Friday, August 12, 2011

The Mark of a Tired Nation: Today's Retirees Pay Less Than 50% of Their Lifetime Medicare Benefits

"Since the New Deal — and especially since the Great Society — America has chosen an accelerating transfer of wealth from young to old. Some of this was necessary and desirable. Many seniors face a period of economic struggle toward the end of life, which entitlements have effectively, compassionately eased.

But longer lives have extended this period of dependence, while health-care inflation has dramatically increased the cost of the Medicare entitlement. According to Andrew Biggs of the American Enterprise Institute, someone who retires today will pay for less than half of the Medicare benefits he or she is likely to receive over a lifetime — a subsidy given to even the wealthiest retirees. The balance of these costs is imposed on workers or added in debt.

The problem is that there are two periods of economic dependence in life — late and early. A healthy society not only cares for its elderly but also cultivates its children. Biggs estimates that the federal government now spends $6 on seniors for every $1 it spends on children, even though the poverty rate of children is much higher.

From a historical perch a century hence, this will seem an odd, sad decision. A country that increases taxes on current workers and encumbers children with debt to maintain unreformed health entitlements is looking backward. Unless this course shifts, America will have a continually diminished capacity to invest in children and young families. It is the evidence of a generation that prefers its own future comfort to the welfare and ambitions of generations to follow. And this attitude is the mark of a tired nation."

~Michael Gerson in yesterday's Washington Post 

25 Comments:

At 8/12/2011 11:13 PM, Blogger VangelV said...

"Since the New Deal — and especially since the Great Society — America has chosen an accelerating transfer of wealth from young to old. Some of this was necessary and desirable. Many seniors face a period of economic struggle toward the end of life, which entitlements have effectively, compassionately eased.

What a bunch of nonsense. Old people should be richer than the young because they have had time to accumulate more wealth. And for those that do there are always their children and relatives to help out. If that is not enough there are the churches and charities. Transferring wealth from the young to the old is very foolish because it undermines the young and makes them more vulnerable to being unable to look after themselves and more dependent on the government. The best thing to do is to end the transfer payments for moral and ethical reasons and to let people accumulate wealth so that they are better able to look after their own needs when they are retired. It also helps to stop giving the central banks the power to rob these people by inflating away the purchasing power of their savings.

 
At 8/12/2011 11:15 PM, Blogger VangelV said...

The problem is that there are two periods of economic dependence in life — late and early. A healthy society not only cares for its elderly but also cultivates its children. Biggs estimates that the federal government now spends $6 on seniors for every $1 it spends on children, even though the poverty rate of children is much higher.

What is wrong with parents looking after their young children and those same children helping their parents when they become older and more established? We do not need government to destroy society by its idiotic transfer schemes.

 
At 8/13/2011 12:08 AM, Blogger arbitrage789 said...

Certainly should be means testing for Medicare. People above a certain income should be subjected to a deductable. For example, people with more than $50K/yr income could be subjected to a $3000 deductable; above $100K/yr income to a $10,000 deductable. One could also throw in co-payments.

The issue of using financial or real estate assets as criteria is a bit more sticky. Not good for the government to send the message that people will be punished for saving; OTOH, a person with $10M in assets can afford to buy health insurance.

 
At 8/13/2011 1:56 AM, Blogger Don said...

It's one thing to pay for goods and services provided by a functioning free market, but it's altogether something else to be extorted to pay for goods typically provided by insurance companies and other third party payers.

Regards, Don

 
At 8/13/2011 2:33 AM, Blogger Ron H. said...

"Certainly should be means testing for Medicare. People above a certain income should be subjected to a deductable."

So you would force everyone to pay for something all their working lives, but then punish those who are successful by providing a lesser benefit?

If you advocate welfare in the form of medical coverage for the elderly poor, why not just call it what it is, and pay for it out of general tax revenue, rather than pretending it's something everyone has earned?

Perhaps workers should have a choice of either paying during their careers for lifetime retirement medical, or using that income as they please, and providing their own retirement medical.

