Residents of Puerto Rico are not required to pay federal income tax on most wages earned in Puerto Rico. This fact is often used an excuse for the lower federal benefits the residents of Puerto Rico receive. Looking at Medicare shows that this is just an excuse.

Payroll taxes

Payroll taxes are the taxes workers and employers pay for Social Security. They’re officially called FICA Social Security taxes, and they show up as a deduction from all Americans’ paychecks. Employers and workers share the cost of these taxes, with each paying about 6% of the payroll. Payroll taxes, along with premiums paid by recipients, cover the cost of Medicaid and Medicare, the government-sponsored health coverage available to many Americans.

Workers in Puerto Rico pay payroll taxes at the same rate as people living in the states. However, they do not receive the same benefits. Residents of Puerto Rico are not eligible for Supplemental Security Income, a program intended to help needy elderly and disabled individuals. Medicaid provides fewer services in Puerto Rico than in the states. Residents of Puerto Rico do not receive the Part D (prescription coverage) subsidy for low income individuals.

In fact, annual per person health care expenditures in Puerto Rico were $3,065  compared with $9,515 in the states in the same year. Put simply, Puerto Rico receives much less health care funding than the states.

Medicare Advantage

Medicare Advantage plans are health insurance plans offered by private companies under the guidelines of the Medicare system. 70% of Puerto Rican Medicare recipients use Medicare Advantage plans.

The Journal of the American Medical Association published an examination of Medicaid Advantage which found that Puerto Rico received lower payments than any of the 50 states and Washington, D.C. The difference in payments was in some cases as high as 46%.

72 of the 78 municipalities in Puerto Rico are medically underserved, according to the US Department of Health and Human Services. This problem has been increasing as medical professionals leave the Island. Being paid significantly less than health care professionals in the states naturally increases this problem.

Medicare cap

Since physicians and health care facilities are paid less in Puerto Rico, you might think that health care is a bargain on the Island and Puerto Ricans have plenty of access  to health care. That’s not how it works.

In the 50 states, states provide Medicare and Medicaid coverage and are reimbursed by the federal government. The percentage of reimbursement is based on how well-off a state is. States with plenty of funds get a smaller percentage of reimbursement than states with a lower level of funding. If Puerto Rico were a state, she would receive 83% reimbursement. Instead, Puerto Rico temporarily receives 75% reimbursement, with 55% being the normal level of reimbursement.

In fact, the level of reimbursement is lower than that. This is because Medicare and Medicaid in Puerto Rico are funded by a block grant with a cap. Once the full amount of the grant is spent, Puerto Rico receives no more federal health care funding — unless Congress authorizes emergency payments.

So for every $100 Puerto Rico spends on health care up to the limit of the cap, the Island receives 55 cents from the federal government. For every $100 over the cap, Puerto Rice receives nothing.

Costs of health care in Puerto Rico increased strikingly in recent years because of the hurricanes, the earthquakes, and the pandemic. In the states, federal healthcare funding is elastic. In Puerto Rico, these problems required desperate calls to Congress for help.

Taxation and representation

This obvious unfairness cannot be explained away by the lack of federal income tax in Puerto Rico. Medicaid recipients generally don’t pay income tax in the states — they don’t earn enough. But beyond that, Medicaid and Medicare are paid for by payroll taxes and Puerto Ricans pay these at the same rate as workers in the states.

Income tax is irrelevant.

The reason Puerto Rico receives much less health care funding than a state is the Territory Clause. As a territory, Puerto Rico does not get equal protection under the constitution. Congress is allowed to save money by giving territories less than states. As a state, Puerto Rico would be equal to all the other states: the U.S. Constitution guarantees that.

Statehood is the only way Puerto Rico will have equality.



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