Megan McArdle (October 31, 2007)

So what would the sick old people do, in your system? Those that couldn't afford to pay out of pocket, that is.

Posted by Freddie | October 31, 2007 1:48 PM

I think "poor" covers sick old people too. If they're poor.

Posted by Henry | October 31, 2007 1:56 PM

Freddie - If they could afford to pay something for their medical care, then they would do so. No one would go uncovered, but Medicare (or its successor) would be means tested. No more free ride for wealthy older Americans. At least that's my view.

Posted by Michael W | October 31, 2007 2:12 PM

Sort of, yes, but it's complicated, and looks absolutely nothing like what Ezra wants, which is a system that covers 95% of Americans while perhaps 5% pay extra for private care.

Under the French system, 90% of workers pay extra for private health insurance in addition to their basic national coverage. In the Dutch system, most coverage is private, since most people are not poor enough to be eligible for the national bottom-level "ziekenfonds". So you dramatically mischaracterize "what Ezra wants". What Ezra wants, unless I am mistaken, is a system where the number of uninsured Americans falls from about 16% to something more like 0%, and where insurers compete based on the quality and efficiency of their coverage rather than on their ability to screen out the high-risk candidates and shunt them onto the taxpayers.

Posted by brooksfoe | October 31, 2007 2:23 PM

Michael W -- Would there be a free ride for insurance companies? Would they be allowed to price individuals separately or would they have to use community rating? Would they still be free to tell doctors how to do their job without having to pay actual, consequential and exemplary damages for their irresponsible behavior? Will they still be able to spend three times as much in administering their operations as Medicare does?

How would I benefit from this?

Posted by freelunch | October 31, 2007 2:58 PM

I'd provide more for some kids and poor workers, but a lot less for old people.

And how do you think we keep old sick people from being poor too? Medicare makes sure they are covered, without having to be impoverished first.

It's kinda funny - a few years ago, in The Great Social Security Debate, the people who wanted to 'reform' Social Security were all about people being able to build up capital.

But with respect to health care, y'all are all about undoing a lifetime of capital accumulation with the first serious disease.

Forget it: you folks just want to gut government programs that work for most Americans.

Posted by low-tech cyclist | October 31, 2007 3:47 PM

freelunch - I have answers to your questions, but this is just a diversion. My answer is another question: Why should we subsidize wealthy seniors at the same rate as those living strictly on Social Security?

Posted by Michael W | October 31, 2007 4:12 PM

"--I'd provide more for some kids and poor workers, but a lot less for old people."

Megan's favorite movie is Soylent Green.

Posted by Stan | October 31, 2007 4:15 PM

low-tech:

It is hard to imagine a system where people own and control their own assets and accept risk, isn't it? How could we possibly be in favor of both? And how could such circumstances possibly improve anyone's welfare?

you folks just want to gut government programs that work for most Americans.

Comparable Ann Coulter insult:

"Liberals just want to take more of our money, kill babies and discriminate on the basis of race."

(yes, I know, I've said it before, but there is a lot of 'Type M' argumentation floating about here)

Posted by "Mindles H. Dreck" | October 31, 2007 4:41 PM

I can't seem to get a link for "Type M" past the filter. Try googling "an open letter to Paul Krugman Kling" and click on the first result.

Posted by "Mindles H. Dreck" | October 31, 2007 4:44 PM

freelunch - Letting insurance companies decide who and what to cover, isn't giving them a free ride in the normal sense of the term. They aren't being given anything for free, they are providing a service for the money. At the worst the service may be lousy but even if it is, that doesn't mean they are being given a free ride.

As for them spending three times as much in administering their operations as Medicare. Well really they don't. Medicare get services from other parts of the government without paying for them or having them officially considered part of the program's operating expenses.

See
http://healthpolicyandmarket.blogspot.com/2007/06/cost-to-administer-medicare-versus-cost.html

Posted by Tim Fowler | October 31, 2007 5:07 PM

Michael W,

[I am 65 and on both SS and Medicare.]

Q: "Why should we subsidize wealthy seniors at the same rate as those living strictly on Social Security?"

A: Because that is what we said we would do.
A: Because they paid more into the Medicare during their working lifetimes.
A: Because we have not accepted the idea of "punishing" thrift yet (though we're close).
A: Because Medicare is an "entitlement", not a welfare program.

Posted by Ed Reid | October 31, 2007 6:01 PM

Ed - And in case you haven't heard, your demographic is increasing in a way that will make your "entitlement" an increasingly larger part of my paycheck. Perhaps we made promises that we can't keep, at least not in their current form.

Hopefully, I'm somewhat less than 20 years from retiring and I plan for NO social security income when doing my retirement plan.

Posted by Michael W | October 31, 2007 7:12 PM

A: Because we have not accepted the idea of "punishing" thrift yet (though we're close).

In the case of college aid, we're there. ceteris paribus if you have savings - you get less aid.

Ed and Michael - since entitlements will come out of taxes, the discussion really is how much of an intergenerational wealth transfer is appropriate, regardless of that we "promised" or what others feel "entitled" to.

As far as current elderly paying more into medicare over their lifetimes - hardly. It wasn't that long ago they lifted the cap.

Posted by "Mindles H. Dreck" | October 31, 2007 7:53 PM

If the rich seniors end up means-tested, they can comfort themselves with this thought: it won't exactly be the first time that someone's sent money to Washington and not gotten it back.

Posted by Paul Zrimsek | October 31, 2007 7:59 PM

Mindles,

(Tax rates of 1.45 percent for employees and employers, each, and 2.90 percent for self-employed persons, are applied to all earnings—without a taxable maximum—under Medicare's Hospital Insurance program.)(Source:http://www.ssa.gov/OACT/COLA/cbb.html#Series)

This has been the case since year 1, 1965. My employer and I paid the Medicare tax on my entire income over my entire career.

I did not set the parameters of the program. I had no choice regarding participation. The existence of Medicare affected the nature and duration of my post-retirement medical coverage. Now, I am entitled to the benefits for which I have paid, for myself and others, over the past 43 years.

