“Right now, the United States is in the midst of a financial crisis, but even more pressing problems may lie ahead — and the presidential candidates aren’t addressing them.
No matter who sits in the Oval Office next year, there won’t be many degrees of freedom in the federal budget. That’s because spending on entitlement programs is largely locked into place, and the situation will become much worse as Americans age and health care costs rise. Even if the government is conservative in its spending, just paying out promised benefits implies that tax rates will rise to a crushing level — a range of 60 to 80 percent of income — well before the end of this century.
The main problem is Medicare, which reimburses the elderly for many of their health care expenses. As Mark V. Pauly, professor of health care systems at the University of Pennsylvania, has said, “Medicare as we know it today cannot be sustained over the next 50 years and probably will run into financial difficulties within the next 15.”
There’s one important idea lurking in the shadows that neither campaign is keen to talk about: paying out government benefits more efficiently. To put it bluntly, it means paying out full benefits only to those who really need them, and cutting back on payments to everybody else. …
“Means testing” — cutting back on payments to the relatively wealthy — is one way to better allocate benefits. For health care costs, this could be done by expanding Medicaid, which is focused on the needs of the poor, and making it an entirely federal program rather than one partly paid for by the states. At the same time, the government would need to limit the growth of Medicare, which is universally applied to all elderly people; as a segment of American society, the elderly are relatively wealthy. With limited resources, it would be better to reallocate health care subsidies toward the poor, whether they are young or old.
Furthermore, inducing the wealthy to pay for their own health coverage would create pressures to lower costs.
An alternative path is to put in place more means testing throughout Medicare. For instance, higher-income older Americans have already been paying larger Medicare premiums and receiving a lower prescription drug benefit; that’s part of what made it possible to expand the prescription benefit within budgetary constraints. …
Don’t expect to hear much about targeted benefits anytime before November. Such proposals would acknowledge the painful but probably realistic notion that we don’t have many good ways to control health care costs.”
Furthermore, balancing the budget is a popular goal, while cutting benefits is not. But if you’re asking which ideas are most likely to transform economic policy over the next 15 to 20 years, here is one place to start looking."
Tyler Cowen, “Means Testing, for Medicare”, The New York Times (20 July 2008).
http://www.nytimes.com/2008/07/20/business/economy/20view.html?ex=1374206400&en=5d103bc8e0f4065a&ei=5124&partner=permalink&exprod=permalink
Tyler Cowen is a professor of economics at George Mason University.
Looking to the longer-term, without question the unsustainability of Medicare and Medicaid are the greatest economic problems now before the country. Professor Cowen is right to say that the Presidential candidates are not addressing the problem even though spending on entitlement programs represents the greatest domestic constraint on government’s ability to provide the entire range of public services modern life requires. This article is useful for it presents some ideas that need to be considered as (I hope) the debate about health care gets underway in the Presidential campaign.
Because as presently designed Medicare and Medicaid are not close to being sustainable, either taxes must be raised or services must be cut, or some combination of the two. Since the projected deficit is so large, and could not conceivably be covered by taxes alone. Cowen offers some ideas on how the limited funds available to these programs might best be allocated.
His focus is on “means testing”, setting some income thresholds or other criteria that would sharply limit government payments or services to the relatively wealthy in order to provide greater support to the less fortunate. He believes the broad-based government transfers that now define the system will become much too expensive, and for that reason it is unwise to continue with the comprehensive programs now in place. Better in his view to introduce health care programs targeted mainly if not exclusively on the poor. This would mean, as he says, having the affluent pay more, perhaps much more, for their health care.
This approach is different from the comprehensive and universal government transfer programs now being advocated by the Democrats. Their argument is that if the programs are not universal or do not cover a large proportion of the population political support will be weak and health care will not be adequately funded. One problem, however, with universal health care is that consumers have little incentive to restrain their demand and control costs. On this, I suspect Cowen is right that a targeted approach to the poor would be supported politically and would be more likely to keep health care costs restrained for everyone.
Whatever decision is made about the extent of coverage of any government health care program, some rationing by the government will have to be undertaken. The question is how this might be done in an efficient manner that is fair. It might be done, for example, by a system of vouchers, which could be more generous to the poor and the elderly to ensure they have access to some minimal level of care. Alternatively, there could be fixed subsidies for different kinds of medical treatments available to everyone, regardless of income level. Or, as some insist, all costs for all people could be covered by the government in some universal health care program, but expensive medical care would nonetheless have to be rationed on some basis.
Those of us who are now in or approaching our “golden years” should give great thought to the question of government-provided universal health care. When rationing medical care, governments give priority to the young over the old and to the productive over the unproductive, and the operating room we old geezers desperately need may already be occupied by that young illegal immigrant who wants a splinter removed from his melon-picking hand.
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