American politics
Democracy in America
Medicare reform
Welcome to the gerontocracy
May 26th 2011, 13:33 by W.W. | IOWA CITY
KEVIN DRUM treats us to some stimulating inside-the-pine-box thinking about Medicare reform:
So Medicare stays roughly the same, but every time you receive medical care you also get a bill. You don't have to pay it, though. It's just there for accounting purposes. When you die, the bill gets paid out of your estate. If your estate is small or nonexistent, you've gotten lots of free medical care. If it's large, you'll pay for it all. If you're somewhere in between, you'll end up paying for part of the care you've received.
Obviously this gives people incentives to spend all their money before they die. That's fine. I suspect they wouldn't end up spending as much as you'd think. What it does mean, though, is that Medicare has first claim on their estate, not their kids. But that seems fair, doesn't it?
That does seem fair, at first blush. Mr Drum says, "Conservatives should love this idea". And why shouldn't they? Making ex-people posthumously pay whatever their estates can bear, while reducing the riches that flow to their heirs, strikes a double blow for individual responsibility. Mr Drum does recognise that his plan for beyond-the-grave financing faces serious practical obstacles, but I fear he has not fully grasped the game of regulatory whack-a-mole such a plan would set in motion.
I've got a better idea. Don't give the elderly rich any government money for health care. Let them pay for it, because they're rich! And give other seniors just the assistance they need—no more, no less—to buy a health plan of a certain minimum level of coverage. Now, I know this is a fantastical idea for crazed, science-hating, Rand-thumping Jacobins, amounts to destroying Medicare as we know it, and is good for nothing but losing elections. But for all that it seems at least as practical as picking over dead peoples' estates.
Anyway, none of this really matters. America is not actually in the market for creative proposals to put Medicare on a sound footing. Slate's David Weigel explains how New York Democrat Kathy Hochul took a page out of the 2010 GOP playbook and scared old people about Medicare all the way to a seat in the House of Representatives:
Hochul started with, and stuck to, one simple message: Vote for me, and I'll protect Medicare. After Ryan introduced his budget, she honed in on the part of it that turned Medicare from a guarantee into a "premium support" plan for people who are currently 55 or younger.
A split conservative ticket didn't hurt, either, but Mr Ryan's voucher plan surely helped a lot. (Mr Ryan's plan, part of his larger budget bill, went down to defeat in the senate yesterday, along with three other proposed budgets, which all fared even worse.) Pledging to do nothing about Medicare but to "protect" it from the depredations of would-be reformers promises to remain an excellent electoral strategy. Meanwhile, something needs to be done about Medicare. I think my colleague at Free Exchange has nailed the political dynamic:
Both parties have, somewhere inside them, a serious proposal to reform Medicare. If they thought they could be elected by offering such a plan, they would do so. But any serious attempt to reform Medicare is going to be unpopular because it will cost the elderly something, and the elderly are on the way to becoming 30% of the voting population. Thus, the opposing party is inevitably going to use such a proposal to kill the other at the next election without advancing an alternative. And since both parties know this, the only Medicare plans they offer voters will be lemons.
I would add: that nearly a third of the voting public is 65 or older does not quite capture the overwhelming electoral heft of seniors. Retirees are disproportionately likely to actually show up at the polls. Moreover, the interests of seniors are more unified than those of younger voters whose electoral might is divided between often competing and offsetting interest groups. The votes of small business owners and school teachers tend to cancel each other out, but America's silver foxes constitute a more or less consolidated force fighting for the protection of old-age entitlements. Even reform proposals that would preserve the status quo system for those at or near retirement are out of the question. Once it is conceded that Medicare is touchable, what's to keep the selfish young punks who don't want their country to collapse under the burden of entitlement spending from touching what is owed to the Greatest Generation and their supremely entitled Boomer offspring, who have already sacrficed so much?
(Photo credit: AFP)
About Democracy in America
In this blog, our correspondents share their thoughts and opinions on America's kinetic brand of politics and the policy it produces.
Advertisement
Economist blogs
Most commented
- Charlemagne: Decoding DSK
- China and Tibet: Go back to law school
- India and Pakistan: The world's most dangerous border
- Greece and the euro: Bailing out the bail-out
- Israel and America: Chasing the rabbit
- Israel and Palestine: Those indefensible 1967 borders
- Barack Obama's speech on the Middle East: 1967 and all that
- Well-being and wealth: The pursuit of happiness
- America and China: No go
- Israel and America: Bibi goes to Washington
Over the past five days
Most recommended
- Charlemagne: Decoding DSK
- India and Pakistan: The world's most dangerous border
- Barack Obama's speech on the Middle East: 1967 and all that
- Schumpeter: The Catalan kings
- Israel and Palestine: Here comes your non-violent resistance
- Israel and Palestine: Those indefensible 1967 borders
- Well-being and wealth: The pursuit of happiness
- America and China: No go
- Obama on Israel and Palestine: Much ado, but what's new?