Posted by Ed Reid | October 31, 2007 8:15 PM

Ed - the salary cap on medicare was lifted in 1993. so by definition, with bracket creep and real wage increases, more and more people have been paying in more and more. Furthermore, since the costs have risen faster than even nominal wage growth AND because we are supporting a larger base of retirees per worker, deficits are accruing to this generation of workers much more rapidly than to current retirees. Finally, of course, we are more likely to have to pay some of that deficit in the coming years.

QED.

Posted by "Mindles H. Dreck" | October 31, 2007 8:24 PM

Another way to put it would simply be to say that you paid for fewer 'others' (you didn't really pay for yourself at all) while you worked than younger people will be paying for. The worker/retiree ratio is shrinking rapidly That's the central flaw of pay-as-you-go systems with our demographics.

So again, it's really a question of intergenerational transfers, mostly from post-boomers to boomers.

"bracket creep", above, isn't the right term. But every year, a higher percentage of the work force goes over the old medicare earnings cap, expanding the paying base, and the amount they pay.

I'm 44, but that's irrelevant.

Posted by "Mindles H. Dreck" | October 31, 2007 8:34 PM

You go gel!

I just love the stolid conscientious way in which you are whomping these perky too-clever-by-half teenage social-democrats like Ezra Klein and Matt Whatsizname on one social policy issue after another.

So workwomanlike!

Posted by brm | October 31, 2007 9:21 PM

freelunch and Michael W: Medicare spends 3% on administration. The overall figure for the health care industry is 20% or more. It looks to me like insurance companies spend much more than 3x as much as Medicare on administration.

And then there's profit.

Posted by brooksfoe | October 31, 2007 9:28 PM

"Forget it: you folks just want to gut government programs that work for most Americans."

you mean 'work', if we forget about the 10's of Trillions(U$D) of currently Un-funded liabilities that this current system has generated?

Ed,

this: "Q: "Why should we subsidize wealthy seniors at the same rate as those living strictly on Social Security?"

A: Because that is what we said we would do.

Do you mean that's the the way you voted(?), and you intend to stick generations, X, Y, and beyond, who weren't voting, with the Tab(?)

A: Because Medicare is an "entitlement", not a welfare program.

You think you're 'entitled'? How so, exactly?

Quite seriously, I'm sorry if you bought into an "insurance" schema that never was one, but the reality of it is that there's only so many chairs that y'all bought, the music has ended, and we should figure, unfairly or not, that those that can stand, should.

Bankrupting the Future, whether you think you're 'entitled' to, or not, isn't going to happen. You should be thankful, if we're still able to produce it, to accept .7 on the expected U$D coverage y'all have voted to award yourselves.

Posted by Mark E Hoffer | October 31, 2007 9:31 PM

One of the unfair wrinkles of SSI and Medicare, as I see it, is that we're effectively taking money from the poorer to give to the richer. The elderly are the richest age group in this country, because they've had the most time to squirrel away savings.

Given that, why should'n't it be means-tested, so at least we're giving from the middle-class to the poor?

Posted by Jon Kay | October 31, 2007 11:05 PM

Why no means testing? Because it is a vote-loser. There is more money for campaigns and are more votes in the middle class than the poor. The only reason Social Security has survived is because it goes to everyone. Once people start being eliminated from it, you can expect to hear arguments quite similar to the welfare mothers complaints of a decade and more again.

Posted by RW Rogers | October 31, 2007 11:33 PM

There are good reasons for having universal programs instead of need-based ones.
Since everyone uses universal benefits, there will be more political pressure to assure the quality of the program. Programs targeted to the poor have few powerful lobbyists.
Also, a universal benefit is more likely to be institutionalized, enjoy broad support and is virtuallly assured of continued public support. A program like Social Security becomes essentially irreversible. Of course, for a libertarian, the latter is probably an argument against universal programs, but hey, you can' t please everyone now, can you?

Posted by VIr | November 1, 2007 12:36 AM

Oh, one more thing. Need-based programs require some kind of bureaucracy in order to determine who needs the programs. Univesal programs can dispense with that and have therefore lower administrative costs.

Posted by vir | November 1, 2007 12:39 AM

Why should my tax dollars go to pay police officers to protect people who can afford to hire private guards?

Just wondering.

Posted by brooksfoe | November 1, 2007 1:38 AM

As a point of clarification, this: "Bankrupting the Future, whether you think you're 'entitled' to, or not, isn't going to happen." is using "Bankrupting" with poetic license. More simply, it was meant to convey that we're not going (to be able) to work ourselves further into Financial Insolvency because of some long-standing misguided notions of 'entitlement'.

Posted by MEH | November 1, 2007 4:37 AM

Brooksfoe - are we really going to get back into the public good debate re. rival and excludable?

Posted by "Mindles H. Dreck" | November 1, 2007 5:54 AM

No, Mindles, we shouldn't do that on this thread. But on some other thread, I would love for you to explain to me how security officers are not a rival or excludable good, even though a beat cop patrolling my block is clearly not patrolling your block, and I can hire a security firm to protect me and my house, but not you or yours. But let's leave that for a different thread, because I already regret bringing it up here.

Posted by brooksfoe | November 1, 2007 6:19 AM

The only reason Social Security has survived is because it goes to everyone.

And the EITC has survived... why?

Posted by Paul Zrimsek | November 1, 2007 7:24 AM

RW Rogers and vir -- y'all are expressing a very common sentiment among liberals, i.e., that what makes Social Security and Medicare good programs is that everyone, even up to Bill Gates' father, gets the benefit, thus providing a strong base of public support.

But y'all need to talk to some of the liberals in the voucher threads, because they have the idea that vouchers are a uniquely evil conservative scheme precisely because, under one failed California proposal, vouchers would have been available on an equal basis to everyone -- that is, in just the way that you praise about Social Security and Medicare.

Posted by Stuart Buck | November 1, 2007 9:23 AM

Ed, maybe if your generation had more children we wouldn't be having this discussion. But because you (your generation as a whole) chose to focus on your self rather than the future generation there are not enough kids to take care of the older geneartion.

