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The New Independent Party Blog

This Blog is maintained by Mike Barron, Executive Director and Founder of the New Independent Party. The views expressed here are not necessarily those of the Party, its Board of Governors or its Members.

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Means Testing of Medicare

I see it suggested sometimes that Medicare should be "means tested." 

When one keeps in mind that the Medicare tax is not capped and that higher income people pay higher premiums for Medicare coverage, it becomes quite obvious that the system is already quite heavily redistributionist (what some would call "progressive").

For example, someone earning $500,000 a year contributes 2.9% of that amount for Medicare (including the employer contribution), plus an additional .9% on income over $250,000. That amounts to $16,750 a year. Over a 40 year career that amounts to $670,000. Keep in mind that in retirement these people will have to pay more for the same coverage than everyone else. Let's say that generously the net subsidy for these people in retirement is $10,000 a year or over a 20 year retirement $200,000. Net they are overpaying by about $470,000.

Take someone earning $30,000 a year. Under the same assumptions, they will contribute $34,800 over the course of their career. Because they pay less than our wealthier person in premiums for their coverage during retirement, their implicit subsidy might be $15,000 a year or $300,000 over a 20 year life expectancy. The net subsidy for them is over $265,000.

My example is highly oversimplified, but, from a big picture point of view, I think it accurately portrays the character of the existing system.

If we priced cars in the same fashion, wealthy people would pay $100,000 for a $30,000 car and lower income people would get the same car for $3,500.

I think the system is "means tested" enough.

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