Social Security and Medicare Costs per Person

In my last post May 2nd, I took a look at the payroll tax rates and income cap effects on Medicare and Social Security.  Using much of this same data, I calculated a Social Security and Medicare Payout per Person, taking the "65 and over" population projections from the Census Bureau.  I had become curious when I read that over an average person's lifetime, they would pay into the Medicare System $150,000 but take from this same system over $450,000 for medical care.  This did not feel right to me, so I took out my Social Security Report to find that I and my employer had paid less than half of this amount, and I was in top 5% of wage earners!

Using the 2012 US Budget from the CBO, with history back to 1937, and the CBO budget projections from 2011 to 2016, I modeled the Trust Fund inflows, outflows, surplus/deficit and resulting Trust Fund Balance for the OASI (Social Security) and the HI and SMI Funds combined (Medicare).  I did not do any work with the Survivor Trust Fund as it is not paid out to exclusively to those over 65. I then analyzed all this data using best fit exponential growth lines to determine the Annual Compound Growth Rates, CAGR, for Inflow, Outflow and Per Person Outflow.

Social Security (OASI Trust Fund)

From 1990 to 2009, the OASI inflow grew at 5.3% CAGR.  Prior to this the compound growth was 13.1%.  This recent very low growth of inflow is consistent with the payroll tax rate being locked in 1992 which I discussed in my previous post.  The 2012 budget forecast for inflow is for a CAGR of 5.9%.

From 1990 to 2009, the OASI Outflow grew at only 4.4%.  Prior to this the growth rate was 18.8% and the forecast in the 2012 Budget is for CAGR of 5.8%.  However, I got curious about the growth of the outflow per person as this should be in line more with inflation rather than 4 and 5% numbers in the budget.

As you can see, the per person (over 65) outflow had a CAGR of 3.2% from 1990 to 2009.  Prior to this time, the per person outflow grew at 15.8% and the 2011 to 2016 forecast is for growth of 2.5%.  To note, the CBO Budget for 2011 and 2012 show only an increase of less than 1%  each year.  I bet you have not read this in the news!!

The total outflow can now be modeled past 2016 from the 2010 actual per person outflow inflated 2.5% per year then multiplied by the projected population from the Census Bureau for each year.  Using this modeled forecast, the OASI Trust Fund balance continues to grow past 2050, using an inflow growth of 5.9% which is the current CBO forecast.  Social Security does NOT run out.  The Trust Fund inlflow would have to shrink in growth to below 3.9% (outflow at 2.5%) for Trust Fund to run out in 2050.  In the previous 70+ years, the inlfow growth has never been this low!

Medicare (HI and SMI Trust Fund)

For Medicare, which began in 1966, the compounded growth rate of inflow to the Fund was 7.5% from 1990 to 2009.  Prior to this the CAGR was 16.4% and the CBO Forecast for 2011 to 2016 is 7.6%.  Again the effect of stable Payroll Tax Rates since 1992.

For Medicare outflow (spending), the 1990 to 2009 CAGR is 7.8% but does not fit so well as you can see.  The yellow marked year in the graph above is when outflow growth increase to 9.3%.  Prior to 1990, the CAGR was 16.4%.  The CBO Budget Forecast for 2011 to 2016 is for a compound growth of 6.6%.  Is this the effect of the Medicare Reform passed by Congress to slow the growth in Medicare spending?  But I was again curious about how this outflow spending growth looked when done on a per person over 65 basis.

For the 1990 to 2009 period, the per person CAGR is 6.5% compared to 7.8% when analyzed by total outflow.  Prior to 1990, the per person growth was 13.8% and the CBO 2012 Budget Forecast for 2011 to 2016 is 5.9%.  This is only a slight reduction in the forecast per person growth from the current growth due to the Medicare Reform Act.

Using the same modeling technique as was used for Social Security, taking the 2010 actual Medicare spending per person over 65, and then inflating it at the CBO Forecast rate, you can then calculate a new Total Medicare Spending using the Census Population Forecast.  However, under almost any possible growth rate scenarios, the Medicare Trust Funds run empty in 2017 or 2018.

Finally, I was able to take Mean Income Data per household and with the actual payroll taxes in effect in prior years, and calculate an "average person's" contribution to Social Security and Medicare from Payroll Tax and then from my modeling, how much the same "average person" recieves in benefits.  I made the assumption of a 45 year work life (1965 to 2010) and then a 20 year benefits span (2011 to 2030).  This average person:

Paid In to Social Security (includes employer portion):            $198,000

Takes Out of Social Security:                                               $400,000  (2 times what was paid in)

    

Paid In to Medicare (includes employer portion):                    $44,845

Takes Out of Medicare:                                                      $467,000   (10+ times what was paid in)

If Medicare did not exist, and current seniors had "invested" their paid in amount, they each would be rationing their privately acquired health care with lifetime caps.  Just because the Government was the "investor" or their insurance carrier, does not "free" seniors from the rationing of healthcare due to their limited financial resources.

Had Medicare been managed like Social Security, with a compound annual return 1.6%, seniors would be paid monthly for health care, for a total of about $88,000 over their lifetime and it could be spent however they please.  On the other hand, if Social Security had been managed like Medicare, whenever a senior wanted a new car (new knee) or an all inclusive vacataion (100 days of nursing care), they would get whatever they wanted, without a lifetime cap!