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A Tax on Work for the Elderly: Medicare as a Secondary Payer

  • Gopi Shah Goda
  • John B. Shoven
  • Sita Nataraj Slavov

Medicare as a Secondary Payer (MSP) legislation requires employer-sponsored health insurance to be a primary payer for Medicare-eligible workers at firms with 20 or more employees. While the legislation was developed to better target Medicare services to individuals without access to employer-sponsored insurance, MSP creates a significant implicit tax on working beyond age 65. This implicit tax is approximately 15-20 percent at age 65 and increases to 45-70 percent by age 80. Eliminating this implicit tax by making Medicare a primary payer for all Medicare-eligible individuals could significantly increase lifetime labor supply due to the high labor supply elasticities of older workers. The extra income tax receipts from such a policy would likely offset a large percentage of the estimated costs of making Medicare a primary payer.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13383.

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Date of creation: Sep 2007
Date of revision:
Handle: RePEc:nbr:nberwo:13383
Note: AG
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  1. Gary Burtless & Joseph F. Quinn, 2002. "Is Working Longer the Answer for an Aging Workforce?," Issues in Brief ib2002-11, Center for Retirement Research, revised Dec 2002.
  2. Glied, Sherry & Stabile, Mark, 2001. "Avoiding health insurance crowd-out: evidence from the medicare as secondary payer legislation," Journal of Health Economics, Elsevier, vol. 20(2), pages 239-260, March.
  3. Gopi Shah Goda & John B. Shoven & Sita Nataraj Slavov, 2007. "Removing the Disincentives in Social Security for Long Careers," NBER Working Papers 13110, National Bureau of Economic Research, Inc.
  4. Eric French, 2005. "The Effects of Health, Wealth, and Wages on Labour Supply and Retirement Behaviour," Review of Economic Studies, Oxford University Press, vol. 72(2), pages 395-427.
  5. repec:crr:crrwps:2004-30 is not listed on IDEAS
  6. David M. Cutler & Jonathan Gruber, 1995. "Does Public Insurance Crowd Out Private Insurance?," NBER Working Papers 5082, National Bureau of Economic Research, Inc.
  7. Barbara A. Butrica & Richard W. Johnson & Karen Elizabeth Smith & C. Eugene Steuerle, 2004. "Does Work Pay at Older Ages?," Working Papers, Center for Retirement Research at Boston College wp2004-30, Center for Retirement Research, revised Nov 2004.
  8. Jonathan Gruber & Kosali Simon, 2007. "Crowd-Out Ten Years Later: Have Recent Public Insurance Expansions Crowded Out Private Health Insurance?," NBER Working Papers 12858, National Bureau of Economic Research, Inc.
  9. Jonathan Gruber & Peter Orszag, 2000. "Does the Social Security Earnings Test Affect Labor Supply and Benefits Receipt?," NBER Working Papers 7923, National Bureau of Economic Research, Inc.
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