It used to be you had lots of kids so you'd be secure in your age. It's still somewhat the same, only now we have the government steal that money from our kids to take care of us. Unfortunately we decided to have our cake and eat it as a society and expect -someone elses- kids to pay for us because we were too busy having a good time than raising a large family.

Not necessarily arguing for everyone having 7 kids, but if you want your kids to pay for you, you better have a lot of 'em.

Posted by sam | November 1, 2007 9:27 AM

Speaking of Krugman and 'type M' arguments, Anna J Schwartz has just taken him to the woodshed over his disingenuous treatment of Milton Friedman's legacy in the New York Review of Books.

Posted by Patrick R. Sullivan | November 1, 2007 9:50 AM

Here's two things I've learned about universal healthcare from Megan's commentariate:

1) A universal program will cost less to administer and, because it covers everyone, will provide incentives to its elected overseers to continually improve it.

2) Longevity is not reflective of dollars spent.

So how about a universal program that covers very little?

This is what Social Security should be. Instead, Social Security attempts to do too much; it pays back a proportional amount to what a worker paid in (if you think this is fair, consider the way it shafts a stay-at-home parent). A better system would be paid for out of general tax fund and give all seniors a small safety net stipend.

Because Social Security is framed as a retirement program (of the most inane sort), the justification for its replacement by retirement programs that actually invest money is obvious.

Posted by Henry | November 1, 2007 10:19 AM

Stuart: It seems to me that the public views vouchers as a way to opt out of the universal public school system and will only benefit those who were going to send their kids to private school anyway. Social Security is viewed as the universal public retirement system. I'm not arguing these are accurate, but it has been easy for a well-financed opponent of change, such as the NEA, to convince a majority of voters that such is the case whenever that opponent feels threatened.

Posted by RW Rogers | November 1, 2007 10:48 AM

"Because Social Security is framed as a retirement program (of the most inane sort), the justification for its replacement by retirement programs that actually invest money is obvious."

But we have retirement programs that do this, they just aren't compulsory.

Posted by JordanT | November 1, 2007 10:51 AM

Paul, at the moment EITCs consume a small part of the annual federal budget. A needs-based Social Security and Medicare program providing tens of millions of citizens massive amounts of money from that budget while excluding or reducing benefits to other tens of millions of citizens will attract a lot more attention and jealousy. And those excluded or receiving reduced benefits are far more likely to be frequent voters and major donors to political campaigns.

Posted by RW Rogers | November 1, 2007 10:53 AM

In addition to the conflicting reasoning Stuart Buck points out above, one has to wonder why "entitlements" should be as broad and universal as possible while taxation is increasingly selective. Universality and generosity is apparently desireable in government outlays almost in proportion to the narrowing of the tax base.

I see that at the office Christmas party. When the Managing Partner of the firm puts his credit card on the bar, we all rush up to trade in our budweisers for aged single malt. To us it doesn't seem like there's any limit to his ability to pay. But then he leaves after one round, the jerk!

Posted by "Mindles H. Dreck" | November 1, 2007 11:10 AM

Paul, at the moment EITCs consume a small part of the annual federal budget.

I don't have the numbers handy, but I'm pretty sure that AFDC was smaller still even before welfare reform. Didn't stop the "welfare mothers" talk!

Posted by Paul Zrimsek | November 1, 2007 11:12 AM

low-tech cyclist:

"It's kinda funny - a few years ago, in The Great Social Security Debate, the people who wanted to 'reform' Social Security were all about people being able to build up capital.

But with respect to health care, y'all are all about undoing a lifetime of capital accumulation with the first serious disease."

Not funny at all. It's called Personal Responsibility.

Posted by TakeFlight | November 1, 2007 11:23 AM

Ed,

I hope you're still reading this comment thread, since I find your arguments some of the most compelling ones in favor of SS status quo, and wanted to respond to them.

I'm very sympathetic to the fairness argument, and think that any attempts to "reform" or outright dismantle Social Security ought to address it. However, you see it as "I gave my money to X, so X owes me what X promised me." But that's not how it is. You don't have a two person contract here, you have a Ponzi scheme. You gave your money to X, and X told you "don't worry about it, 30 years from now, Y will pay you back, and you can tell him not to worry about it, 'cause in 30 years Z will pay him back."

I personally didn't agree to your entitlement. Not just me, my whole generation, and the one before it, and the one after it, have not agreed to your entitlement. We showed up and found that were were already obligated to it, and were told not to worry about it, that one day someone not born yet will take care of us too. But then we learned what pyramid schemes are, and thought "wait a minute, this doesn't really sound like a workable plan to me..."

So I believe you should be compensated what you paid into the system. That seems fair to me, and I would imagine that any workable replacement or reform of Social Security wouldn't involve "stop sending the checks tomorrow!"

But I don't find "you promised me this" a compelling argument to hang on to a bad economic model forever. "the US Government" has, throughout its hundreds of years of history, promised all sorts of things and later changed its mind. That's because it's not an individual person, it's an abstraction for a society full of people, governed by a "living document".

Posted by Geoff | November 1, 2007 11:29 AM

Brooksfoe - Re: "Medicare spends 3% on administration. The overall figure for the health care industry is 20% or more. It looks to me like insurance companies spend much more than 3x as much as Medicare on administration."

Not really. See my comment to freelunch earlier in this discussion. Esp. the link.

The reality is the Medicare spends more than 3% on administration. Medicare's capital costs get figures as part of the national debt, not part of Medicare's costs. Medicares gets its premiums through tax revenue, the cost to do that also doesn't get counted as part of Medicare's administration cost.

Meanwhile the private plans pay taxes, you should deduct the taxes from the cost comparisons to government programs.

Also their are private programs, where including profit AND taxes (which shouldn't be counted in this comparison) have cost ratios in the 80s, so all of their expenses (including taxes which should be subtracted to make a reasonable comparison), combined with their profits are in the mid to high teens, not 20+ percent.

Drop pit taxes and you get maybe 15% on the private side. Add the hidden costs for Medicare and you get at least 10%. So at best Medicare has 50% lower expenses, not expenses one seventh of the private insurance companies, and the real difference may be less than that.