- China and Tibet: Go back to law school
Over the past seven days
Advertisement
Subscribe to The Economist's free e-mail newsletters and alerts.
Subscribe to The Economist's latest article postings on Twitter
See a selection of The Economist's articles, events, topical videos and debates on Facebook.
Advertisement
Readers' comments
The Economist welcomes your views. Please stay on topic and be respectful of other readers. Review our comments policy.
You must be logged in to post a comment. Log in to your account.
Don't have an account? Register
Sort:
This seems like an argument to act sooner rather than later, before the demographic shift becomes too extreme. If the elderly are 30% of the population, based on voter turnout they will have something close to a majority.
However this means that perhaps an easier (not better) way to reform is to simply raise the retirement age by 5 years or so. That would leave the current elderly unaffected, so they wouldn't mind voting for it in their large numbers.
Can we cut defense?
The young don't join nor are drafted, so they probably don't care.
We borrow a lot of money to fund a military that:
1) Spends it on delayed and cost over-run programs like the F-35.
2) Protects South Kor-Kia, Hondaland, etc.
It would be nice if other countries would pay for thier defense instead of lending us money to defend them and thier exports.
Though it's nice that they lend our consumers money to buy thier exports.
Some NATO countries defense budgets.
http://www.economist.com/node/18682793?story_id=18682793
A nice chart that accompanies it.
http://media.economist.com/images/images-magazine/2011/05/14/eu/20110514...
Can't get Wall Street to pay for thier mess as both parties need campaign contributions going into 2012.
Regards
We missed the window of opportunity that could have led to an electoral coalition that would have reduced entitlements by about 2 decades. The question today is how to make the existing system more efficient and less wasteful.
The median age of currently serving Senators is 61 years, 292 days
http://en.wikipedia.org/wiki/List_of_current_United_States_Senators_by_age
"America is not actually in the market for creative proposals to put Medicare on a sound footing."
Nonsense. The US is not in the market for ideas that ignore the real cause of the problem, and use Medicare's troubles as an excuse for Social Darwinism. The reason that Medicare is not "on a sound footing" is that US per capita health care costs are twice those of the rest of the civilized world. What has been proven over and over again in 20-odd other countries as an effective method to keep health care costs down while providing care to everybody, is treating heath care as a public good like roads and schools and the fire department, with a much greater role for the state. This works. The only reason we haven't done it yet is free-market theology (belief despite evidence,) heartily encouraged by those making money off the current system.
I think K Wilson is on the right track.
It is always going to be tough to get voters to modify government programs which provide them direct benefits. Appeals to deficit reduction won't overcome this problem alone. There has to be some upside for the voter, and the Ryan plan has no upside benefits.
The argument for the privatization of Social Security could make a very cogent argument that retirement funds invested in equities have consistently done much better than the returns offered by the government programs. There was a plausible upside for voters to support privatization.
Vouchers for primary education can also be explained as an upside to the public since American private schools have often had lower costs and better outcomes than public schools. Again – there is no such track record for private insurance in the US.
The Ryan plan has no argument on the upside of privatization of Medicare since there are no examples of "private insurance" in the US being able to stem the consistent increase in healthcare costs.
I know this really won't do a lot to address the enormity of the problem, but making people (in this case the elderly) pay nominal fees for health care in a some cases will sharply reduce consumption. Australia found that there were a significant number of elderly women who's idea of a social life was visiting their doctor, and subsequently the pharmacist. Introducing minute small fees (I would actually advocate higher fees) for each health care "transaction" wiped out this aspect of the overconsumption problem altoghether.
Now, all that's left to do is reform the courts (to reduce malpracctice lawsuits), negotiating government discounts from big pharma, insurance reform, and capping health care inflation costs.
"Once it is conceded that Medicare is touchable, what's to keep the selfish young punks who don't want their country to collapse under the burden of entitlement spending from touching what is owed to the Greatest Generation and their supremely entitled Boomer offspring, who have already sacrificed so much?"
Bingo.
On another note, what's wrong with using IPAB to ratchet the benefits that Medicare itself provides down to "a certain minimum" that gives "seniors just the assistance they need; no more, no less," while maintaining the price efficiency of the current system? What's inescapable is that private health insurers pay higher prices for services (not even factoring in their own margins), so there's at least an economic justification for maintaining a stripped down version of Medicare. More importantly, it's a lot easier politically to use an already existing vehicle to limit Medicare spending than it is to knock out the program entirely and replace it with something new.
When gas is double in price, fuel efficient drivers are comparatively richer and renewable R&D becomes more attractive. This would also devour OPEC's powerbase over time. I approve!
Let's take that incentivizing mindset to gerontology. Modern medicine is good at fixing, bad at maintaining. Nudge people to fruits and exercise, and make medical care expensive--Oh wait, we already did that. The problem lies with moral hazard. Well, let's internalize externalities!
