Study: Immigration Reform Would Boost Medicare Trust Fund

The biggest reward for fixing our immigration system is also the most obvious: finally getting a modern immigration infrastructure, one that reflects the myriad ways the world has changed since the last major overhaul. That’s a reward unto itself, but as economists and policy experts have been demonstrating for years, many additional benefits would flow from immigration reform: it would expand the economy, spur additional demand in the housing market, significantly reduce the federal budget deficit, and restore demographic balance to an aging society. [See Bipartisan Policy Center: Immigration Reform Would Grow Economy, MurthyBlog, 30.Dec.2013.]

This last benefit – restoring demographic balance – is the subject of a recent report from the Center for American Progress (CAP), which examined the effects of immigration reform on the Medicare trust fund. [See How Will Immigration Reform Impact the Medicare Trust Fund?, by Patrick Oakford and Robert Lynch, Center for American Progress, 27.Fed.2014.] The verdict? The Center for American Progress examined two legislative scenarios: the path to citizenship in the Senate CIR bill that passed last June, and a hypothetical measure that provides only permanent legal status. In both cases, the CAP study found that immigration reform would help stabilize the Medicare Hospital Insurance (HI) Trust Fund, which currently “finances health care for more than 50 million Americans enrolled in Medicare Part A, which covers inpatient hospital services, skilled nursing facility services, and home health care.”

This matters because enrollment in Medicare Part A is expected to skyrocket in the coming decades as more and more aging Baby Boomers enter the system; 88 million people are expected to be enrolled by 2040, according to the CAP study, although current estimates predict that the HI Trust Fund will be depleted well before then – by 2026, without some combination of payroll tax hikes and program cuts.

The CAP analysis shows that immigration reform would help restore solvency to the HI Trust Fund by tapping a vast new stream of payroll tax revenue. Although many undocumented immigrants work “off-the-books,” about 37 percent of them actually contribute payroll taxes – to the tune of $13 billion in 2010, of which $3 billion or so was paid into Medicare, according to Social Security Administration (SSA) statistics cited in the study. The study concludes that the net contribution will rise significantly if these workers are provided with a path to citizenship, because it will dramatically increase their participation in the tax system. Interestingly: the CAP study finds that “net contributions to the Medicare Part A Trust Fund would be $25 billion less if immigrants are denied citizenship,” because it would stifle their economic mobility.

The Center for American Progress has made another valuable contribution to the immigration debate, and it’s not just a topic for policy wonks: it should be of interest to any American who plans to retire in the next 30 years.

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