One way to solve the deficit problem

[one...two...tree 2,762]

FOLLOWING Barack Obama's visit with the Republicans last week, some members of the opposition were deeply upset. They bristled at the idea that they have not proposed any serious ideas and are simply the "Party of No". In fact, the accusation is not true: Republicans have proposed some serious ideas recently. I'm going to post on two of them. The first, put forward by Paul Ryan, the ranking Republican member of the budget committee, is the "Roadmap for America's Future" budget proposal and it credibly claims to put America's federal budget in surplus by 2080. The CBO agrees. How does it do that?Simple, it slashes Medicare. It slashes Medicare so deeply that the Democrats' proposal for $500 billion in savings over ten years, which Republicans demonised, looks like child's play. Under Mr Ryan's proposal, starting in 2021, Medicare would be gradually eliminated. Instead, seniors would be issued vouchers to buy private health insurance. The voucher for a 65-year-old would be worth $5,900, in 2010 dollars. (Mr Ryan's site says the vouchers would be worth "an average of $11,000" in 2010 dollars, but that's the average for the entire 65+ population. Individual health-insurance premiums for a 90-year-old are obviously going to be astronomical.) The voucher would then grow at the average of the annual medical inflation rate (CPI-M) and the general urban inflation rate (CPI-U). In other words, since medical-cost inflation is higher than general CPI inflation, the voucher would deliberately fail to keep pace with medical costs.

What would such a voucher buy? According to the Kaiser Family Foundation, the average individual premium for workers under 65 (ie, a median worker in his early 40s) was $4,824 in 2009. But here's the thing: the voucher is supposed to cover insurance for 65-year-olds, who are much more expensive to insure than younger workers. Kaiser doesn't break down average premiums by age. But according to the Bureau of Labor Statistics, mean health-insurance premiums and health-care expenditures for people aged 55 to 64 in 2008 were a good 50% higher than those for mean individuals between the ages of 35 and 44. (The exact dollar figures in the Census Expenditures Survey can't be used for this purpose because they don't include employer contributions to premiums. And costs for 65-year-olds aren't comparable because they're covered by Medicare; let's assume they're about the same as costs for 64-year-olds.) Assuming a 65-year-old is at least 50% more expensive than the median, the average individual premium could easily be $7,200 (1.5 x $4,800). This jibes with the fact that average medical costs for those 65 and up were over $9,800 annually in 2008.

By 2021, if medical costs continue at their current rate of growth, premiums could nearly double in constant dollars. But to his credit, Mr Ryan does something else that would bend down the cost curve on health-care inflation: he eliminates the employer health insurance tax exclusion. Instead, individuals would be issued $2,300 refundable tax credits to purchase insurance. This will mean severe cuts in the health-insurance benefits of all Americans who now get employer-based health insurance, much more severe cuts than those that would take place under the bill the Senate approved in December, which would only drop the exclusion on plans costing more than $21,000 a year. But it will slow medical cost inflation. How much? The CBO assumes it will slow the nominal growth of health-care costs from its baseline estimate of 5% per year to the same rate as the nominal growth of GDP, which it assumes to be 3.4% over the long term. Overall CPI-U inflation, meanwhile, is guesstimated at 2%. This CBO guesstimate starts off from a shaky assumption: medical costs have actually been growing at 8% per year, not 5%, for the past ten years. But let's stick with CBO's optimistic assumptions. What will Mr Ryan's voucher buy in 2021?

Mr Ryan's plan doesn't kick in until 2011, so let's assume individual premiums rise in 2010 at the same rate they rose in 2009: 3.6% over inflation. (PriceWaterhouseCoopers actually forecasts medical-expenses inflation of 9% in 2010, but we'll be optimistic.) We'll also be optimistic (pessimistic, actually, but optimistic for Mr Ryan's plan's purposes) and assume CPI-U is 0% in 2010, so that means the average individual premium will cost $4,997 (1.036 x $4,824) in 2010. Again, we'll figure the cost for a 65-year-old is at least 50% higher than the median cost for all workers; let's call it $7,500. Then Mr Ryan sets his voucher at $5,900, and lets it grow by the average of CPI-U and CPI-M for 11 years. Using the CBO's assumed rates of 2% CPI-U and 3.4% for CPI-M, that means that in 2021, the voucher will be worth $7,906 (nominal), while the average individual insurance premium for a 65-year-old will cost at least $10,800 (nominal).

So Mr Ryan wants to give 65-year-olds a $7,900 voucher to buy insurance that will, under optimistic assumptions, cost $10,800. What every senior citizen currently gets for free, under Medicare, will instead cost them an extra $2,900 a year, if they have it. For most, that will mean giving up benefits and getting less medical care, or going without insurance entirely. And every year, by design, Mr Ryan's proposal will widen the gap between the voucher and the cost of medical care by 0.7%, even after accounting for the effect his proposal will have on holding down medical costs. Every year, seniors will get worse and worse care. This is what the CBO means when it says:

Under the Roadmap, the value of the voucher would be less than expected Medicare spending per enrollee in 2021, when the voucher program would begin. In addition, Medicare's current payment rates for providers are lower than those paid by commercial insurers, and the program's administrative costs are lower than those for individually purchased insurance. Beneficiaries would therefore face higher premiums in the private market for a package of benefits similar to that currently provided by Medicare. Moreover, the value of the voucher would grow significantly more slowly than CBO expects that Medicare spending per enrollee would grow under current law. Beneficiaries would therefore be likely to purchase less comprehensive health plans or plans more heavily managed than traditional Medicare, resulting in some combination of less use of health care services and less use of technologically advanced treatments than under current law. Beneficiaries would also bear the financial risk for the cost of buying insurance policies or the cost of obtaining health care services beyond what would be covered by their insurance.

