May Day for Medicare?

May Day for Medicare?

Tomorrow, May 1 may be a big day in the US. First, immigrants intend to “shut down” major cities by not showing up for work. It’s being called “The Great American Boycott” and “A day without an immigrant.” It may be an empowering event for participants and a minor wakeup call for some of the native-born, but I’m guessing it won’t have a major, lasting impact on most people.

Meanwhile, the Medicare Trustees release their annual report of the health of Medicare tomorrow. (That’s the one that generates the annual headlines –usually greeted with a yawn– of when the trust funds are likely to go bust.) But with the Medicare Modernization Act of 2003 came a new requirement –that the trustees make an estimate of the year when general revenues (as opposed to the Medicare portion of FICA) will pay 45 of the cost of Medicare. If the threshold is forecast to be crossed within six years, and if the trustees make this finding two years in a row, the President must make a proposal in his budget so that the 45 percent threshold won’t be reached. There are some technical and philosophical arguments against the 45 percent rule (see this paper, for example) but I think it’s generally a good idea. Medicare is overfunded relative to other Federal programs as it is, and it doesn’t hurt to highlight the fact that it’s largely paid for out of general funds.

It’s quite possible that in tomorrow’s report the Medicare trustees will forecast that the 45 percent threshold is coming within six years. In the near term, that will probably send a bit of a chill through the stocks of companies whose fortunes are tied to Medicare. In the longer term it may dampen the growth rate of Medicare spending.

So how is this tied to the May Day immigrant protests? Well, the easiest way to deal with the 45 percent problem is to encourage younger people to come to the US, work, and pay taxes. That broadens the base on which the Medicare tax is collected, but has virtually no impact on the over-65 population and the disabled –the ones who receive Medicare benefits.

So this is one more argument in favor of immigrants: they are responsible for extending the viability of the Medicare program. And that’s not to minimize the other benefits of a liberal immigration policy, which are many.

April 30, 2006

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