On top of all that Medicare has an advantage in this scenario from covering seniors who's average payout for Medical services is larger. If you have smaller average payouts (as the private insurance companies have) than the cost to process the payouts will be a larger percentage of what you give out in insurance payouts.

To the extent that Medicare is cheaper than private insurance it is so only by restricting what it will pay to rates that are often below market rates. This causes problems for seniors because more doctors are refusing to take Medicare.

Posted by Tim Fowler | November 1, 2007 12:24 PM

Megan ought to be a supporter of the universal coverage plans proposed by Clinton, Edwards, and Obama. Their proposed plans would not affect the coverage of people with employer-provided medical insurance. Instead, they provide subsidies for the uninsured to buy private insurance. The subsidies would be based on income, thereby satisfying Megan's desire that they go to the truly needy. Illegal residents of the US would be ineligible, thereby satisfying people worried about illegal emigrants exploiting the Americal social safety net. Programs like these are used in impeccably free enterprise countries, for example Switzerland and Singapore. They provide the most conservative possible solution to the problem of the medically uninsured. If plans of this sort are objectionable to people who post in this space, I wish somebody would tell me why.

Posted by Stan | November 1, 2007 1:00 PM

Geoff,

I'm still here. My MBA may not be from Harvard, but I am hardly a "rube". I may have fallen off the turnip truck, but it was not yesterday.

I did not agree to SS either; I was too young to vote. I voted against the folks who later voted for Medicare. I did not just learn not to trust the government to do anything; and, especially, to do anything well. That happened a long time ago. That part of my education has been reinforced far too often to be forgotten.

I did not "give" my money to Charles Ponzi; FDR, LBJ and their successors took my money against my will, by force of law. I could have and would have invested it at a higher rate of return; and, I would be receiving a far larger annuity and have far better medical coverage had I been allowed to invest that money myself.

I regret to inform you that just refunding my SS and Medicare taxes and those of my employer on my behalf, without interest, in inflated dollars is hardly "fair".

Liberals always refer to SS and Medicare as "entitlements", yet seem to be willing to "dis-entitle" me and others who also saved for their retirements. Yet these are some of the same folks that complain loudly that the US savings rate is low, yet argue to increase taxes on savings.

Posted by Ed Reid | November 1, 2007 1:41 PM

Stan I personally do not find those programs highly objectionable and probably could get on board with a few changes. Then again the devil is in the details.

Two important details

1) How much of s aubsidy will be provided

2) How much will these plans cover/how much cost control will they have.

If it were up to me healthcare reform would have the following features.

1) State level. I think the issue is too complicated for anyone to know the exactly correct one size fits all program. Better to try multiple programs in multiple states. Plus competitive pressures between state will keep programs from getting out of hand.

2)Remove employer insurance link by allowing individuals to deduct insurance cost up to a limit.

3) Provide means tested state subsidies to individuals purchase insurance. Poor people could get basic insurance plan free, middle income people with existing conditions could get it at a cost near to the market for people without existing conditions.

4) Subsidies would only be available to people who purchased government approved plans. These plans would limit approved expenses to control cost similar to HMOs and Canadian/European single payer plans. So we have single payer for the poor and the sick and free market for everyone else.

5) No individual mandate. If you choose not to buy the insurance and get sick we will still treat you, but you will owe us the money. Financial risk is up to the individual as it is in most aspects of life.

Now the democrats plans have some of my ideal features but are missing on others. I might be able to get behind them with more details.

BTW the Romeny plan seems to be let the states sort it out which is something I tend to agree with.

Posted by eccdogg | November 1, 2007 1:42 PM

A needs-based Social Security and Medicare program providing tens of millions of citizens massive amounts of money from that budget while excluding or reducing benefits to other tens of millions of citizens will attract a lot more attention and jealousy.

Why, I remember just last week when Americans of all class stripes were up in arms over food stamps. Everyone pays in taxes! Only some low-income brackets qualify for the government-funded debit cards! That's not fair!

...oh...wait, that wasn't last week. That was last night after the second margarita.

Meanwhile, like many other people my age, I have no expectation of drawing from this unsustainable program that is plenty "social" but wholly lacking in "security". The most use I get out of it is a unique ID number that allows me to apply for finance and healthcare related services. Interestingly enough, it takes about 15% of my paycheck to accomplish that, because persons like Ed Reid voted themselves an entitlement at my expense.

Posted by anony-mouse | November 1, 2007 1:48 PM

anony-mouse,

"...because persons like Ed Reid voted themselves an entitlement at my expense."

As I said above, "I did not agree to SS either; I was too young to vote. I voted against the folks who later voted for Medicare." Nobody outside the Congress got to vote on either SS or Medicare. FDR proposed and Congress voted to create an entitlement for my parents and grandparents generations at my expense, which continues now as an entitlement for me at your expense. My defined benefit pension program was a SS+ benefit.

LBJ proposed and Congress voted to create Medicare for my parents generation at my expense, which continues now as an entitlement for me at your expense. Neither of us got to vote on the Medicare prescription drug plan either; it is costing me a bundle, because my ex-employer cancelled my post retirement drug benefit when the law was enacted.

I suspect our government will find justification for dis-entitling me in the same "living document" in which they found the justification to start SS and Medicare in the first place. Go figure!

Posted by Ed Reid | November 1, 2007 2:03 PM

Ed,

I'll admit I haven't been paying much attention to SS debates in the last few months, but my read on the liberal/conservative stances seems different than yours.

I always thought that, when confronted with the dilemma of "income won't be enough for outlays", the liberal response was "raise payroll taxes", not "decrease outlays". Meanwhile, conservatives were entertaining "raise the retirement age" (another way of saying "decrease outlays") and try to divert some percentage (possibly 100) of the process to private accounts.

Perhaps I have simply lost current touch with the liberal/conservative positions - although I do hear more and more from liberals "we don't need to do anything at all, the system works great!"

