Props

July 2, 2010 at 11:18 am (By Maxwell James)

Icepick has a really great, moving comment over at Dave Schuler’s place (in a thread where I was behaving rather childishly):

As for addressing Medicare – I will do so just to spite you. The truth of the matter is that Medicare cannot be fixed. Forcing doctors and hospitals to take less money will insure shortages of coverage. No one will accept that. And failing to reduce costs will simply bankrupt the country. Obama and Co. are attempting another path, which is to destroy the whole goddamned US medical system. They’ll probably succeed. After all, if EVERYONE is getting crappy rationed medical care, then those old people can’t complain when we don’t give them anything.

Medicare won’t be fixed. It WILL go bankrupt, and soon. What happens after that wreck? Who knows? Personally I suspect that the effort to keep it afloat will end up destroying a large chunk of the American economy and will definitely destroy the last vestiges of the republic, slight as those vestiges are.

Mr. Schuler, how do you propose to means test Medicare? Most people don’t have retirement medical benefits, and those that do have such benefits are usually predicated on Medicare absorbing 80% of the costs. Removing that subsidy would bankrupt the private plans right quick.

Even those with good incomes would have trouble affording decent medical insurance. What is the fair actuarial cost for medical insurance covering an 82 year-old with a history of bladder cancer, osteoperosis, and many other issues? That’s really damned steep. You’re either going to exclude almost no one, thus gaining almost no benefit, or you will be exluding people solely with the intent of making them paupers. And that will not fly, politically.

(There are aspects of Medicare currently which do this as well. No one likes to talk about THAT topic much either, and most have no idea such things can even occur until it happens to a family member.)

Dave, in fine form, pivots and turns this into a great post about real healthcare reform – the kind we haven’t even begun to see yet. I don’t agree with everything in either the comment or the post, but they’re both extremely thoughtful and ask important questions without offering facile answers. Read it all, both of ’em.

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14 Comments

  1. Icepick said,

    Hmm, I didn’t think you were behaving childishly. Drew was being a dick for some reason, but I thought the rest of you were just being … hmm, shall we say … vigorous?

    Mostly I was annoyed that people are saying the SS fix is impossible, when most of the fixes have been done before. SS by itself isn’t much of a problem – we just need to wait until the situation is sticky enough that the pols stop mouthing slogans at each other and agree to the solution that must happen.

    But Medicare and the rest of the budget? Unsolvable clusterfucks.

  2. William O. B'Livion said,

    SS is fundamentally unfix-able in it’s current form because it is a ponzi scheme and Generations V and W didn’t have enough kids (abortion anyone?) and taught Generation X and Y that this is the right way to have families.

    You can monkey around with raising the cap on taxes, you can move the minimum and regular retirement dates, or you can means test it, but those either just screw the people who’ve been paying in their whole lives in favor of the (and this is going to get me in big trouble) parasites who “worked their whole lives” and DIDN’T plan for their retirement.

    My mom worked 30 years for the same institution and has a reasonable chunk of change in the bank, plus a decent retirement plan. This other woman I know–about a generation (little less) has something like 26k in a Roth IRA and plans on moving in with her daughter as a retirement plan. That is NOT what we call “wise financial planning”.

    The only way to “fix” SS, without adding more straw to the camels we call “the rich” is to turn it from a defined benefit plan to a mandatory savings plan–like a national 401k sort of thing. If the 12.5% that I’ve been paying into SS and Medicare for the last 28 years had instead been going into a proper retirement fund this would be a LOT different. And the politicians wouldn’t NEARLY have the power they do with SS.

    So yeah, the politicians in Washington can keep making little changes that kick the can down the road, but SS is FUNDAMENTALLY unsound. You CANNOT fix what is broken by design.

  3. wj said,

    As a retirement plan, with contribution, age and benefit definitions unchanged, Social Security is unsustainable. Being currently, as WO’B notes, basically a Ponzi scheme — one where the contributor pool is running low.

    But suppose you don’t assume it cannot be changed? Suppose you view it (as was originally intended) as a safety net instead, one which will provide a minimal level of income — poverty-level, but little more than that. (That includes both a means test of some kind and setting the benefits relatively low. I’m not sure what the current benefit levels are, so I don’t know if that requires a change or not.) And suppose further that you make gradual adjustments to the eligibility age, designed to keep that age at roughly the same point in the average life expectancy as it was when the system was set up? Finally, suppose that you eliminate the current “max out” limit on how much income gets taxed.

