We cannot have it if we don’t pay for it

Medicare and Medicaid created hug transfers of wealth from
the younger to the older generation. But the elderly on average are much
wealthier than the young. How can we justify taking from the poor to give more
to the wealthy? Throughout history parents have sacrificed to provide a better
life for their children. This generation of old people are demanding the
opposite.  America spends more than
twice as much on health care as European countries (the next highest), with
poorer health results. But the problems will get much worse.

To be clear, the health care debate now underway in the U.S.
is not about government provided medical care. No one has proposed that the
government hire doctors and provide care, as in Britain, for example. The
debate is about the government’s role in regulating the private provision of
healthcare and healthcare insurance. Some, but not all, democrats also want to
expand government provided health insurance now available to the elderly and
the poor (Medicaid and Medicare), to the general population so that it competes
with private insurance. We should also be clear that the insurance debate
largely concerns those who have not saved and or provided adequately for their
own insurance. The debate is about what financing the government, i.e.,
taxpayers, should provide and how it should be provided.

The full scope of the problem can only be understood when we
take into account the aging of America’s (and the world’s) population. In 1955
every retired person receiving social security benefits had 8 workers to pay
the tax that financed it (SS is a pay as you go system, it is not a fully
funded savings system in the manor of a private pension). Today there are only
3.3 workers who are and can be taxed to subsidize the elderly who did not
provided adequately for themselves and the Social Security Administration
estimates that the number of workers to support retired beneficiaries will drop
further to 2.1 by 2031. It will simply not be possible to raise taxes enough on
the young to deliver the same level of benefits the elderly now receive. The
medical services for the elderly paid for by tax payers will need to be more
carefully prioritized and limited. The elderly—my generation and older—who resist
this reality are fighting to place an even heavier burden on the backs of our
reduced number of children. Their backs will break. The world has turned upside
down.[1]

Europe has proved that you can get more for less than we do.
Europe’s approaches are diverse and none are necessarily appropriate for us.
The mess our system is in largely reflects incentives that encourage waste.
These incentives need to be changed. Doctors are paid more for doing more
whether it is medically needed or not. As much or most of the bill is picked up
by insurance (government and or private), neither the patient nor their doctor
has any incentive to make wise economical choices. Thus rationing service covered
by insurance must take the form of rules for coverage given by the insurers.
Malpractice litigation adds to the incentives to over test and over provides
services.[2]
The tax subsidy to employers for providing health insurance reduces our choices
of insurance policies (limited options are chosen for us by our employer),
makes it harder to change employers and throws us to the wolves if we become
unemployed. President Obama wants to remove some of that subsidy for the more
expensive insurance options. However, tax deductibility of employer provided
health insurance should be eliminated totally or the same tax treatment given
to individuals who buy their own insurance. The government should remove many
of the other restrictions it has imposed that impede competition among
insurance providers (e.g. mandates and limits on shopping across state lines).

And we elders, I am over 65, must stop embarrassing
ourselves and stop demanding that our poor children give us more of their
incomes to cover our failure to provide for our own insurance. In fact, we must
accept less as part of the overall reduction of huge medical services waste.


[1] Robert J.
Samuelson provides an excellent summary in "A
Path to Downward Mobility"
The
Washington Post
, October 12, 2009, page A17.

[2] The
Congressional Budget Office estimates this will cost $75 billion over the next
ten years.

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About wcoats

Dr. Warren L. Coats specializes in advising central banks on monetary policy, and in the development of their capacity to formulate and implement monetary policy. He is retired from the International Monetary Fund, where, as Assistant Director of the Monetary and Financial Systems Department, he led missions to over twenty countries. Before then, he served as Visiting Economist to the Board of Governors of the Federal Reserve System, and to the World Bank, and was Assistant Prof of Economics at the Univ. of Virginia from 1970-75. Most recently he was Senior Monetary Policy Advisor to the Central Bank of Iraq; an IMF consultant to the central banks of Afghanistan, Kenya and Zimbabwe; and a Deloitte/USAID advisor to the Government of South Sudan. He is currently a member of the Editorial Board of the Cayman Financial Review and until the end of 2013 was a member of the IMF program team for Afghanistan. His most recent book is entitled "One Currency for Bosnia: Creating the Central Bank of Bosnia and Herzegovina."
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