Generational Aspects of Medicare

Board of Governors of the Federal Reserve System Working Paper No. 2000-9

12 Pages Posted: 15 May 2000

See all articles by David M. Cutler

David M. Cutler

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Louise Sheiner

Federal Reserve Board - Division of Research and Statistics; National Bureau of Economic Research (NBER)

Abstract

This paper examines the generational aspect of the current Medicare system and some stylized reforms. We find that the rates of return on Medicare for today's workers are higher than those for Social Security and that the Medicare system is shifting a greater share of the burden on future workers than is Social Security. Nonetheless, the rates of return on Medicare, using the Medicare Trustees assumptions, are still not that high--roughly 2 percent for today's youngest workers. But forecasting future Medicare expenditures is quite difficult. Under an alternative higher-cost baseline, which we consider plausible, rates of return for today's youngest workers will exceed 3 percent. Putting Medicare on a sustainable basis by raising the payroll tax or reducing benefits would greatly reduce the rate of return for today's workers. Under the Trustees assumptions, for example, the payroll tax would have to be increased by 2.0 percent of payroll to put the Medicare system in balance in perpetuity. This policy would reduce the rate of return on today's youngest workers to about 1.3 percent.

Keywords: Medicare, Social Security

JEL Classification: I18

Suggested Citation

Cutler, David M. and Sheiner, Louise, Generational Aspects of Medicare. Board of Governors of the Federal Reserve System Working Paper No. 2000-9. Available at SSRN: https://ssrn.com/abstract=223716 or http://dx.doi.org/10.2139/ssrn.223716

David M. Cutler (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center, Room 315A
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National Bureau of Economic Research (NBER) ( email )

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617-868-3900 (Phone)
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Harvard University - Harvard Kennedy School (HKS) ( email )

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Louise Sheiner

Federal Reserve Board - Division of Research and Statistics ( email )

Washington, DC 20551
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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