My employer was generous enough to provide a Total Compensation breakdown for me, and I was shocked at how much health insurance costs for even the lowest-risk folks (i.e. me). If they took half of that and gave me a bonus for keeping good health, I think everyone would win...except for the dorito couch potatoes.
But that's just as intended, isn't it?
Once it is conceded that Medicare is touchable, what's to keep the selfish young punks who don't want their country to collapse under the burden of entitlement spending
Where have you been?
The country has collapsed under a combined 300%+ Debt/GDP.
How much debt does the average person graduate from college with?
How much debt do the Boomer parents have from sending the punks to college?
Who's fault is it that in 2003 the Medicare prescription plan was passed without funding it?
How much did the pharmceuticals make on that deal?
Why do our prescriptions cost more than in other countries?
Who was the politician that pushed through that bill and then retired to join the pharmaceutical group?
Regards
The solution then is to defer reform or break up the senior vote. Change nothing for those over the age of 55. Below that, change nothing for the poorest 80%. Begin phasing out Medicare above that and eliminate it for the wealthiest 2%. Don't adjust for inflation so that it slowly transitions into a truly means-tested program.
Chibinium ,
Does your employer offer a high-deductible plan that's link with a Health Savings Account?
Regards
The entire cause of the problem is that US health care is expensive and inefficient. We spend about 17% of GDP; the average for the rest of the developed countries is under 9%, and our results are no better. (Only 0.5% is for research.) In all of those countries the state has a much greater role in paying for health care than in the US. To claim, against all the evidence, that a larger dose of the free market is what we need to bring prices down in the US - this is quasi-religious faith, not economics; belief despite what experience tells us.
"making people . . pay nominal fees for health care in some cases will sharply reduce consumption."
Medicare already does this. It's not 100% coverage.
I wonder how much of the problem is denial of the type that K Wilson is peddling.
Unless all the silver foxes are wealthy, a natural wedge of sorts is means testing the living hell out of Medicare. Put it on a sliding scale with co-pays so there is 'shared sacrifice' without 'class warfare'.
That would be a good start and should be achievable.
Then limit the prescription drug program to generics, but make it universal over the entire population. Even with the expanded coverage (which should garner votes from the newly covered), it should save money by virtue of the sheer cheapness of generics over patent drugs. And seniors with Restless Leg Syndrome can buy private coverage for such things.
A bonus: coverage would expand year by year as patents expire.
These things probably wouldn't solve all the problems, but they'd be a great start...
Denial? Excuse me? I'm not making this us. The US spends about $7500/person/year, a bit less than half public money. The OECD average is about $3000, on average about 80% tax-financed. The evidence of over 20 counties gives us a pretty good indication that treating health care as public good is far, far more efficient than the US system.
Medicare will have a real problem a few years down the road. That problem is a direct result of extremely high US heath care costs. That's what we need to address. We know how to do it. Free-market theology stands in our way.
Look here for a summary of the numbers: http://alainsaffel.com/wp-content/uploads/2010/04/OECD-per-capita-health...
hedgefundguy,
They do. However, it would funded by before-tax pay. Compared to my premiums, I have negligible savings. The company would save thousands, however. This is where the distortion comes in.
My idea is to make everyone win: the total health insurance cost should be divided between catastrophic insurance and myself. This way I make money with prudent choices, and the company saves money overall.
I call this "pinching the gap."
I think K. Wilson is on the right tracks when he says (I paraphrase) that State funded healthcare is efficient healthcare. But the reasons why, I suggest, is a bit different and interesting. There's nothing wrong insurance based systems. In fact many of the European health systems are substantially insurance based, but manage to deliver better and more efficient care than the US. The key is to make the insurance whole life. You pay in when you are young, wealthy, healthy and working. You are paid back when you are old, poor, ill and retired.
The US system of company funded pay as you go insurance is mostly a waste of money. You are working at that company precisely because you are healthy and don't need the care. It would be better to cut that out and pay in for later. Funding Medicare or an equivalent is actually an effective thing to do. Insurance covers the relatively few cases where younger people fall ill. Whole Life insurance requires discipline because the temptation is not to pay in when you don't need the care, and then fall back on the system when you do. That's why you need government to enforce that discipline.
if Medicare is not on sound footing, worse for the elderly. If they have the voting power, they better use it wisely. Just because the law says X, if the economy says X/2, there is nothing you can do about it except adjust.
Hear, hear to K Wilson. One thing I'd add is that transferring the burden of Medicare from taxpayers to the individual elderly person will not solve the problem of debt, but merely transfer the debt from the public to the private sphere. If your concern is the crippling effects of debt on the economy, then the prospect of seniors and their children going into debt to pay for health care should concern you just as much as the US government debt.
Also, if WW's concern is the rise of a gerontocracy, isn't the most politically feasible solution to just extend Medicare to everyone? It's naturally divisive that we give one kind of good government-sponsored health care to the elderly, and another substandard one to the young. Why not extend the good government-sponsored one to everyone? The reason is not cost.