Cato Policy Analysis No. 115 January 25, 1989

Policy Analysis

Abolish Medicare Taxes on the Elderly

by Peter J. Ferrara

Peter J. Ferrara is a senior fellow at the Cato Institute and an associate professor of law at the George Mason University School of Law.


Executive Summary

Medicare was adopted almost 25 years ago to carry much of the financial burden of medical care for the elderly. But today the Medicare program itself is increasingly becoming a financial burden on the elderly. The program imposes a monthly "premium" on each elderly beneficiary, which has been soaring in recent years. In addition, starting this year elderly taxpayers will begin paying a stiff income tax surcharge for Medicare. Both the surcharge and the monthly premiums are projected to soar to new heights in future years. In part because of this rapidly rising Medicare tax burden, the elderly today pay at least as much of their income for medical care and coverage as they did before Medicare was adopted. Moreover, increasingly burdensome and complex Medicare regulations threaten the quality of medical care the elderly receive under the program.

The Medicare taxes on the elderly can and should be abolished, with Medicare benefits redesigned to offset the revenue loss. Such changes can be structured to allow the elderly greater choice and control over their own funds, and ultimately substantial savings overall. These changes would also be good health policy, providing major new market incentives to counter rapidly rising health costs. Over the long run, more fundamental reforms should be adopted to allow the elderly even greater choice and control and to introduce greater competition and incentives into medical care for the elderly.

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