 
At 8/13/2011 7:33 AM, Blogger gadfly said...

Ron H. is correct. Accepting Medicare procedures as the norm by which we live our lives is to turn our backs on the familial and personal charity that used to drive society before government got too big for its shoes.

 
At 8/13/2011 8:24 AM, Blogger Lammert said...

Fear not, the most powerful macroeconomic force in the history of the world is now operative: global US debt holder's retrenchment to rectify 45 years of Mr. Johnson Great Society.....

The financial asset class with the greatest market value and greatest global participation is the US debt instrument.

Look at the weekly charts. Equities are in the midst of a nonlinear collapse. US debt instruments are the recipients of that nonlinear collapse and are in nonlinear growth going to 150 year low interest rates.

For fifty years western debt expansion has been offset by asset and wage inflation allowing further debt expansion. While there are natural saturation limits to this process, the world macroeconomy with the new Asian labor force participation has reached a supersaturation point.

There is now a defacto consensus among US (and eurobond) debt holders that austerity is needed to maintain the quality of US debt. Qualitatively further debt expansion which drives the real global economy is dead. The deceleration in global GDP will be nonlinear. France’s quarterly GDP is one of the canaries in the coal mine. Equities are undergoing exquisitely predictable Lammert quantitative fractal collapse. The daily pattern is 3/8/4 of 6-8/5 days.

 
At 8/13/2011 9:26 AM, Blogger Hydra said...

Something like 90% of lifetime medical expenses are incurred in the last three years of life. To that extennt longer lives are not the issue: it makes little difference WHEN those last three years occurs.

We need to learn to distinguish between health care and death care.

Why is it that we understand that one generally gets cheaper prices per unit with more purchases and larger orders, for everything except health insurance. For this, we resist the idea of bulk purchases, and uniform specifications.

I can hear the bunk engines spinning up now about free choice and stealing other peoples money, but I would suggest there is a difference between stealing and spreading the risks, even when there are intergenerational issues involved.

It would be great if my children would take care of me as I do my mom, except I have none. I can choose to buy long term care insurance, but why would I trust, say, AIG for my insurance, or Lehman for my trust any less than I trust the government?

As for debt, most people have debts that exceed their annual income, and as long as they can borrow for near zero, why shouldn;t they? As a nation we have huge infrastructure needs that we can borrow the money for at less than zero: foreign countries are practically paying us to hold their money. Sure our children a(yours actually) will have to pay for the infrastructure they get to use - big deal.

Our debts are no where near exceeding our ability to pay, just our willingness. And then, of course there is the issue of WHAT we pay for.

If we had an abbreviated budget on the back of our tax form where we could designate where we want OUR money spent, would that stop the noise about "choices"?

No. People whoo are opposed to supporting abortion, or war, or high speed trains, would still be opposed. The fact that someone else designated their money differently would make no difference. Freedom of choice in government spending is not the issue, despite all the rhetoric: it boils down to controlling what others can do - even for those who claim to extoll true freedom.

 
At 8/13/2011 9:29 AM, Blogger Hydra said...

Look at the weekly charts.

Then look at the twenty year charts.

Tomorrow you will spend as much or more for a Coke or a bulldozer, or a bag of kraft ships as you did today. Why would you think Coke the company is worth less?

Fear.

 
At 8/13/2011 10:16 AM, Blogger Tom said...

Social security and Medicare are Ponzi schemes which are in decline, if not collapse. If that money had been invested, like a legitimate pension system, almost all those workers would be millionaires, and most would be multimillionaires.

 
At 8/13/2011 10:21 AM, Blogger VangelV said...

If you advocate welfare in the form of medical coverage for the elderly poor, why not just call it what it is, and pay for it out of general tax revenue, rather than pretending it's something everyone has earned?

Statists on both sides of the political spectrum don't like this idea because it exposes the system for what it is.

Perhaps workers should have a choice of either paying during their careers for lifetime retirement medical, or using that income as they please, and providing their own retirement medical.

