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Making the Transition to Prepaid Medicare


  • Thomas R. Saving


The Medicare system is facing a financial crisis brought on by the combination of rapidly rising consumption of health care services by beneficiaries and financing based on generation transfers. This paper simulates a transition to prepaid Medicare where each generation puts aside funds for the health care it will demand later in life. By prepaying Medicare we increase the nation's capital stock which in the long run will allow the nation to enjoy greater consumption for both working and retired generations and we achieve immunity from generation size shocks. By transferring the baby boomers and younger generations into a prepaid system we can complete the transition in less than fifty years and achieve an ultimate contribution rate of 1.26% of taxable payroll instead of the more than 12% of taxable payroll that will be required if we remain in the status quo.

Suggested Citation

  • Thomas R. Saving, 2000. "Making the Transition to Prepaid Medicare," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 85-98, Spring.
  • Handle: RePEc:aea:jecper:v:14:y:2000:i:2:p:85-98 Note: DOI: 10.1257/jep.14.2.85

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    References listed on IDEAS

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    Cited by:

    1. Khwaja, Ahmed, 2010. "Estimating willingness to pay for medicare using a dynamic life-cycle model of demand for health insurance," Journal of Econometrics, Elsevier, vol. 156(1), pages 130-147, May.

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    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health


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