    Now you have something which is sustainable. It doesn’t penalize those who did save for their retirement, because they get to live at something closer to the manner to which they are accustomed. It doesn’t “soak the rich,” since they will just be paying the same rate on all of their income as everybody else pays on theirs. It does mean that there was a couple of generations in the middle, between the original beneficiaries and future ones, which got a relatively cushy deal out of Social Security. No question that is unfair, but no solution is perfect.

    All of which is separate from the question of what (if anything) can be done about MediCare. I think I’ll put that into a separate comment.

  4. wj said,

    Fixing MediCare? I think a couple of questions need to be addressed, in order to figure out whether that is even possible.

    First off, why are costs so high?
    Second off, can we (politically) decide that not every possible medical condition must get treatment which will add every single possible day to someone’s life?

    Costs? Those come in two parts:
    1) costs for labor
    2) costs for inputs (drugs, diagnostic and treatment machines, etc.)

    Costs of labor depend on doctors’ payment requirements. (And those of other health care providers’, but I will assume for the moment that those are not the critical contributor to labor costs. Fell free to correct me.) Why do doctors charge what they do? Again, multiple factors, including the cost of their education and their overhead costs — specifically the cost of avoiding litigation. The latter is a huge deal. It includes the cost of malpractice insurance, but the big deal is the cost of doing lots and lots of testing (frequently expensive testing) to reduce the risk that something obscure might get missed.

    So you fix labor costs in several parts. First, you can try to provide alternatives to the education costs. Perhaps subsidize it. Perhaps pay off the loans of those who put in some level of service for MediCare, Medicaid, etc. (Those who wish can still pay their own, and then go do cosmetic surgery for the rich and feckless.) Second, you put limits on how much testing is required to avoid liability for malpractice — not to avoid any possible mistakes, but merely to have some reasonable chance of catching most health problems. Yes, that requires some levels of protocols for various circumstances. And yes, some people with obscure problems will get missed. Third, put limits on how large a financial settlement can be for accidents, or even for malpractice. They still may be large, depending on what happened and its impact. but they won’t be out of all proportion to the damage done. In particular, they won’t be a way to punish the offender — just to compensate (at some level) the injured party.

    The first change should be no problem politically, and it essentially pays for itself. The second (the sanity check) will be harder. But not, come the crunch, impossible. And the third (eliminating the possibility of winning the lottery) is possible — assuming that the trial lawyers’ lobbying efforts (and they will be huge) can be overcome.

    Now, the input costs. First, the reduction on the amount of testing expected/required (above) cuts input costs. Second, we will have to put some restrictions on charges for drugs. At the moment, the rest of the world puts limits on payments for drugs — so in effect, in order to provide drug companies with the rates of return they have, the US subsidizes everybody else. Yes, payment limits will reduce the incentives for innovation, so some future cures will not turn up as quickly (or possibly at all). But fixing the system means accepting that.

    If we do all of that, the costs for near-universal medical insurance (and MediCare and Medicaid) get reined in. Will there be political resistance? You bet! But is it possible, short of a totally trashed national economy? I think so. We will need to feel more pain than we are feeling so far, but I have faith that the required level is short of total disaster. And the good news is, we can do some of those things without necessarily doing all of them at once. Call this kicking the can down the road if you wish. But buying time to make the case for doing everything is not really a bad thing.

  5. Icepick said,

    SS is fundamentally unfix-able in it’s current form because it is a ponzi scheme and Generations V and W didn’t have enough kids (abortion anyone?) and taught Generation X and Y that this is the right way to have families.

    Funny, but none of the working actuaries I know think the system is beyond repair. The demographics are stabilizing. For decades we have had fewer and fewer workers per retiree. But with some indexing of retirement age we should be able to reach an approximate equilibrium in a couple of decades.

    If the 12.5% that I’ve been paying into SS and Medicare for the last 28 years had instead been going into a proper retirement fund this would be a LOT different.

    Yes, you could have lost half of everything by investing in indexed stock funds and real estate! Or 95% of everything by owning Citi stock. One of the points for Social Security is the idea of security.

