General Revenue Financing of Medicare: Who Will Bear the Burden?

Two recent national advisory committees on Social Security recommended major shifts in Medicare financing to preserve the financial viability of the Social Security trust funds. This paper estimates the income redistribution consequences of the two proposals, in contrast to current law, using a micro-simulation model of taxes and premiums. These estimates show that while the current Medicare financing package is mildly progressive, the new proposals would substantially increase income redistribution under the program. Two insights provided by separate estimates, for families headed by the elderly (persons age 65 or over) versus those headed by the non-elderly, are: 1) the surprisingly large Medicare tax burdens on families headed by the elderly under the current financing package of payroll taxes, general revenues, and enrollee premiums; and 2) the substantial increases in these burdens under proposed shifts toward increased general revenue financing.