Distribution of Lifetime Medicare Taxes and Spending by Sex and by Lifetime Household Earnings: Working Paper 2017-05

By Xiaotong Niu (CBO)

For any socioeconomic group, the consequences of changing Medicare depend on the distribution of taxes paid to and benefits received from the system in place. However, the few studies that have estimated that distribution offer conflicting views. To estimate the distribution of Medicare taxes and spending, I use a rich data set with information on beneficiaries’ lifetime earnings and annual Medicare spending. In contrast with earlier studies, my data set includes more recent cohorts of beneficiaries. Here I project the distribution of Medicare taxes and spending on the basis of administrative earnings data as well as demographic and economic projections from CBO’s long-term microsimulation model.

This study’s main analysis focuses on men born in the 1950s. For beneficiaries with higher lifetime household earnings, both lifetime Medicare taxes and lifetime spending (always understood herein to be net of premiums unless stated otherwise) are greater. Lifetime spending net of taxes, however, is about the same across quintiles except for being much lower for people in the highest quintile of lifetime household earnings. Those estimates and information on earnings suggest that lifetime Medicare spending net of taxes makes up a smaller share of lifetime individual earnings for beneficiaries with higher lifetime household earnings. That pattern also holds for women of the 1950s cohort. For younger cohorts, between the lowest and highest quintiles of lifetime household earnings, I expect the difference in net lifetime spending as a share of lifetime earnings to be larger.