    That includes both a means test of some kind and setting the benefits relatively low. I’m not sure what the current benefit levels are, so I don’t know if that requires a change or not

    “[A] means test of some kind ….” Please, specify which means test you would prefer. Everyone claims they want means testing, but they never say what they want, not even in outline.

    As for benefit levels, let me inject some actual data. This chart displays the maximum levels one can get IF one has put in maximum contributions since age 22. Further, in 2008 ~41.5 million people claiming OASI (Old Age & Survivors Insurance) with an average benefit of $1,023.88, or $12,286.56 annually. (See page 35.)

  6. wj said,

    “Please, specify which means test you would prefer. Everyone claims they want means testing, but they never say what they want, not even in outline.”

    Fair enough. I’d put a means test in two parts
    1) income: If your income (from all sources) is more than 2 times the SS benefit, your benefits start dropping linearly, if anyone cares) until you reach 5 times the SS benefit, at which point your benefit is zero.
    2) assets: if your assets are more than 100 times the SS annual benefit, your benefit starts dropping. Once you reach 250 times the annual benefit, you get nada. (Essentially, if you have assets which, at a 2% rate of return, would give you an income which is at a means test income limit, you are limited even if you do not actually choose to take that level of income. )

    I’m not wedded to the exact numbers offered above. But it does outline, per your request, how I would see the means test work.

  7. Icepick said,

    And suppose further that you make gradual adjustments to the eligibility age, designed to keep that age at roughly the same point in the average life expectancy as it was when the system was set up?

    Just make ceretain you choose Life Expectancy at Age 65 (or whatever starting retirement at you use) instead of the nonsense of using Life Expectancy at Birth. Using that last part has people making claims such as “SS was only designed to cover people for 3 years, because life expectancy was only 68 years back then!” High mortality rates in children aged 5 and under brings that birth expectancy number down considerably. People who use LE@B either don’t know what they’re talking about (and should be ignored) or are spinning the facts (and should be taken out back and beaten senseless.) For example, in 1950 the difference in the two measures was 10.7 years. (See page 199.)

  8. Icepick said,

    I’m not wedded to the exact numbers offered above. But it does outline, per your request, how I would see the means test work.

    Thank you. That makes exactly one person I’ve asked who’s given me specifics. OTOH, the rate of improvement is huge!

    As for assets – will you include assets held in trust? If not, how do you plan on to stop people from dodging through that loophole?

    And on income, how do you plan on adjusting for capital gains? WIll you deduct the CG’s taxes from the income amount?

    FInally, will those kinds of levels accomplish any meaningful reductions? I suspect that by the time one gets to a situation where such tests have an effect (affect? whatever.) they will start biting into those people who really can’t afford to start giving up their income.

  9. wj said,

    Hmmm, assets held in trust. Certainly an issue, considering how many people already use something like a trust just to avoid the hassle and cost of probate.

    Well, clearly trusts ought to be counted. Excellent point. I’m not sure how to allocate shares when a trust has multiple beneficiaries, but something like “in proportion to control” ought to be possible. Obviously I haven’t really thought it thru yet.

    On income, I would add all income that constitutes money coming in and available to be spent. If it is just accumulated, undistributed capital gains (e.g. change in house value), that gets covered by assets.
    I think I would go with after-tax income across the board. Capital gains taxes, like income taxes (and any other taxes on income, from whatever source), ought to get deducted — and the means test comparison should be to Social Security benefits after taxes. (Of course, what I would really like is to see capital gains taxed the same as other income. But that is a separate, and possibly less winnable, battle.) And I would include state income taxes where applicable; but not sales taxes, property taxes, etc. We’re just talking income here.

  10. Donna B. said,

    Whether it’s possible to fix either system, I’m not sure. But one huge difference is that Social Security should be easier to fix because it’s more of a closed system. Medicare is part of the entire health care system which is ill-defined and much more fluid.

    Fixing the malpractice problem is much more complicated than it’s usually presented. It’s not just a matter of overcoming the trial lawyers lobby, it’s a matter of re-thinking legalities and, unless the practice of medicine is carved out as a special profession not subject to the same remedies as other professions, it’s not really workable.

    I think fixing the legal system should be addressed, but not just the part of it that pertains to medical practice.

