Solving Medicare: Short and Long-term
Original post made by Tom Cushing on Jan 9, 2013
The Medicare Problem is that the combined symptoms of Boomer demographics and sky-rocketing health-care costs would make it The Program That Ate the Entire Federal Budget, if left untreated. Not tomorrow, or before 2024, but inevitably. Fortunately, there are short-and-long-term fixes available, if not easy to achieve.
The first thing to understand about Medicare is that it, like Social Security, is Trust Fund-based; money that comes in today as payroll taxes goes out tomorrow as benefits, with surpluses accumulating in the Fund (yes, Virginia, there has been surplusage!). It's not like a pension fund, where you have an account in your name that accumulates value over time. That's also why you can't tap into it for a dread disease you acquire in your 20s, and why it's never part of your estate. The Fund is like a reservoir that's in reasonable balance, but has been requiring a lot more upstream pumping-in to stay that way -- and downstream demand is still growing out-of-control.
The Boomer problem is that the payroll-tax-paying population base is smaller than it was when our parents were so prolific hence the tax rates have risen dramatically. The cost problem feeds into the fact the Americans pay 18% of GDP for health care (and rising!), and get No-Better-Results than Europeans paying-in 9% of theirs. You could look it up.
So what to do? Staying with the flow model, it's a "raise the upstream flow" and/or "lower the downstream demand" solution. The primary means by which to increase the upstream flow would be either or both of further payroll tax hikes or raising (removing, even) the income ceiling against which those rates are applied. That feeds more flow into the Fund. Regardless, it's clear from the numbers that this solution alone won't work.
So, one way to reduce downstream demand would be Mr. Ryan's famous vouchers, which were always, let's face it, a ploy to reduce benefits. Fewer dollars paid-out per Boomer = fewer total dollars required. Everybody but Mr. Ryan's mom seems to have figured-out that that would mean more out-of-pocket cost for seniors. Another way, probably more palatable politically, would be to raise the eligibility age for recipients, or to "means test" beneficiaries thereby directing more care to lower income seniors. The problem with simply raising the age is that apparently the government then would end-up spending even more money treating uninsured, uncovered seniors, making overall savings illusory.
For my money, as it were, once I reject vouchers as a cruel ruse (and I do), a combination of means testing applied to age eligibility seems to make most sense on the economics and the ethics. I'm willing to assume that lower-paid workers as a population are prone to more geriatric illness, sooner, than their higher-paid counterparts, such that bringing them under the Medicare umbrella sooner makes sense. Is it a transfer a subsidy -- from higher income seniors to lower? Yes and if you disagree with that policy, please put yourself in-charge of strapping Grandma to that ice floe.
Regardless of what near-term solutions are chosen, if we stop there we will have engaged in the time-honored kicking-of-the-can-down-the-road. The real solution lies in bringing the gargantuan, metastasizing, fire-breathing, many-headed, un-managed but hopefully not unmanageable monster of a US health care system to heel. I'm not referring to doctors' bills, or just convenient whipping-boys like tort lawyers (even the Wall Street Journal zealots couldn't ascribe more than a few % to them), or "defensive practice," but systemic incentives to treat, but not prevent, to own under-utilized and very expensive equipment, uncoordinated records kept archaically, multiply hide the ball on actual costs, foot-drag on legitimate claims, end-of-life care focused on prolonging the organism but not its essence, etc., etc., on-and-on, ad-nearly-infinitum. Therein lies the solution that relieves the burden on everyone, including the Medicare reservoir.
Say, perhaps we could put all the unemployed folks to work on that?
on Jan 9, 2013 at 4:21 pm
Once again, Tom's solution to our problems includes raising taxes, this time making all wages subject to Social Security and Medicare taxes. Once again, I'll make the argument that 50% of my wages is more than enough. Too much. That's what many of us are paying and it's not fair. Trying to keep half my wages doesn't make me a terrorist.
The problem, of course, is that Boomers paid too little taxes during their working years, such that today, the average retiree collects about $100,000 more in Social Security benefits than they paid into the system. Web Link
Boomers squanders the inheritance given them by the Greatest Generation. After Boomers got their excellent public school educations, nearly free college tuition, etc., they under-invested in schools, infrastructure, development, incurred massive debts, etc. (They also divorced in record numbers, putting the screw job on their kids, but I digress). They gave themselves massive tax cuts that conveniently were set to rise in 2010, i.e. only AFTER they were about to retire. And now that the system is going broke, they want the young people to toil endlessly for them to pay for their retirement, knowing full well that the Ponzi scheme will most likely collapse when it comes time for today's youth to retire.
It will be interesting to see who gets the last laugh.
BTW, the "hostage" rhetoric has got to go. The image is horrible, especially given recent violent events. It would be nice if Obama and others toned it down a bit.
It is also not a fair representation of what's going on. Democrats want to raise taxes and borrow endlessly, Tea Partiers don't. If they can't reach agreement, why is one party taking "hostages" and the other not? Seems both sides refuse to budge in order to get their way.
on Jan 9, 2013 at 11:19 pm
I can't wait to see what Cushing has to say about the new proposed gun laws once they come out. Should be juicy.
on Jan 10, 2013 at 7:38 am
So, S-P, glad you're back. I was afraid, after that ridiculous thing you wrote equating Social Security and Medicare to pension funding, that you'd gone completely off the the deep end.
First-off, I don't think I advocated raising taxes in this piece, only identifying it as an insufficient option by itself. That said, in my 46 years of paying-in, I've seen payroll taxes skyrocket as I helped pay for my grandparents, mom and dad, aunts and uncles, and now folks about my age, and it wouldn't surprise me if further increases are part of the 'fix.'
As to the Generation War you want to foment, your $100K number relates to the Social Security program and we're talking Medicare here, and your views on divorce are also irrelevant (and, I must say, weirdly skewed). I'm surprised you didn't also claim we Boomers selfishly failed to adequately "go forth an multiply." If you want to say the inter-generational Bush tax cuts were a mistake, as, remarkably for you, you seem to, then hallelujah -- we agree on something.
Now, I know you like to play this rate game with 50% (gasp) tax rates, but nobody pays a rate -- we pay dollars. And we who know you also know you've bragged about not paying anywhere near that rate applied to your actual income. So cry me a river, Taxguy.
Finally, sadly, the hostage metaphor works -- as the debt ceiling idiocy is not at all democracy-as-usual. EVery invoice that will be covered by that debt ceiling increase has been duly incurred in the past, by majority vote. To vote 'no' on its extension is to disavow paying debts -- is your back less stiff on the issue of paying one's proper obligations?
Nope, on the merits, this is an attempt by a minority to get a redo on spending they wish hadn't been incurred. As such, it's dirty pool. I'd have used the 14th Amendment gambit against it last time, and I'd certainly do it this time, lest our country's credit rating take another ridiculous hit, that costs us real dollars.