Anyway, when I mentioned compensating you for having paid into the system, I was not proposing we simply add up your contributions and cut you a check for that amount. I was more imagining some sort of system where all benefits currently promised are honored (you keep getting what you're getting) and those not currently at retirement age start transitioning to whatever new system we have envisioned. This means that the transition itself has a large one-time net cost, but that seems unavoidable to me in such a pyramid scheme, short of just telling the current beneficiaries to take a flying leap. And given the political weight of that demographic, I can't see that happening.

Posted by Geoff | November 1, 2007 2:24 PM

brooksfoe:
Why should my tax dollars go to pay police officers to protect people who can afford to hire private guards?

Security isn't exactly the same thing, is it? Private health insurance and 401k plans work considerably better than strictly-private police forces (also called "warlords").

Another difference is that, except in states that've (like mine, grumble) taken the old off their tax rolls, the elderly DO pay their fair share of policing costs.

Posted by Jon Kay | November 1, 2007 2:35 PM

Geoff,

The current issue is "means testing"; ie, if you saved money while you worked, you don't "need" SS or Medicare. I have been castigated on this blog for accepting SS and Medicare because I could survive without them. (I didn't NEED them.) I have been told that I am being unfair to those currently working and paying the SS and Medicare payroll taxes by taking the benefits I was told I would receive after 40+ years of paying the taxes myself.

Suffice it to say, I do not think I am being unfair at all. I know others here disagree vehemently.

Posted by Ed Reid | November 1, 2007 2:47 PM

eccdogg, you make many good points. I have no idea what will finally emerge from the debate over medical insurance. As you say, the devil is in the details.

anony-mouse, do you really, really think Congress will let Social Security expire? And if you do, where did you get such a strange idea?

Posted by Stan | November 1, 2007 4:46 PM

Ed,

Ahhh, I see. Hadn't heard too much argument on that one in the mainstream, hence my view of "liberals" vs "liberals on this blog."

But in any event, I'm with you on that one. I'm currently being forced to pay payroll taxes at a time in my life when I can ill afford them. If I'm fortunate enough to retire with sufficient savings and also have benefits available to me from the government system I paid into, then I will take them happily, and don't blame you for doing the same.

Regardless of the ideology of liberals on this blog, I suspect that attempts to restrict the beneficiaries by further means testing would be met with a sudden decrease in the voters' enthusiasm towards paying their SS payroll taxes.

But the example named above - college tuition and FAFSA, is a good counter-example. There is already a well-known government structure in place to means test you and punish you for savings...

Posted by Geoff | November 1, 2007 5:02 PM

As I said above, "I did not agree to SS either; I was too young to vote. I voted against the folks who later voted for Medicare." Nobody outside the Congress got to vote on either SS or Medicare. FDR proposed and Congress voted to create an entitlement for my parents and grandparents generations at my expense, which continues now as an entitlement for me at your expense. My defined benefit pension program was a SS+ benefit.

And by your own admission, you don't strictly NEED the "SS" factor in that equation. Note that I don't blame you in the slightest for taking it so long as it is proffered under terms for which you legitimately qualify as a recipient. But:

It's the whole "I deserve because I paid" mentality that earns you some well-deserved ire; because you are insisting on the right to enforce a contract made with a party who didn't sign, simply because you paid up an unsigned contract at a time when the terms were less onerous. "I got slapped across the face, so now I'm going to kick you in the tenders" is a shorter way of putting it, and here's the icing: my generation can expect to pay for many more of its healthcare costs out-of-pocket even while your generation benefited from the era of generous employer health plans, and then transitioned into Medicare territory before the other shoe dropped.

Interestingly, this knowledge that SS probably won't be there puts me in no better position to save up against that uncertainty, because I simply don't yet have the necessary level of income yet. What I transfer into my 401(k) (for retirement) and savings accounts (for HSA deductible coverage and other uncertainties) now are about as much as I reasonably can -- seeing as how I already live in a moderately-priced apartment and split the rent with a roommate, while driving my rusty 20yo Toyota into the ground.

Ironically, because of the power of compounding interest, these early years of my career are the BEST years to be putting money into my various savings options, but I have 15% less income with which to do that each month so that you can have an entitlement which was promised to both of us, but which I am unlikely to receive.

As said already, I don't begrudge you for taking an entitlement so long as it is offered, I just find your brazen entitlement attitude a bit appalling.

Posted by anony-mouse | November 1, 2007 5:25 PM

I don't think there is a realistic system for means-testing Medicare, although I think differently re social security. Medicare expenses are lumpy, unpredictable and paid to the healthcare provider. To pay the tax, the senior would have to come out of pocket as opposed to there being withholding. As among people of equal income, the sicker you are, the more taxes get paid. You can debate the justice or not of these (I think our tax system and justice do not overlap much), but these are not good conditions to impose a tax.

I would also point out that insurance payments, which are the closest analogy to Medicare payments, are generally not taxed as income in the US so there is no reason to change that on Medicare.

Conversely, pensions are taxed, withholding is easy, and pensions are predictable and occur smoothly, so there is a strong case to include Social Security in income.

There are ways to meet most of Ed's arguments, which are legitimate, by simply giving each senior the current value of the payments made for their account, adjusting for inflation and some interest factor. Then to replace the insurance, Medicare could provide one or more types of health insurance policy for any senior to buy. Politically, it won't happen and there are details and questions which I won't belabor because it isn't going to happen, but conceptually it is responsive to the arguments.

Posted by Mt57 | November 1, 2007 5:34 PM

Stan wrote: anony-mouse, do you really, really think Congress will let Social Security expire?

I said nothing about expiring. If by "expire" you mean "cease existing in present form" -- then yes; yes, it could and probably will. Lots of other people my age are making their plans on the assumption that SS is an unreliable partner, so I wouldn't be surprised to see it gradually slouch into true welfare program eventually. And even if it does continue in nominal form, I expect an ever-upward-creeping retirement age, a reduction in the overal level of benefts, means-testing, and possibly various other like things that will cut deeply into whatever benefits it actually provides.

Stan wrote: and if you do, where did you get such a strange idea?

Strange only to those accustomed to praying to the Great Government Money Tree. By any objective criteria such as demographics, my ideas are more realistic.

