Federal Medicare Transfers Across States: Winners and Losers

Medicare currently transfers roughly $200 billion annually to the elderly. The difference between medicare expenditures flowing into the state and annual Medicare taxes leaving the state--both on an annual and a lifetime basis--varies widely across states. Lifetime Medicare transfers, defined as the present value of benefits less accumulated (and predicted) Medicare taxes, are, on average, $17,386 per household. However, these benefits vary widely across states, so that residents of some states benefit by more than $40,000 per household, while residents of other states actually lose, in the sense of paying more in taxes than they will receive in benefits. Expected Medicare benefits per dollar of taxes paid varies from $.84 for residents of Oregon to $1.93 for residents of Louisiana. The differences are present even after controlling for a variety of factors such as the migration pattern of retirees, the price of health care, and the underlying health status of people in each state. These variations raise questions about the fairness and efficiency of the Medicare program.