Statists do not really believe in choice. They prefer the rule of an intelligent elite that can make decisions for the stupid public.

 
At 8/13/2011 10:22 AM, Blogger VangelV said...

Fear not, the most powerful macroeconomic force in the history of the world is now operative: global US debt holder's retrenchment to rectify 45 years of Mr. Johnson Great Society.....

While Mr. Johnson deserves some of the blame the Republican presidents that followed him conspired to make government bigger and helped to create the mess that we are in. Both parties need to go before there is any hope for the nation.

 
At 8/13/2011 10:24 AM, Blogger VangelV said...

Why is it that we understand that one generally gets cheaper prices per unit with more purchases and larger orders, for everything except health insurance. For this, we resist the idea of bulk purchases, and uniform specifications.

Costs for insurance go up because costs for insured health care goes up. The interesting part is that uninsured elective procedures have gone down in price. (Cosmetic surgery and eye procedures being the most obvious examples.) The problem is a hampered market and stifled competition. End of story.

 
At 8/13/2011 10:49 AM, Blogger Walt G. said...

I was part of the generation who was against the Vietnam War. Now we have Iraq and Afganistan. Not much difference there.

I was also part of the generation who said just stop taking SS/Medicare out of our paychecks, and we will pay our own way because we realized we may never collect any SS/Medicare. We were told it does not work that way. You pay for those on it now and when you get older, the younger people will pay for yours. Now that I am older, a lot of people want to change that rule.

Maybe someone can get elected on a platform to cut the "entitlement" programs for the senior citizens and lower the finacial burden of the younger generation, but I doubt it with the clout of the AARP generation and the voting records of that age group. We've been both lied to and had promises made by our elected officals, so we are not likely to easily forget or forgive.

 
At 8/13/2011 11:06 AM, Blogger VangelV said...


Maybe someone can get elected on a platform to cut the "entitlement" programs for the senior citizens and lower the finacial burden of the younger generation, but I doubt it with the clout of the AARP generation and the voting records of that age group. We've been both lied to and had promises made by our elected officals, so we are not likely to easily forget or forgive.


You may be right about the politics. Which is why I expect a currency collapse and a major adjustment to the system.

 
At 8/13/2011 11:17 AM, Blogger juandos said...

"While Mr. Johnson deserves some of the blame the Republican presidents that followed him conspired to make government bigger and helped to create the mess that we are in"...

Ahhh vangIV! vangIV! vangIV!

You have said what I've long been thinking...

This is why I laugh when people say they wish they could have another 'conservative' like Reagan...

Reagan didn't do one thing to turn back and of LBJ's Great Crapola scam...

Reagan never said boo! about it...

 
At 8/13/2011 11:46 AM, Blogger arbitrage789 said...

We could, in principle, phase out Social Security and Medicare, and transition to a system under which each individual provides for his/her own retirement and health care, via expanded IRA’s and healthcare savings accounts. But one way or another, people must be compelled by the government to save, or alternatively to contribute to a government-run system. The reason is that, if there is a large number of elderly people with no savings, and no eligibility to receive government benefits, they will become a powerful and determined voting block which will be able, in effect, to extract money out of the rest of the population.

There are on the one hand, the libertarian ideals, but on the other hand, the practical political realities.

 
At 8/13/2011 11:52 AM, Blogger arbitrage789 said...

VangelV


“[because of the politics] I expect a currency collapse and a major adjustment to the system”.

^^^^^^^^^^^^^^^^

I’m no more optimistic about the situation than you are. But on the issue of the “currency collapse”, I actually don’t necessarily see a significant decline of USD versus the Yen, the British pound, or the Euro (or whatever may replace the Euro).

 
At 8/13/2011 11:58 AM, Blogger PeakTrader said...

Ronald Reagan on Franklin Roosevelt: The Significance of Style
08/20/08

Ronald Reagan ("when the economy was still floundering"):

"I’m trying to undo the ‘Great Society.’ It was LBJ’s war on poverty that led to our present mess.”

