Arnold Kling  

Strange Comment on Social Security

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Calculated Risk writes


As a mental exercise, imagine if we eliminate SS spending and the SS payroll tax - what happens? The General Fund deficit stays exactly the same and we would need to address the significant General Fund shortfall. Would Kling then suggest raising taxes on lower and middle income Americans to cover the shortfall? That seems to be Kling's suggestion.

I do not understand this. If we permanently shut down SS--no more spending and no more payroll taxes, then in the short run the government runs a larger deficit. But in a few years, as the Baby Boomers hit retirement, the hypothetical shutdown of Social Security will lead to lower deficits than otherwise. Overall, the effect of a shutdown would be to reduce the net present value of future shortfalls, so if anything such a shutdown would allow us to afford further cuts in taxes.

I am not sure what this thought experiment is supposed to prove, in any case. But if I understand the experiment correctly, then CR's analysis of it is 180 degrees wrong.

Along the way, CR tells us he has a free lunch for us--reform of the health care system that will lead to lower costs and better outcomes. I have spent considerable time investigating such free lunch claims for my forthcoming book, and I am quite convinced that they are bogus.

Briefly, if you were to enlarge government's role in paying for health care without introducing heavy-handed rationing, then spending will go up. (Medicare and Medicaid alone account for as much spending per capita as some other advanced countries' entire health systems--just imagine what our spending would look like if all of us had our health care all paid for by Uncle Sam.) See also my latest essay.

You can reduce spending if you implement government rationing of health care. However, you have to be really brave to believe that by doing so you will improve health care outcomes.


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CATEGORIES: Social Security



COMMENTS (9 to date)
Barkley Rosser writes:

Arnold,

I have not read your full set of essays, much less your book, on the health care issue, so I do not know if you have already addressed this or not. One of the claimed savings that I see people arguing that would happen under a single payer national health insurance plan would be the removal of lots of effort at trying to avoid paying for people that private companies make, plus all the efforts that individuals make with those companies to get covered when they deserve to be. In short, the claim is that rather than being more efficient, the private insurance companies generate lots of extra administrative costs that are quite substantial. Any comment on that one?

Matt writes:

Barkley--

Arnold's latest essay does discuss this. The link in the EconLog article above is strangely broken. You may have to cut and paste: http://www.tcsdaily.com/article.aspx?id=121405E

[Link fixed. Thanks, Matt.--Editor]

Barkley Rosser writes:

Matt,

Thanks for the site. I read it. However, beyond mentioning that paperwork might be a factor in the high US cost (along with lots of specialists and tests and some other things), it was not discussed further. Certainly it was not refuted the way that asymmetric information was.

I would add two more to the list: 1) high pay of our physicians, not just that we have so many specialists, and 2) the high cost of medical malpractice insurance, which is tied to #1. I am surprised the second was not mentioned.

Oh yes, a third would be the high cost of our prescription drugs. On that one I'll go along with the argument that the rest of the world are free riders on our pharmaceutical R&D.

Scott writes:

Arnold,
When is your book coming out?

Barkley Rosser writes:

Arnold,

I realize that you attempt to deal with all this in your book, which I have not read yet, but after agreeing that there are some reasons why medical care might be more expensive in the US (malpractice insurance costs, high drug costs to fund R&D, plus some other things), why then is it the case that the bottom line product is so lousy in terms of life expectancy and infant mortality relative to much of the rest of the world, to pick to stats that get thrown around a lot?

I know you have addressed this, but besides the obvious "uninsured people do not get preventive care," what is the balance of bad behavior (especially too much bad eating), too much poverty, too many sick immigrants, and other factors in this poor national health performance?

Chris Bolts writes:

Thanks for pointing out the Medicare/Medicaid link and spending of advanced countries on healthcare. We're the only advanced country other than Japan with 200+ million people. How in the world are we supposed to provide good, rationed and cheap healthcare to this many people and there not be any waste, fraud, or abuse on behalf of the government or the populace when even Japan is having a problem with its healthcare costs? Such illogical reasoning boggles the mind.

Movie Guy writes:

Arnold,

I would like to see you confirm or challenge the following information regarding provision of health care coverage by employers. In light of the fact that health care coverage in the American private corporate/company employment sector is declining as a percentage of workers covered, the growing burdens on Medicaid and State level medical programs should be obvious.

