The Implications of Paying for Current Medicare

Medicare is America’s second largest entitlement program and this year will account for 14 percent of the Federal budget, 3.2 percent of the nation’s Gross Domestic Product (GDP) and is growing rapidly so that by the end of the Medicare Trustees 75-year projection period, 2080, the Medicare alone will account for 11.0 percent of GDP and all health care will consume 42 percent of GDP. This paper estimates the effect of covering the projected Medicare deficits with either additional taxes on the working generation or additional Medicare premiums imposed on the elderly. The additional taxation would require an increase in the current 2.9 percent payroll tax to almost 20 percent by the close of the Trustees 75-year projection period. If premiums are used to cover the deficits, by the close of the Trustees 75-year projection period the elderly would be faced with Medicare premiums that would more than exhaust the total projected Social Security check for a medium earner and use up more than three-fourths of a high earner’s Social Security check.