FEATURE
MEDICARE FOR ALL AND THE FORGOTTEN CONTRIBUTIONS By Arthur Young, Ph.D., CPA, and Dennis Jones, Ed.D.
As the country moves toward the 2020 presidential election, “Medicare for All” has become a hot political topic. If this becomes the law of the land, one group that may have a grievance is made up of the workers who contributed to Medicare for many years. Under Medicare for All, these workers will receive the same health care benefits as someone who has never paid into the system. The purpose of this article is to compute a dollar value for their “contributions” and subsequent investment returns (i.e., assuming they had been able to invest these “contributions” in the stock market). The Medicare tax was first collected in 1966. At that time, the tax rate was 0.35% of an employee’s earnings, for both the employee and the employer, for a combined amount of 0.70% (Social Security Administration, 2013). There was a ceiling on the amount of wages that were subject to the Medicare tax and this ceiling also applied to wages subject to the Social Security program. The Medicare tax rate gradually rose to 1.45% of the earnings of the employee, for a 2.90% combined amount by 1986. In 1994, the ceiling on wages that were subject to the Medicare tax was removed and at that time, all wages became subject to the Medicare tax. See Table 1 for a summary of the Medicare tax rates and tax base (1973-2017).
24 Texas Society of CPAs
The starting point for computing the terminal value of these Medicare contributions is to determine how much the employee had withheld from wages for Medicare and then add that to the employer’s matching contribution. This computation assumes the employer’s contribution would be instead given directly to the employee as a salary and, therefore, subject to the income tax. For purposes of this simulation, a 30% marginal tax rate is used. (See Footnote 1.) The employee contribution plus the “net of tax” employer contribution is added to the employee’s fictional “Medicare Investment Fund” (MIF) at the end of each year. As these re-characterized payments were originally intended to help workers with health care during
