Philadelphia Reflections

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

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Medicare: Begins, Not Ends, Reform
The elderly consume a disproportionate share of total health expense. That soon forces Medicare, the "Third Rail of Politics", to get first attention in any lifetime health plan -- even Lifelong Health Savings Accounts, our central proposal.

Balancing the Book

In the revenue section, we proposed taking the payroll deduction away from Medicare, putting it to work in index funds. What would Medicare do for financing during the transition period? Everything else, including post-mortem Trust Funds, grandparent-grandchild transfers, and index investing, is a new revenue source. Reduction of bondholder debt is also a "new" source of funds, in the category of needing no explanation for its replacement. But if we regard the lifetime medical financing system as an inter-generational funds transfer where the books are balanced, we have effectively concentrated the shortfall into one place, the payroll deduction system for Medicare. It represents a quarter of Medicare, or an eighth of total health cost. That's not a gigantic shortfall, but without a replacement, it is enough to sink the proposal.

1. Bond Reduction. When Mrs. Sibelius was running Medicare, she estimated that half of Medicare, or a quarter of total health spending, was borrowed money. One of the goals was to eliminate such debt, or at least keep it from growing. That would seem to generate twice what we need, although not immediately.

2. Post-mortem Trust Fund Expansion. This, too, is adjustable in size, suitable for responding to a continually changing transition. In its most extreme form, of paying for the hospitalization of a beneficiary who is 65 years, one month old, it might pay for all of Medicare. Or it might shrink down to a single beneficiary who is 104 years old. If 1. and 2. are added together, the Treasury Department ought to have ample room to juggle the funds around. On average by itself, it should have the capacity to absorb half of Medicare costs.

3. Voluntary Enrollment. If Necessary, with Adjustable Age Quotas. It is safe to say some people will be more affluent than others, as well as more adventuresome than others. The enthusiasm for any change at all will vary by political inclinations. If further limitations are necessary, incentives can be created to favor either speedy enrollment, or delay.

4. Scientific Elimination of Disease. Here, we are at the mercy of luck. But in the long run, medical costs should gradually decline to the limit of the first and last years of life. How soon and how much is not subject to advance prediction.

 

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