Posted by anony-mouse | November 1, 2007 5:38 PM

anony-mouse, you may not like it, but Social Security is really popular. Along with Medicare, it's one of the main reasons that poverty among the elderly is comparatively rare. Yes, I think that benefits will be restricted. The cap on earnings subject to the FICA tax will be raised, and should be, the age at which full benefits kick in will probably drift up a little, but other than that I see no drastic changes in the program. It's going to be here for the remainder of my life, and probably of yours.

Posted by Stan | November 1, 2007 5:53 PM

anony-mouse,

At the same point in my career, neither 401k nor IRA programs existed. SS was there; and, medicare began in my first full year of employment. My early savings were all from after tax income.

These federal initiatives had a major impact on corporate benefits programs. Unwinding them would truly be a nightmare.

My attitude, by the way, is that "I am entitled", because the government which took my money said I was entitled.

Mt57,

SS payments are already included in income; and, 85% are subject to income taxation for those of us with other sources of income as well.

Medicare Part B is already means tested; if your income exceeds a threshold, your monthly payments increase.

Posted by Ed Reid | November 1, 2007 5:55 PM

Along with Medicare, it's one of the main reasons that poverty among the elderly is comparatively rare.

This claim definitely requires evidence, and it cannot be tautological evidence such as "people didn't save as much or invest in long-term health plans because they expected to get social security and medicare". I can think of a number of reasons why modern elderly people aren't poor, many of them having to do with unanticipated land value appreciations, sale of lifetime businesses, career pensions, wise savings strategies, inheritances, strong family ties, and other things that have nothing to do with SS checks -- which merely arive as a bonus.

Posted by anony-mouse | November 1, 2007 6:48 PM

Ed Reid wrote: At the same point in my career, neither 401k nor IRA programs existed. SS was there; and, medicare began in my first full year of employment. My early savings were all from after tax income.

Interestingly, pensions were frequently offered as part of a defined benefits package, whereas these have all but ceased to exist; and as noted, health plans were far more generous than now. You got your savings, just by a different route, which tends to equalize the argument.

Which returns us back to where we started: you paid in to SS at a time when the worker/retiree ratio was much higher, and now you want to take out. At the same time that you take out, I pay in when the worker/retiree ratio has declined, and is expected to continue declining. I not only bear a higher share of burden, I will very likely receive far fewer benefits. And yet in your view, this is perfecly reasonable because: ____.

Posted by anony-mouse | November 1, 2007 6:56 PM

I read somewhere that a third of all federal, state, and local taxes were going to pay for programs for the elderly. Not all of the boomers have even started collecting. That money isn't going to infrastructure, or investment in technology, or any of the things that would make our economy strong in the long run. It is a disaster and it is unsustainable.

Posted by Z | November 1, 2007 7:38 PM

I certainly don't blame you either, Ed. I think the two systems are designed poorly and their continuance and abuse have now created a massive debt that will be foisted on future taxpayers. We are headed for an intergenerational wealth transfer of some sort or other.

Posted by "Mindles H. Dreck" | November 1, 2007 7:40 PM

anony-mouse, you want proof that social security is one of the main reasons for the reduction of poverty among the elderly?
Here's one study,

http://www.nber.org/aginghealth/summer04/w10466.html

and here's another

http://www.cbpp.org/4-8-99socsec.htm

I think you're watching too much Fox News.

Posted by Stan | November 1, 2007 9:12 PM

Tim Fowler: you're right, I misstated -- Medicare's administrative costs, under normal measures, aren't 3%; they're 2%. The arguments you're citing come from a paper by Mark Litow of CAHI, the "Center for Affordable Health Insurance", which is "a research and advocacy association of insurance carriers", according to its own website. Every other version of this argument I've found on the web ultimately traces back to CAHI. This isn't research; it's a lobbying pamphlet.

On the substance of the arguments: Litow succeeded in recalculating Medicare's "true" administrative cost up to...5.2%. This is done via a series of maneuvers, many clearly specious, such as arguing that Medicare "administrative costs" should include the time Congress and its staff spends on legislating Medicare, a proportional accounting of the IRS's costs in collecting Medicare taxes, and the costs to business of calculating their Medicare taxes. Of course, Congress also spends time regulating the health insurance industry; the IRS spends time and money collecting taxes from private insurers; and businesses spend time and money looking for a health insurer for their employees, but none of these are included in the "administrative costs" calculated for private health insurance. In other words, private business incurs government costs, just as a government program like Medicare incurs costs to unrelated branches of government, but it is not proper to include these costs as part of the administrative budgets of either the private business or of Medicare.

Meanwhile, private sector insurance is normally reckoned at 20% to 25% in administrative costs. Litow managed to recalculate the "pure" administrative cost down to 8.9%, or 16.7% if you factor in commissions, taxes and profit. Litow argues that it's more proper to leave out the commissions, taxes, and profit, because government programs don't incur any of these costs. But for the purposes of the health care debate, the fact that government doesn't incur these costs is precisely the point! The whole point is that government programs can do things more cheaply because there are entire categories of costs which government does not incur. For private insurance to beat government insurance, to be a better choice for the public (strictly in terms of cost), it has to be so much more efficient that it can turn a profit, pay its taxes, AND beat the government program. Otherwise, from the beneficiary's point of view, the government program is cheaper. And we take the beneficiary's point of view here.

Similarly, CAHI argues that Medicare's admin costs look unfairly low because, since its beneficiary pool is so old, its payouts are much higher than those in private industry, making admin costs look low by comparison. This, obviously, is ridiculous. Medicare is taking the riskiest pool of beneficiaries off the hands of private insurance, allowing them to skim the cream of the market. The idea that this gives Medicare an unfair advantage in the competition is just silly. In any case, Medicaid administrative expenses are similarly low, with a pool of beneficiaries who aren't old, so the argument is nonsense. As is the whole idea that this is some kind of competition to see who can do best on a level playing field. Of course the field is tilted towards government; that's the whole point. It's the reason why government solutions to this problem make more sense. In most fields of production, private companies are so much more efficient and productive that they cancel out all of government's natural advantages. If they can't do that in health insurance, then they lose the competition on price.