 
At 8/13/2011 1:52 PM, Blogger Ron H. said...

"I can hear the bunk engines spinning up now about free choice and stealing other peoples money, but I would suggest there is a difference between stealing and spreading the risks, even when there are intergenerational issues involved."

It never ceases to amaze me that you continue to claim that you aren't smart enough to make your own choices, and that some benevolent group of people, who are much smarter than you, is better qualified to decide for you how your money should be spent.

"It would be great if my children would take care of me as I do my mom, except I have none. I can choose to buy long term care insurance, but why would I trust, say, AIG for my insurance, or Lehman for my trust any less than I trust the government?"

I think I see part of the problem now. Since you have no children, why should you be concerned about future generations? Why not force other people's children to take care of you in your old age?

"If we had an abbreviated budget on the back of our tax form where we could designate where we want OUR money spent, would that stop the noise about "choices"? "

Possibly: would one of those choices be "none of the above"? Could I chose greater or lesser amounts to spend? Or, would I be forced to spend the same amount no matter what I chose?

That would be the equivalent of being forced to pay for a meal in a restaurant, whether or not there was anything I liked, and whether or not I was even hungry.

Maybe "choices" isn't the right word to use in your example.

 
At 8/13/2011 1:59 PM, Blogger Ron H. said...

"But one way or another, people must be compelled by the government to save, or alternatively to contribute to a government-run system."

Really? Do you, like Hydra, truly believe you aren't smart enough to make your own choices?

How did this work before there was Social Security and Medicare?

 
At 8/13/2011 2:11 PM, Blogger arbitrage789 said...

Ron H @ 1:59

I would ask you to respond to the other point I made:

"if there is a large number of elderly people with no savings, and no eligibility to receive government benefits, they will become a powerful and determined voting block which will be able, in effect, to extract money out of the rest of the population"

^^^^^^^^^^^^

Do you agree with this, or not?


I do believe that the prospects for economic growth in this country would be better if the Federal government were smaller. But I don't think there's much chance of that happening.

 
At 8/13/2011 3:35 PM, Blogger Ron H. said...

arbitrage 789,

"if there is a large number of elderly people with no savings, and no eligibility to receive government benefits, they will become a powerful and determined voting block which will be able, in effect, to extract money out of the rest of the population"

^^^^^^^^^^^^

Do you agree with this, or not?
"

There is already a large and powerful voting block of elderly people, and they already vote their own interests. Up until now, the political class has been scared to death of them.

I'm not sure how many of them have no savings and aren't eligible for government handouts, but I would expect that to be a relatively small number.

While I can imagine many with no savings, to be ineligible for government benefits, requires a person to have avoided paying any significant FICA for most of their lives, and not be a surviving spouse of someone who did pay significant FICA. This would include those who always worked for cash & paid no taxes, and those who never worked at all.

Although I have no problem with people avoiding taxes and FICA, I don't expect them to now claim some of my earnings if they haven't planned for their elder years.

"I do believe that the prospects for economic growth in this country would be better if the Federal government were smaller. But I don't think there's much chance of that happening."

I'm not sure. Leviathan certainly hasn't been stopped, but some slight change in course may have resulted from the Nov. 2010 elections. We shall see. we will know for certain if there is any hope after Nov. 2012.

 
At 8/13/2011 11:01 PM, Blogger VangelV said...

There are on the one hand, the libertarian ideals, but on the other hand, the practical political realities.

There is nothing 'practical' about ensuring that the system will crash because reform is difficult.

 
At 8/13/2011 11:02 PM, Blogger VangelV said...

I’m no more optimistic about the situation than you are. But on the issue of the “currency collapse”, I actually don’t necessarily see a significant decline of USD versus the Yen, the British pound, or the Euro (or whatever may replace the Euro).

You are comparing fiat currencies that are all in decline. Try comparing those currencies to agricultural commodities, coal, gold, silver, or oil.

 

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