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Medicare and Social Security


People want to retire when they are older with enough money to live comfortably with the necessities and healthcare they need. Unfortunately, not everyone is fortunate enough to save up enough money to retire. That is why Medicare and Social Security are important because both provide people financial security and healthcare after retirement. They are both programs that people pay into through taxes while they are working so that every American can retire when they are older. These are two programs that should be protected so elderly people do not live in poverty or go into debt for healthcare when they do not want to or are unable to work anymore.

What is Medicare and Social Security?

Medicare and Social Security are important programs for older Americans. Medicare is for “people age 65 or older, people under age 65 with certain disabilities, and people of all ages with End-Stage Renal Disease” according to Centers for Medicare and Medicaid Services. Medicare has hospital insurance covering inpatient care in hospitals, hospice care, and some home health care (cms.gov). Medicare has medical insurance that requires a monthly premium for most people, which is for medically necessary doctor services and outpatient care (cms.gov). There is prescription coverage as well that requires most people to pay a monthly premium, which lowers drug cost and protects against future costs (cms.gov). These are all important healthcare related expenditures that elderly and some disabled people rely on to get the care they need. Elderly and disabled people are at a higher risk for illnesses that may require hospital stays, services from doctors, and prescription drugs. Many of the people on Medicare would not survive or be in massive debt because they would be unable to afford healthcare they need.

Social Security is another important government program for elderly Americans because it allows people to retire with a living income. The Social Security Administration says Social Security is a program for people who are retired, disabled, survivors of deceased workers, and dependents of beneficiaries. It helps elderly or disabled Americans who are unable to work. Spouses or children of workers who died receive the money their loved ones paid into the program. There are currently 167 million working people paying into the program and 59 million people receiving Social Security benefits (ssa.gov). Everyone who works pays into the program so that eventually they can receive the benefits once they retire. According to the SSA, “Social Security replaces about 40 percent of an average wage earner’s income after retiring, and… retirees will need 70 percent or more of pre-retirement earnings to live comfortably” with “private pensions, savings, and investments”. Social Security should not be the only source of income but it does help cover a good percentage of people’s pre-retirement income. People still need other sources of income to have enough money to cover what Social Security falls short of providing.

How Much Both Programs Cost and How are They Paid For?

Social Security and Medicare are important programs that are expensive, which requires taxes. The Congressional Budget Office says in 2016 Social Security cost $910 billion and Medicare cost $588 billion. Social Security and Medicare cost $1.498 trillion combined but they are necessary programs for millions of people. According to the Social Security Administration people who are working pay 6.2% of their income towards Social Security, the employer pays 6.2%, and self-employed people pay 12.4%. People pay 1.45% of their income towards Medicare, employers pay 1.45%, and self-employed people pay 2.9% (ssa.gov). These are low percentage to pay for current benefits and to ensure those paying will have healthcare and income when they retire.

A person’s entire income is not taxed at that percentage because there is a limit. The income limit in 2017 for an individual is $127,200, $250,000 for married filing jointly, $125,000 for married filing separately, $200,000 for single parents, $200,000 for head of household, and $200,000 for qualifying widow(er) with dependent child (ssa.gov). This limit is how much of a person's income that can be taxed. This means it is the first $127,200 for an individual, the first $250,00 for jointly filed married couples, etc. The Social Security Administration says “85 cents of every Social Security tax dollar you pay goes to… monthly benefits to current retirees and their families” and “15 cents goes to… benefits to people with disabilities and their families”. These are very specific numbers to guarantee that benefits do not create a deficit and all people currently enrolled receive their benefits.

Potential Problems with These Programs and Possible Solutions

There have been concerns about funds for both programs, which are legitimate concerns that can be fixed. According to the Social Security Administration, the Old-Age and Survivors Insurance (OASI) Trust Fund reserves are estimated to be depleted in 2034 and a third of the current level of benefits will be paid out through 2091. This means the percentage of benefits that can be paid out will decrease gradually until it reaches 33 percent in 2091. This is a concern that should be addressed, but total depletion is a few decades away. The bigger issue is with the Disability Insurance (DI) Trust Fund because it will be depleted in 2028 (ssa.gov). This is concerning because it is about ten years away. It does not say whether the percentage of benefits being paid will decline or if it will be completely depleted.

Medicare is less concerning because the Hospital Insurance (HI) Trust Fund will be depleted by 2029 where the amount of benefits being paid out will decrease to 88 percent, 81 percent in 2041, and up to 88 percent in 2091 (ssa.gov). Medicare will have a significantly lower decline than Social Security, but a solution must be found so it does not decrease. One possible solution would be to lift the cap on the amount of taxable income for Social Security and Medicare. An example would be to increase taxable income to $1.2 million for individuals, $2 million for married filing jointly, $1 million for married filing separately, etc. This would increase funding for both programs significantly so that benefits do not decrease.

Conclusion

Medicare and Social Security are vital programs that assist millions of Americans including elderly, disabled, and families of beneficiaries. There are concerns with the funds decreasing for both programs, which requires a solution. Unfortunately, there are many politicians that feel the solution to this is to make cuts to either program. This would not be a good solution because it would take benefits away from millions of Americans who need the financial assistance. One good solution mentioned earlier would be to lift the income cap that limits the amount of taxable income going to Social Security and Medicare. The result would be wealthier Americans paying a little more so that both programs can remain 100 percent solvent.

References

https://www.cbo.gov/sites/default/files/115th-congress-2017-2018/graphic/52408-budgetoverall.pdf

https://www.cms.gov/Medicare/Medicare-General-Information/MedicareGenInfo/index.html

https://www.ssa.gov/oact/trsum/

https://www.ssa.gov/pubs/EN-05-10024.pdf

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