Posted by brooksfoe | November 1, 2007 10:25 PM

Another thing that has made SS less of a good deal is the rise in the retirement age.

But googling a reference for that, I found this summary of the change in benefits including these handy charts. When measured against the money put in, the deal has been getting worse for years. When measured by the purchasing power of the benefit package, benefits have been increasing.

What is unstated in the second picture is that for both to be true, the purchasing power of my inputs has to be going up faster than the purchasing power of my outputs. Clearly, this is a deteriorating deal for younger retirees.

Basically what this says is "we're taking much more, but we're giving some of it back to you". Or perhaps, "this really isn't a savings program anymore..."

Posted by "Mindles H. Dreck" | November 2, 2007 9:34 AM

Ah - one decent point in the text - you'll receive less of what you made, but you are likely to receive it for much longer because you will live longer.

Still, I ran my own numbers from the SS flyer I get every two years, and I had to live well into my '90s just to get my contribution back (pre-tax).

Posted by "Mindles H. Dreck" | November 2, 2007 9:43 AM

brooksfoe,

From a total societal cost perspective profits and taxes should not count in the analysis IMO.

If there were no private insurance cost would go down X=taxes but government revenues would also go down by X. Net net to society there is no efficiency improvement. However their might be a distributional change.

A similar argument can be made for profits. Currently profits are paid to the public by insurance companies. If the the government takes over insurance cost go down by Y=profits but payments to the public also go down by Y. There is clearly a distirbutional effect here as upper classes probably get more of the profits and lower classes benefit from subsidized insurrance. But there is still no true efficiency difference to society.

The true comparision between the two programs should focus on operating cost including many services provided outside of the program for medicare. Medicare may still come out ahead on this analysis.

Posted by eccdogg | November 2, 2007 10:35 AM

Similarly, CAHI argues that Medicare's admin costs look unfairly low because, since its beneficiary pool is so old, its payouts are much higher than those in private industry, making admin costs look low by comparison. This, obviously, is ridiculous.

I don't find it ridiculous on its face. I do find the whole comparison a little specious. In order to make a proper comparison you would have to select a pool of insurers that operate in the same working layer as medicare (excuse the insurance talk). Medicare doesn't take in a premium comparable to private insurance, nor is provider pay and reimbursement handled in a comparable way.

On the other hand, Medicare has the strongest provider network negotiating and enforcement (perhaps not always the smartest), and there are major economies of scale there. It also has an enforcement "stick" that is much, much stronger than private companies (just ask Columbia hospitals) so it is able to push its paperwork and compliance burden down to the providers.

So generally, I see the economies of scale in Medicare, but I think an apples to apples comparison is difficult to make, and the incentive situation in Medicare is very different.

I'll leave it with that megan-like teaser for now.

Posted by "Mindles H. Dreck" | November 2, 2007 11:08 AM

eccdogg,

the idea that profits should not be included as administrative costs seems to me without merit. That profits end up in the hands of companies and shareholders does not mean that the purchasers of the insurance did not spend the money, and unless they happen to own shares in those companies it does not help them; profits distribute money away from the purchasers of health insurance to the providers. Pharmaceutical companies also accrue profits, but it would clearly be absurd to say that their profit margins should therefore not be included in calculating the cost of pharmaceuticals to society. By the same token, if Medicare's expenses double, we don't say that there is no cost to society, just because that money is being received by someone. In calculating cost, one takes the standpoint of the customer. Obviously whenever someone spends money, someone else is making money, but to say that there is therefore no cost is to vitiate the concept of cost.

The argument that taxes should not be included, since they are revenue to government, looks seductive at first. But since employers and employees pay no tax on employer-provided health insurance, in fact private health insurance entails a huge loss of revenue to the government, and since taxes are only assessed on insurance companies' profits, they only recoup a portion of that lost revenue. So health insurance companies would be better off not getting into that argument; they are in fact free-riding off of a massive tax break.

Mindles, I suppose that looked at in that way, there may be something to the point about needing to compare insurers with similar client bases. But one has to keep in mind that the ultimate questions here are: would it save money on admin costs for private insurers to take over insuring the non-poor elderly? Or would it save money on admin costs for government plans to take over more of the non-elderly? When you put together Medicare admin costs of 2% and Medicaid admin costs of 5-6%, the answer looks pretty clear.

Posted by brooksfoe | November 2, 2007 12:21 PM

Brooks only looking at the cost to final consumers your analyis is correct. However some of those consumers are shareholders and the profits are paid to them. All profits are ultimately paid to the public.

To simplify think of a country with 1 person 1 company and the government.

In todays world the person would pay for insurance and get paid profits.

In a world with government insurance the person would pay less in insurance but also recieve less in profits.

In a world with more than one person some would lose more in profits than they recieved in cheap insurance and some would gain more from cheap insurance than they lost in profits. That makes it a fairness or distributional issue not an efficieny or cost issue.

The only way to make the system more efficient is to reduce the amount of the nations scarce resources (capital & labot) that are required to produce the same amount of health care. For instance by using less man hours to pay claims. Medicare may also be able to do this. It would be interesting to see if it is true, but counting profits and taxes are double counting.

Posted by eccdogg | November 2, 2007 1:53 PM

Ed Reid: What you're really saying is, "My attitude, by the way, is that "I am entitled", because the crooks which took my money said I was entitled."

Sorry, but that you and I were robbed doesn't make it right for us to rob others who weren't old enough to vote at the time our elected "representatives" robbed us.

Posted by markm | November 2, 2007 4:49 PM

brooksfoe - Re: "The arguments you're citing come from a paper by Mark Litow of CAHI, the "Center for Affordable Health Insurance""

Irrelevant. You obviously have an opinion, should I automatically discount all your arguments, and consider all your claims of fact bogus? The issue is the issue, not the person talking about the issue.

As for your points about the substance -

The costs involved in congress debating and passing the law aren't specious, they are real costs. But their also rather insignificant. Including them or excluding them doesn't really matter.