    So, let’s start with class action suits instead of malpractice. Fixing that boondoggle will probably reduce the cost of pharmaceutical and medical device innovation. It will also reduce costs in a lot of other industries.

    As for malpractice suits, they should become both more difficult to file and more difficult to win. For example, the accusation of malpractice should be only made for behavior that can result in the loss of a license to practice (forever) and it should be accompanied by severe punitive damages. When the punishment is severe, it should be accompanied by a stronger standard of proof.

    Accidents and “ordinary negligence” are different and it’s going to be hard to separate them from malpractice because medicine is not an exact science. Perfect doctors, perfect patients, and perfect medicine aren’t going to happen. I can see caps on damages and elimination of punitive awards in suits that result from these types of injuries. Again, reform in this area would effect more than just medicine. These cases should be easier to file and require a different standard of proof than malpractice.

    Substantial reform of the health care system would automatically result in a reduction of malpractice cases, I think. The general public expects far more from medicine than it can realistically deliver. This is in part due to overblown media reports about new cures and discoveries. Add that to a human’s innate inability to accurately gauge risk and it just gets ridiculous at times.

    IOW, to fix Medicare, we are going to have to change our expectations about health care in general.

    Right now, I’m considering closing this window to erase this comment because it’s so disjointed and possibly incoherent. But there’s a tiny chance it can spur others to think, so I’m taking the chance of laughter and ridicule in response :-)

  11. amba12 said,

    I saw nothing to laugh at, Donna. Thanks for not erasing

    Wonderfully substantive discussion, here and at Dave’s.

  12. Rod said,

    Social Security makes sense as a low yield, but safe forced annuity. For most of the years since its inception, a disciplined saver could have done better putting money in a mutual fund. So, it felt like the government was borrowing our money at low interest rates. Of course, over the last few years, reasonably prudent investors have gotten clobbered. 401k accounts lost half their value and much of the equity in real estate disappeared.

    Every plan to make SS solvent will hurt somebody. The biggest losers under the current system are people who pay in all their lives, then drop dead the day they qualify for benefits. They paid for the annuity, but didn’t get the benefit.

    If we means test benefits, we will break the social contract with people who have paid in for their whole lives, but have other income or assets. These people do not desperately need SS benefits, but they have earned them, and their lives are enhanced by having enough money to visit their kids or take a vacation.

    If we remove the cap on SS taxes, someone earning $300,000 per year will pay in three times as much as the guy who makes $100,000 per year, but get the same benefit. We will turn people making good incomes into the equivalent of the man sitting next to you on the plane who wound up paying three times as much for the same ticket. It punishes high wage earners.

    If we remove the tax cap and means test in the way wj suggested at the same time, we are simply involved in confiscating wealth.

    Of course, we can also increase the age at which benefits are paid, or we can stop indexing benefits until the amounts received are not enough to keep someone who has paid in all her life (but not otherwise saved) above the poverty line. Increasing the age at which benefits are received would be a major movement towards solvency, but it also creates problems. Many of the older people who have lost their jobs during this recession are not going to be rehired. Some of them will be skirting the poverty line before they qualify for benefits. Of course, every year we push back the benefits, we also increase the group who get cheated because they die before they qualify.

    Since every move to increase solvency hurts someone, I believe the best solution would be a combination of all of them. Push back the benefit age a little. Hold back any benefit increases for a few years. Allow the SS tax cap to rise a little. Means test if you must – but gently. Anyone who has paid in for a lifetime should not get nothing.

  13. Stephanie said,

    Rod,

    if you make 300k, and pay 6% (the personal contribution portion) on the first 100k, your effective tax rate is 2%, vs the 6% effective rate that everyone else has to pay. Seems to penalize those who make less, to me- they have to pay taxes on a larger portion of their income than those who make more.

  14. Icepick said,

    Stephanie, those making less than $100,000 that pay the higher effective rate also get a benefit for everything they pay in. In other words, they get something for something. Raising the cap on those that make more than $100,000 (actually it’s more than that, and it’s indexed so that it goes up each year) without raising their benefit level means that they will be getting nothing for something.

    OTOH, ~40% of workers ultimately pay no income tax. They’re getting something for nothing.

    Like the song says, “Tax the rich, feed the poor, til there are no rich no more.”

    Making arguments about the fairness of US taxes is pointless.

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