How Redistributive are Public Health Care Schemes? Evidence from Medicare and Medicaid in Old Age

Most health care for the US population aged 65 and older is publicly funded through Medicare and Medicaid. Despite the massive expenditures of these systems, little is known about how redistributive they are. Using data from the Health and Retirement Study, matched to administrative Medicare, Medicaid, and Social Security earnings records, we estimate the distribution of lifetime Medicare and Medicaid benefits received and the distribution of lifetime taxes paid to finance these benefits. We find that benefits are greatest among the high income, largely because higher-income households live longer. Nonetheless, high income people pay more in the way of taxes. In present discounted values at age 65, households at the bottom of the income distribution gain the most from these programs, driven by high Medicaid benefits and low tax burdens. All income groups gain from these programs for the cohort we study: the lifetime tax contributions did not cover the medical benefits they received. This deficit must be paid by younger cohorts.