"a proportional accounting of the IRS's costs in collecting Medicare taxes" is not even vaguely specious. Its a real cost, the equivilent of which gets included as overhead for the private insurance companies.

Re: "the IRS spends time and money collecting taxes from private insurers"

True but irrelevant. The costs of the IRS spending time collecting income tax from the private insurers are part of the costs of the corporate income tax law, not costs of Medicare or costs inherent in providing insurance.

The costs of the Medicare taxes only exist because of the Medicare program. They are the costs to collect premiums for that program, just as the billing and collections costs for private insurers get counted so should the cost of administering Medicare taxation.

Re: "Meanwhile, private sector insurance is normally reckoned at 20% to 25% in administrative costs. Litow managed to recalculate the "pure" administrative cost down to 8.9%, or 16.7% if you factor in commissions, taxes and profit. Litow argues that it's more proper to leave out the commissions, taxes, and profit, because government programs don't incur any of these costs. But for the purposes of the health care debate, the fact that government doesn't incur these costs is precisely the point! "

Commissions should be included. Its a real cost. Taxes should not. Taxes isn't part of the cost of the program, taxes are the government grabbing money from the program. And the money doesn't just disappear, it goes to other government programs. If private insurance companies shrank, or perhaps even went out of business, in response to some national single payer scheme, the loss of their tax revenue would impact the government's budget balance (maybe a small impact compared to the size of the government, but one that should properly get factored in to this calculation.

And then you don't even mention and perhaps Litow's study doesn't mention, (but my earlier comments did) the fact that the payments on debt are counted in the official overhead figures for private insurers but NOT on the offical overhead figures for Medicare.

Then consider the fact that Medicare pays out large claims on average, which makes the percentage of money spent on processing the claim lower. That fact isn't a factor in Medicare's real costs being larger than its reported costs, but it does explain part of the reason for lower costs for Medicare, and it wouldn't be a factor that would be likely to continue if you expanded Medicare to cover everyone, not just the elderly.

Posted by Tim Fowler | November 2, 2007 6:13 PM

brooksfoe - re: "The argument that taxes should not be included, since they are revenue to government, looks seductive at first. But since employers and employees pay no tax on employer-provided health insurance, in fact private health insurance entails a huge loss of revenue to the government, and since taxes are only assessed on insurance companies' profits, they only recoup a portion of that lost revenue. So health insurance companies would be better off not getting into that argument; they are in fact free-riding off of a massive tax break."

Sure they get a tax break, and maybe its a bad idea to give them it. But that doesn't mean that the taxes are part of their administrative costs. The taxes are purely a cost imposed by government. And they aren't a cost for society as a whole (because the government gets to spend the money), except to the extent that government provides less useful return on the resources to society than the private sector (something that is very likely to be true, but not an argument I expect you to support, and not an argument that supports having government take over the health insurance market)

Re: "in fact private health insurance entails a huge loss of revenue to the government"

All the revenue flows from the insurance company to the feds in this case. If the feds take a little less that isn't the insurance companies imposing a cost of the feds, or imposing a cost on anyone else. Its not relevant to the argument about overhead costs. Any way you look at it, every penny of any type of tax is a cost paid for government.

Arguably even profits should be counted out of the private sectors overhead calculations, as shown by eccdogg's last comment. But at least the taxes have to be removed or your counting part of governments cost as a private costs, and then coming to the SHOCKING conclusion that government is cheaper...

Re: "When you put together Medicare admin costs of 2% and Medicaid admin costs of 5-6%, the answer looks pretty clear."

5-6% is still to low when you consider all the costs already discussed.

Also you would have to add about another percent and a half to cover the costs of the processing that the Medicare system farms off to contractors.

Interesting that, if Medicare's own processing is so much more efficient that it would save us megabucks, why does it contract out part of its overhead? If the employees of the contractors can do a better or cheaper job, than the government employees, why assume the employees of insurance companies can't?

And Medicare imposes costs that go far beyond its administrative costs.

For one thing its paid for in taxes. Taxes create disincentives that create dead weight losses. Since Medicare is paid for by a tax on employment it results in less employment, and also in some low wage employees being driven in to the informal economy by working off the books.

And Medicare regulations push costs on to doctors and hospitals.

Posted by Tim Fowler | November 2, 2007 6:33 PM

Medicare intermediaries shift bulk of paperwork processing to doctors.

http://www.medscape.com/medline/abstract/2188186

---

"...When physicians bill Medicare, they are mindful of the fact that the Medicare insurance carrier will scrutinize every billing entry, questioning its medical necessity and reasonableness. They are also mindful of the fact that the Medicare fee schedule places caps on billing amounts for services and is uniformly below market rates. In addition, they know that the costs of complying with Medicare record-keeping requirements often equal or exceed the fee amounts Medicare pays.

Consequently, if Medicare subjects a physician to any inquiry, investigation, or audit, those acts carry with them costs--taxes, in effect--that can cause service to Medicare beneficiaries to result in a net loss for the practice. Many physicians now experience that net loss and must depend upon higher-than-market rates for services to patients not in Medicare to compensate for the losses.

The Medicare carriers, the entities contracting with HCFA, employ sophisticated computer programs that flag billing "outliers" and trigger automatic inquiries upon repeat occurrence of atypical billing patterns. Those inquiries can lead to Medicare inquiries, audits of a physician's patient files, and investigations by federal and state authorities, including the United States Attorney's office, the HHS Office of Inspector General, the Federal Bureau of Investigation, and local law enforcement. Indeed, Medicare inquiries, audits, and investigations are frequently the prelude to either a reimbursement demand or legal action for Medicare fraud or abuse.

Obtaining legal counsel to explain the physician's rights, Medicare procedures, and defenses can cost tens of thousands of dollars. Indeed, a single erroneous bill for less than $100 not infrequently ends up causing the physician to spend tens of thousands, if not hundreds of thousands, of dollars to pay legal fees and to satisfy ultimate reimbursement demands made by Medicare..."

http://www.heritage.org/Research/HealthCare/hl665.cfm

Posted by Tim Fowler | November 2, 2007 6:36 PM

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