John Goodman’s health policy blog this morning summarizes the results of a study done for the National Center for Policy Analysis by economists Courtney Collins and Andrew J. Rettenmaier. Goodman’s table summarizes the most important points in the longer Collins/Rettenmaier study.

The gist of their study, which will surprise no one who thinks about it, is that the Medicare system gives a much better deal to people the older they are. Medicare, in short, is a Ponzi scheme.

But there’s a big problem with their study. Correcting this problem makes the results even worse than Collins and Rettenmaier state. Throughout their study, the authors treat a dollar of Medicare spending on someone as if it’s worth a dollar. But a dollar of Medicare spending will typically be worth less than one dollar.

To see why, ask yourself this: If the government were to offer to give you $100,000 in cash or to spend $100,000 on your medical care, which would you take? Most of us would take the former because we can always spend the $100K on medical care but we also have the option of spending it on other things. With the latter choice, we don’t.

Yet the authors write like non-economists when they refer to, for example, “a dollar’s worth of future spending.” A dollar of spending is not typically worth a dollar unless you get to choose whether to spend it on health care or on other things.

Correcting their error–scaling down the spending by, say, 30% (I think the scaling down discount is even higher)–to reflect the value of the expenditure for each age cohort would then change the break-even age. Even people who are currently 65 would likely be net losers from Medicare. And maybe even people who are 75.

One final criticism: language matters. We should not adopt the government’s euphemism for Medicare payroll taxes. The authors correctly call them taxes. John Goodman, in his post, calls them “contributions.”