The $102 Trillion Bailout
Jacob Sullum | December 3, 2008, 3:10pm
With a bailout bill that totals $8.5 trillion so far and a "stimulus package" yet to come, the federal debt, currently about $6.3 trillion, can be expected to grow substantially in the next few years. But as a new report from the National Center for Policy Analysis notes, the official number is limited to debt held by the public; it does not include entitlement obligations. The report's authors, economists Andrew Rettenmaier and Thomas Saving, estimate that paying Social Security and Medicare benefits to current workers will cost $52 trillion. If these programs were funded by investments, they say, the government would have to set aside $102 trillion ("about 7 times the size of the U.S. economy") to keep the programs solvent. Assuming the government continues to use current tax revenue to pay for Social Security and Medicare, the two programs will consume one-tenth of the federal budget by 2012, almost half by 2030, and 80 percent by 2070.
Rettenmaier and Saving concede that their preferred solution—reforming Social Security and Medicare "so that each worker saves and invests funds for his own post-retirement pension and health care benefits"—would impose a "substantial" burden on current workers, who would have to "sav[e] for their own benefits while at the same time paying taxes to fund the benefits of current retirees." But the alternatives—a crushing tax burden and/or dramatic benefit cuts—are even less appealing. Except if you're a politician whose main concern is getting re-elected in two, four, or six years. Too bad there's no other kind.
The full NCPA report is here (PDF).
Hazel Meade | December 3, 2008, 3:36pm | #
I think the real issue is what's driving up health care costs. You can point at rapidly improving new technologies, but that would be like saying oil prices are high because oil companies are spending a lot of money on exploration and development. Spending on technology is a market response to money pouring in.
I think the problem is more that people are spending money on the most expensive, latest procedures who can't really afford it. Those costs are displaced to insurers and/or the government, which are under political pressure not to ration, and are required to distribute costs to the healthy instead of requiring those receiving treatment to forego the most expensive techniques.
That's the classic party line for advocates of universal health care - the healthy should pay the expensies of the sick. In effect, that's what we already have going on, though. Employers, insurers, or the government, pay the costs, the individual never sees it.
The problem is that it causes a disconnect in the price signals that get sent to consumers. There's no incentive not to get the latest treatments, plus the hospitals and HMOs are subject to malpractice lawsuits that effectively require them to provide the latest and greatest to everyone. The net result is that money keeps pouring into the system as if there was insatiable demand, and the market responds by producing ever better (and more expensive) treatments.
This isn't all bad. We have seen a lot of progress in treating all sorts of illnesses come out of it. The problem is it's also produced spiraling health-care costs.
In actuality the current rising rates of uninsured are a symptom that the system is already breaking down. Insurers are dropping patients who are expensive to treat because they can't restrict the types of treatment they get, and/or raising rates on healthy people to the point that healthy people are dropping off the rolls. Vicious cycle.
The advocates of universal coverage are going the wrong direction. Pushing us to extend the cost displacement from the sick to the healthy to more people, deepening the disconnect and virtually guarenteeing a further explosion in health-care costs unless (until) some form of rationing is instituted. Even then, political pressure will prevent much rationing from taking place until a bugetary crisis forces it.
robc | December 3, 2008, 3:58pm | #
My plan*, if I was emperor:
Step 1:
Immediately, anyone born in 1990 or later cannot enter the current social security system (for retirement benefits, medicare and disability/death FICA bits dont change). Any money those people have already paid in** (which should be a small amount) gets put in an individual account plus 1% annual interest. From this point on those people will not pay the full FICA, but 5% (of their 15.3%) will go into this account [ my understanding of breakdown is 5% for retirement, 1.2% other ss benefits, 1.65% medicare X2 for employer portion/self-employed ]. The rest will continue to go as it currently does.
Step 2:
Each year we move two more birth years of people on to this plan. Assume step 1 was 2010 (plan passes in 2009). In 2011 we will move 1988/1989 births, in 2012 1987/1988, etc.
Step 3:
At some point, we make the move optional.*** This could be from the beginning or when we hit people who are 50 or something. During this time, people will obvious roll past their retirement age. Nothing will change for them.
Step 4:
One of two things will happen, depending on demographics, economic growth, etc.
4A: The money coming in+trust fund IOUs can no longer cover payments - at this point either something must change or we suck it up and pay off the rest of the liabilities out of the general fund.
4B: There is way more than enough money to cover a declining population depending of SS and we can start cutting the FICA tax rate (retirement part).
Step 5:
At retirement of people in private accounts, a minimal lifetime, inflation-adjusted annuity must be purchased from the account. The rest may be used as the retiree sees fit. Anyone without enough to buy the annuity gets help from the SS fund to buy the annuity.
Its not perfect (see my first footnote) but I can live with it.
*subject to 3 or 4 different standard libertarian disclaimers
**the 5% part, not the whole thing
***or not
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