How Do You Solve A Problem Like Medicare?

Last updated on: May 26, 2008 at 10:13 pm by Edward Blackadder

How Do You Solve A Problem Like Medicare? 2008-05-26T22:13:42-05:00 Edward Blackadder

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Call it a crisis or not, as you please, but the fact is that Medicare is facing a huge longterm shortfall. As they say in Al Anon, the first step to recovery is admitting you have a problem. But, assuming politicians are willing to do this, what should be step two? Writing in last week’s Wall Street Journal, congressman Paul Ryan offers one proposal:

According to the Congressional Budget Office, Social Security, Medicare, Medicaid and the rest of government will consume nearly 40% of the economy by the time my three young children reach my age (38). This will require more than doubling the average tax burden of the past 40 years just to keep the government afloat. Continuing down this path will eventually strangle our economy.

To meet this challenge and secure our fiscal future, I’m introducing a comprehensive legislative plan called “A Roadmap for America’s Future.”

The bill secures the existing Medicare program for those over 55 – so Americans can receive the benefits they planned for throughout most of their working lives. Those 55 and younger will, when they retire, receive an annual payment of up to $9,500 to purchase health coverage – either from a list of Medicare-certified plans, or any plan in the individual market, in any state.

The payment is adjusted for inflation and based on income, with low-income individuals receiving greater support and a funded medical savings account.

Over at Econlog, Arnold Kling thinks he has a better idea:

I would immediately raise the Medicare eligibility age to 75 for everyone aged 50 and younger. Then, I would index the eligibility age to average longevity, so that the eligibility age continues to rise as longevity increases. If longevity continues to increase at the rate of about 1/4 year per year, then the eligibility age would rise at that rate.

Once you reach 50, your eligibility age would be locked in. For example, someone who is 46 today would be given an initial eligibility age of 75. However, by the time they reach 50, the eligibility age might have increased to 76. At that point, that person’s Medicare eligibility would be locked in to age 76.

I would propose eliminating the Medicare tax, which would lop about 1.5 percentage points off of the odious payroll tax. In the short run, I would recommend not cutting spending elsewhere, and instead letting this serve as an economic stimulus. Once the unemployment rate falls to a more reasonable level, we could try to find spending cuts elsewhere in the government Budget to offset the shortfall in payroll tax revenues.

The second sugar-coating proposal would be a new government-matching IRA account for people born in 1953 or later (i.e., those affected by the increase in the Medicare eligibility age). The idea would be to encourage people under the age of 50 to save money for their old age by providing both tax advantages and government matching funds. These savings accounts would help people to support themselves until they reach the age when they are eligible to receive Medicare.

Both proposals are worth thinking about, but given the fate of President Bush’s attempts at Social Security reform (back when the Republicans controlled both houses of congress), such proposals strike me as being more than a little quixotic. To quote High Fidelity, it’s like trying to borrow a dollar, getting turned down, and asking for 50 grand instead.

Blackadder

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