Philadelphia Reflections

The musings of a physician who has served the community for over six decades

Related Topics

Obamacare: Examination and Response
An appraisal of the Affordable Care Act and-- with some guesswork-- its tricky politics. Then, a way to capture major new revenue, even paying down existing Medicare debt, without raising premiums or harming quality care. Then, an offering of reforms even more basic, but more incremental. Finally, the briefest of statements about the basic premise.

Changing Environment

My wife one remarked that having children was like making pancakes; just throw the first two away. But she only had four children, her grandmother had ten. Her daughters had two. Increased education makes childhood longer, while improved health lengthens retirement. The working period, age 25-65, however has already extended its borders, pretty much to the limit. Ben Franklin's crusade to use healthcare to put sick people back to work, has been superseded for lack of orphans and invalids. In the past fifty years, miscarriage changed from passing nuisance into devastating disaster because waiting to have the first child is largely an athletic event. In the future, population unbalancing will mostly depend on more retirees. There's a big economic effect. Neither children nor retirees earn very much, so the wealth of the country comes from ages 25-65, which must support everybody else. Countermovements seem remarkably feeble. The pressure to retire later in life is voiced but not much acted upon, while starting work younger must contend with the publicity that more education increases lifetime income. It is too early to know how realistic it would be to shorten school vacations, or to pack more education into shorter time at school, with electronic teaching.

In a simpler age, parents supported their children, and their aging parents. It was unusual for women to earn very much, so marriage contracts enforced a support requirement. While the employment of women broadened the base of earnings, weakening the marriage institution threatened the retirement security of unmarried women. The political reaction to these changes has been a tendency to substitute government support and retirement programs for the family-based support system. Our national commitment to equal justice has had a tendency to make the new government system more expensive than the old family one. It once seemed just and natural for the wife of an impoverished man to be impoverished, but now the standard has moved to equality of treatment. In all classes of life, there is a tendency for discordance between males and females. The poor single woman gets more money, the poor single male probably gets less. The prosperous single woman gets less that she has been accustomed to, the prosperous single male is probably better off. It is too early to know how the new legislative climate will affect homosexuals. There is little doubt these changes will affect political attitudes of almost all demographic groups, but great uncertainty about the degree and direction.

Nothing makes it likely there can be much change in the dependence of the whole system on financial transfers from working groups to non-working ones. However, the system of collecting in the form of taxes and disbursing in the form of subsidies is both inefficient and disagreeable. A particularly inefficient way to accomplish this response to a weakened family structure is found in health insurance, now representing close to 18% of Gross Domestic Product (GDP). If we are to take money from younger people and transfer it to older ones, we should be collecting investment income on the decades-long interval. This is a continuous process, not a one-off transfer, and the amounts involved are seriously large. While the issue is the same for Social Security as it is for Medicare, it is easier to see how it came about in Medicare. In any new program, there is usually a transition problem to be financed, quite often by phasing it in. In the case of Medicare, the choice was made to facilitate passage of the legislation by employing "Pay as you go". In this system, the early recipients receive full benefits without paying anything toward them, and are paid by the contributions of the new younger beneficiaries who will not need benefits for many decades. In other words, the system functions on the cash flow of the system instead of on funded reserves. Its great danger lies in the possibility that some generation (in this case the Baby Boomers) will eventually create a beneficiary class too large to be supported by smaller later generations. This pitfall has received much attention, but unfortunately very little attention has been given to the problem mentioned earlier: no interest or investment income is derived from funded reserves, as is quite common in whole-life life insurance.

Nor should it happen, if the price to be paid is to have the Federal Government become the largest owner of common stock control of the private sector. That would be a very large step in the direction of government ownership of the means of production, otherwise known as Communism. With present artificially suppressed interest rates, the investment return available to governments is so small it could well be counter-productive. Borrowing from yourself is a useless exercise, and if confined to government bonds, puts the nation in a vulnerable position with potentially hostile foreign nations, or even supra-national organizations like the UN, who could one day have an agenda we consider hostile, under the control of a unicameral body dominated by one-state, one-vote system. No matter how it is arranged, it involves a loss of sovereignty for an unacceptably large part of our economy, eventually leading to total loss of sovereignty. This transfer of funds from young to old must remain in private hands, with individual voters retaining control of it. Unfortunately, a great many intended beneficiaries are incapable of managing their own affairs, so there is a significant agency risk. That's a nice way of saying that a great many people have been cheated by friends and relatives they unwisely trusted, and there is every reason to look an offended politician straight in the eye and say, "I'm sorry, but I don't trust you." Unfortunately, this commonly results in the ones you can trust, charging an exorbitant fee for the simple role of being trustworthy. This is not a new problem. The only solution is to have at least two systems at the same time: a prudential group of experts with themselves much to lose from being exposed as less than perfect, giving oversight to at least five competitive funds. How you chose the funds, and how you choose the expert overseers, are crucial.


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