Shaky financing: The relationship between payments, benefits

The refrain is a familiar one: "Medicare and Social Security are not welfare programs. I paid my premiums for years. Now I'm just being paid back out of the funds that have been set aside for me."

Yes, the programs are designed to look like insurance plans. But is this true -- have "premiums" been set so that current retirees are merely "drawing down" funds set aside in their names, drawing interest all these years?

A little thought will reveal this can't be the case. People who retired in the 1930s, after paying a pittance into Social Security for only a few years -- or those who retired and started benefiting from Medicare in the 1960s, shortly after that program was launched -- enjoyed benefits till they died. How did the math work for them?

In a recent poll, nearly three in five people told The Associated Press they paid into the system so they deserve their full benefits.

But a newly updated analysis shows that -- for Medicare, at least -- what people paid in doesn't come close to covering the medical care they can expect to receive as retirees.

Upon retiring in 2011, an average-wage, two-earner couple earning a combined $89,000 a year will have paid $114,000 in Medicare payroll taxes during their careers. But they can expect to receive medical services -- from prescriptions to hospital care -- worth $355,000.

"The estimates by economists Eugene Steuerle and Stephanie Rennane of the Urban Institute ... illustrate the huge disconnect between widely held perceptions and the numbers behind Medicare's shaky financing," reports The AP.

Many workers believe their Medicare payroll taxes are going for their own insurance after they retire, but the money is actually used to pay the bills of seniors currently on the program. "That mistaken impression," The AP notes, "complicates the job for policymakers trying to build political support in coming months for dealing with deficits that could drag the economy back down."

Well, yes. When a program is funded through mandatory extractions -- and then beneficiaries are told, "Oh, you didn't realize we could change the rules after all these years?" -- some quantity of unhappiness is likely to ensue.