There are two other really interesting things about Mr Ryan's proposal. First of all, if you hit 65 before 2021, you still get Medicare, with all of its current perks. You're grandfathered in. So if you're 54 or over right now, his bill is a great deal for you: you get caviar, and everybody younger than you has to pay for it. Second, Mr Ryan's proposal necessarily sets a flat nationwide amount for each voucher. Medicare, on the other hand, pays variable reimbursement rates in different parts of the country, based on the fact that medical costs can vary by two times or more between, say, Nassau, New Hampshire and Lincoln, Nebraska. According to the Commonwealth Fund, the average individual premium in Nebraska in 2008 cost $4,392; in New Hampshire, it was $5,247. So if you live in Nebraska, under Mr Ryan's plan, you luck out. If you live in New Hampshire, not so much. One could imagine an interesting conversation between Ben Nelson and Judd Gregg regarding Mr Ryan's Roadmap, if there were ever any chance of it actually being voted on.

Mr Ryan has put forward a serious proposal for shrinking medical-cost inflation and hence shrinking the long-term federal budget deficit. It does so by ending America's provision of first-rate health care to all seniors. Rich seniors will still be able to afford high-quality medical care. Poor seniors won't. They will suffer more and die younger. A different approach to solving America's health-care cost problem might involve letting Medicare use its vast bargaining power to negotiate lower rates with the providers of pharmaceuticals; establishing a commission of experts (MedPAC) to rate the effectiveness of medical procedures, to avoid wasteful incentives in the current fee-for-services medical model; and establishing bundled payments for disease management, to achieve Mayo-Clinic-like efficiencies in care while improving quality. Those are the models proposed in the Democratic bills currently in Congress. But they're really complicated and hard to understand—they make for a bill that's 2,000 pages long. And everybody knows the American people hate that. Mr Ryan proposes to simply slash Medicare spending and balance the budget on the backs of poor seniors. That'll work too.

http://www.economist.com/blogs/democracyin...top_paying_them

[mawilson 2,133]

People need to realize that Medicare and Social Security are unsustainable. The only way to keep

these programs alive is to increase FICA taxes across the board.

The Medicare tax is 1.45 percent... 1.45 percent! Of course it's bankrupt! Make it 10 percent to

give it a fighting chance.

[Pooky 3,807]

People need to realize that Medicare and Social Security are unsustainable. The only way to keep

these programs alive is to increase FICA taxes across the board.

The Medicare tax is 1.45 percent... 1.45 percent! Of course it's bankrupt! Make it 10 percent to

give it a fighting chance.

At 10% you're up into single-payer contribution territory. In the UK, the National Insurance contribution works out as follows:

* If you earn above £110 ($175) a week (the 'earnings threshold') and up to £844 ($1,345) per week you pay 11 per cent of this amount as National Insurance contributions

* You also pay one per cent of earnings above £844 ($1,345) a week as National Insurance contributions

* You will pay a lower amount as an employee if you are a member of your employer's contracted out pension scheme

link

That gets you the NHS. Increase the upper threshold and/ore the higher earnings percentage and you could go a long way to making a single payer system with a decent chance of working. All you need to do then is enact serious tort reform, to bring down the CYA costs of the medical professionals and use a combined medical establishment to leverage lower drug costs and you could achieve what the Democrats have singularly failed at - Healthcare Reform.

OK, I'm off for more chocolate.

Edited February 4, 2010 by Pooky

[Danno 1,228]

While the term "elderly" sounds frail and helpless, the truth is Seniors are by far the wealthiest segment in our society

Some are collecting double retirements and Social security too.

Meanwhile these grand progressive dreams to build the perfect society is falling squarely on the shoulders of the working class families.

I know a guy who retired from the military with a nice monthly check at 42, he then went and got another job working as a cop, soon he will be not only collecting those nice dollars but collecting social Security too.

WHy should Bill gates and Warren Buffet have his meds paid for on the back of your childrens future?

These programs continue to enlarge, adding more benefits and like clockwork the annual COLA adjustment kicks bumping it up each year.

Desperate situations call for desperate measures.

[Pooky 3,807]

While the term "elderly" sounds frail and helpless, the truth is Seniors are by far the wealthiest segment in our society

Some are collecting double retirements and Social security too.

Meanwhile these grand progressive dreams to build the perfect society is falling squarely on the shoulders of the working class families.

I know a guy who retired from the military with a nice monthly check at 42, he then went and got another job working as a cop, soon he will be not only collecting those nice dollars but collecting social Security too.

Why should Bill gates and Warren Buffet have his meds paid for on the back of your childrens future?

These programs continue to enlarge, adding more benefits and like clockwork the annual COLA adjustment kicks bumping it up each year.

Desperate situations call for desperate measures.

So, if your acquaintance worked his butt off to earn the right to his pension, which he contributed to, who are we to say we should encumber him differently to the rest of the population. The UK's NI contributions apply to income. If you acquaintance's pension paid him over the threshold amounts, then he would still pay the NI contributions.

Applying the burden in the same manner to everyone is the simplest method out there. It's also the best way not to screw with people.

[I AM NOT THAT GUY 5,715]

Is there any way to grind up old people and turn them into bio fuel? That could solve two problems at the same time.

[Pooky 3,807]

Is there any way to grind up old people and turn them into bio fuel? That could solve two problems at the same time.

IT'S PEOPLE! SOYLENT GREEN ... IS PEOPLE!

[luckytxn 2,264]

The only thing that stands out is that by 2080 the budget would start running surpluses. That long. There are ways now to get a surplus going and could start next year.