The Corner

What Generational Warfare Looks Like and What We Can Do About It

A few years ago Arnold Kling of EconLog directed our attention to some numbers about population growth among seniors (check out his table here).

Over the next twenty years, we are going to double the number of people aged 65-74, who get their health care paid for by Medicare. And we are going to nearly double the number of people aged 75 and up, where medical expenses get really high. The Medical Expenditure Panel Survey, for which the most recent data available are from 2007, shows average spending in the 75+ age group of $10,500 per person.

The growth is impressive. The share of people in the 65–74 age group will grow from 19.3 percent of the U.S. in 2007 to 32.3 percent in 2020, and 38.8 percent in 2030. For the 75+ age group, the share will go from 18.6 percent in 2007 to 22.5 percent in 2020, then 33.3 in 2030. 

The result, as I have mentioned before, is a large increase in the share of our budget devoted to seniors, from 37 percent of the budget in 2010 to 50 percent in 2030.

If you add the share of Medicaid spending that goes to 65+ year olds, then by 2023, half of our budget will be consumed by payments to seniors. That’s eleven years down the road, and a rosy projection.

It’s hard not to see that reforms to Medicare, Medicaid and Social Security are necessary. Medicare in particular should be our priority. But how should we go about it?

#more#In his new book The People’s Money, Scott Rasmussen makes some interesting comments about how to handle the reform of Medicare. He notes that both President Obama’s and Chairman Ryan’s plans were fairly unpopular. The problem, he explains, come from the fact that “two-thirds of all Americans rate their own coverage as good or excellent.”

Yet, he says, it is possible to reform Medicare. Any solution and reform of the program would have to give people more choices, such as the right to choose their insurance plans, including some more expensive programs with better coverage, and less-expensive options with thinner coverage. He writes: “Only 7 percent of Americans side with federal policy makers and think this choice should be prohibited.” That means the introduction of meaningful competition between insurance companies. 

People want to be able to choose between high-deductible and low-deductible plans, and they want to be given the choice to buy the same health-care plan offered to members of Congress. That would involve some changes in the tax code, in particular to the exemption awarded to companies paying health-insurance premiums, which is denied to individual purchasers. He has many more suggestions based on his extensive polling of the American people on the issue.

As I read this, I am thinking that this would happen naturally if the government got out of the health-care business and stopped protecting insurance companies from competition while imposing more and more mandates on them and the American people. The difficulty, as always, is in the transition from one system to the other.

But as I have explained before, I think we should get rid of Medicare. While many so-called entitlement programs were put in place decades ago at a time when being a senior meant being poor, things have changed quite dramatically and for the best. Obviously, there are seniors who are poor, and we should take care of them. But we don’t need Medicare on top of Medicaid (which provides health care, in theory, for the poorest of Americans).

I do like the way Bryan Caplan makes the case that means-testing is relatively awesome:

I’m against forced redistribution, even to help the deserving poor.  Still, unless you buy the whole libertarian package, I understand taxing the rich to help the poor.  What I can’t understand is taxing everyone to help everyone.  Means-tested programs like TANF and Medicaid aren’t crazy; they take from Peter to pay Paul.  Universal programs Social Security and Medicare are crazy; they take from Peter to pay Peter

Even if you’re not into economics, universal programs should strike you as pointless.  But they’re actually worse: When you tax Peter to pay Peter, you distort Peter’s incentives along the way.  Of course, even means-tested programs require taxation.  But they require much lower taxation than universal programs.

The whole thing is here, and his debate on the issue with his co-blogger David Henderson continues here along with some comments from Gerald Plante of the Tax Foundation.

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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