Panel Paper: Income Growth and Its Distribution from Eisenhower to Obama: The Growing Importance of Medicaid and Medicare in Fuller Measures of after-Tax Income (1959-2013)

Saturday, November 5, 2016 : 3:50 PM
Northwest (Washington Hilton)

*Names in bold indicate Presenter

James Elwell and Richard Burkhauser, Cornell University

President Eisenhower held the first White House Conference on Aging in January 1961, in which a program of health care for social security beneficiaries was proposed. Five years later, a central feature of President Johnson’s Great Society legislation, the Social Security Act of 1965, launched Medicare and Medicaid. Expenditures on these two programs grew from $5.9 billion in 1966 to $728.5 billion in 2012 (in 2012 dollars)—exceeding combined 2012 expenditures on Old-Age, Survivors, and Disability Insurance (OASDI) and Supplemental Security Income (SSI).  Yet traditional measures of the importance of government taxes and transfers on the after-tax income of Americans do not include a value for in-kind transfers like Medicare and Medicaid.  The U.S. Congressional Budget Office was the first government agency to include the market value of both government- and employer-provided health insurance in their 2012 measure of income.  Larrimore, Burkhauser, and Armour (2015) used this same fuller measure of income for the period 1979-2012. Here we use it to measure after-tax income (including the market value of Medicare and Medicaid) and its distribution across American households back to 1959, just before the major expansions of government tax and transfers programs associated with the New Frontier and Great Society programs of the 1960s.  While the U.S. Census Bureau has estimated the market value of Medicare and Medicaid and linked these values to Current Population Survey (CPS) data since 1979, no existing yearly series of unit record survey data extends back to the beginning of the Great Society, much less before it. Furthermore, the CPS which does provide continuous yearly data back to 1962 contains little information on government in-kind transfers before 1979, well after the start of the Great Society programs of the mid-1960s.  To overcome these data limitations, we use CPS data (income years 1967-2013) together with decennial Census data (income years 1959-1989) to create common yearly source of income categories including estimates of the market value of in-kind transfers, back to decennial census income year 1959.  Reassuringly, we find that our CPS and decennial Census year income levels and distributions are similar for common years.  Substantively, we find Medicare and Medicaid are important components of a government tax and transfers system that has grown substantially since the 1960s and has effectively offset the substantial decline in market (wages, interest, dividends, rents, etc.) income in the income portfolios of those in the bottom half of the income distribution—with Medicaid the single most important income component in the bottom quintile.  Conventional measures of income that exclude the market value of Medicare and Medicaid will substantially understate the success of government policies in offsetting the decline in market income in these lower income populations.