Supplement to plug the gaps in coverage. So, you’ve paid nearly a year and a half’s wages for something that won’t cover you out of the hospital or cover prescription medicine unless you pay more.

The Cost of Medicare once eligible to receive benefits at age 65
Assuming that one lives to age 65 and is able to receive benefits from Medicare, he/she must continue to pay. There is no additional fee for Medicare Part A (which covers hospital services). However, in order to receive Medicare Part B benefits (out of hospital doctor services) one must pay $96.40 per month in 2009. If someone continues to work and earns more than $85,000 per year he/she must continue to pay the 2.9% Medicare tax and may have to pay as much as $308.30 for Medicare Part B.

If someone wants prescription medicine costs covered under Medicare he/she will have to purchase Part D coverage. In 2009, the least expensive Part D Rx plan that include generic medication without a gap (payment through the donut hole) was $71.50

Also, there are HUGE gaps in coverage with Medicare Parts A and B (e.g., $1,068 Part A deductible, Unlimited 20% Part B liability) and one must purchase a supplemental policy to close these gaps. So, add the cost of a comprehensive Medi-gap policy. In California, Anthem Blue Cross’ Plan F provides would close the gaps in Medicare. This policy costs $155/month for someone between the ages 65-69 in Los Angeles County. It rises to $279/month for someone age 80.

So, adding up all of the direct premium costs of Medicare you get:
Part B Premium $96.40/month (person earning under $85,000/yr.)
Part D w/ Gen Rx in donut hole $71.50/month
Plan F Med. Supplement $155.00/month (Anth. Bl. Crs. LA County age 56-69)
Total $340.30/month

Total personal cost of MedicareThe life expectancy of someone age 65 is less than 20 years. Assume that these premiums rise 10% per year which is less than health insurance premiums have risen in the past decade. On average this would triple the above rate for Part B, Part D, and the Med Sup Plan F. We can then calculate the total premium cost for Medicare: 20 years x 12months/yr. x 3 x $340.30 = $245,000. Plus the $72,600 in wage taxes, totals $317,600. This works out to $1,323/month.

I think that if any of those advocating “Medicare for all” realized that it cost nearly $1,323/month for those lucky enough to live until age 65 and receive any benefit, that they would not be such strong advocates.