Hope you covered the following statistics in your book and various presentations as relate to Medicaid funding needs.


Fourth consecutive year of decline in employer-provided insurance coverage
October 20, 2005
http://www.epi.org/content.cfm/bp167


Overall health insurance coverage trend in the United States of America

The number of people without health insurance grew significantly for the fourth year in a row. The number of uninsured Americans rose by over six million, from 39.8 million in 2000 to 45.8 million in 2004.


Employer-provided health insurance coverage for workers and their families is declining

The employer market has been the primary method of obtaining health insurance in this country. Its strength lies in the effective sharing of risk among individuals. Unfortunately, market pressures are exacerbating the problem. During periods of weak labor demand, workers do not have the bargaining power to bid up their wages or benefits. During a period of simultaneous weak bargaining power and rising health costs, employers demand that workers pay for higher premiums or pay more out-of-pocket for their care. Furthermore, by pushing workers out of the employer system and into the public one, employers are shifting the cost of insuring their workers onto taxpayers.

The percent of people with employer-provided health insurance... fell for the fourth year in a row. The downward trend in the rate of employer-provided health insurance continued from 2003 to 2004, during a period in which the economy created 1.5 million jobs, either many of these new jobs did not include health coverage or existing jobs shed coverage during the year (or both). Jobholders experienced a significant decline in health insurance coverage from 2000 to 2004. In 2000, 58.9% of workers had employer-provided coverage, whereas only 55.9% of workers had coverage in 2004.

As many as 11 million more people would have had employer-provided health insurance in 2004 if the coverage rate had remained at the 2000 level. The rate during this period declined from 63.6% to 59.8% (a 3.8 percentage-point drop). At the same time, the Medicaid rolls (including SCHIP) have increased by nearly eight million, with a coverage increase of 2.3 percentage points. The safety net health programs - Medicaid and the State Children's Health Insurance Program (SCHIP) - have kept millions of families insured when their employment-based benefits were lost.

Children experienced the sharpest declines in employer-provided health insurance coverage. In 2000, 65.6% of children had employer-provided coverage, whereas in 2004 only 60.8% did, a fall of nearly five percentage points. Fortunately, existing government insurance (i.e., Medicaid and State Children's Health Insurance Programs) increased coverage to children by six percentage points, enough to offset the sharp decline in employer coverage for this group.

Unlike the trend with children, the fall in employer-provided coverage for prime-age working adults was not accompanied by a sufficient increase in public coverage. Middle-income Americans between the ages of 25 and 54 were 26.7% more likely to be uninsured in 2004 than in 2000.

The decline in employer coverage was pervasive and felt throughout the country. When comparing the 1999-2000 and 2003-04 periods, Maryland, Maine, Missouri, North Carolina, and Wisconsin all experienced losses in coverage rates in excess of 6.0 percentage points. Not a single state experienced a statistically significant increase in coverage.

This phenomenon of replacing employer-provided health insurance with public-sector health coverage begs the question: is this a positive way to meet the United States' health care challenges?


Declines in overall employer-provided coverage

About 3.7 million people, including workers, their spouses, and their children, lost employer-provided health insurance between 2000 and 2004. The percent with employer-provided health insurance fell from 63.6% in 2000 to 59.8% in 2004, a decline of 3.8 percentage points.

The percentage of workers covered by employer-provided health insurance coverage was smaller.

Declining health insurance coverage for workers

The percent of workers with employer-provided health insurance coverage fell from 2003 to 2004, continuing the uninterrupted decline that began in 2000. As shown below, 55.9% of workers who worked at least 20 hours per week and 26 weeks per year received employer-provided health insurance from their own employer, down from 56.4% the year before and down a total of 2.9 percentage points since 2000 when 58.9% of all workers were provided health insurance coverage.

The 2005 data has not been located, but there are indications in various industry reports that coverage continues to decline.

Only 52.5% of workers with a high school education were covered in 2004, whereas 68.5% of college-educated workers had employer-provided health coverage. This disparity reflects the fact that higher-skilled workers are likely to have higher-quality jobs that offer health benefits.

Both white collar and blue collar workers experienced declines in coverage, but blue collar workers are insured at lower rates (54.9% vs. 62.4%) and experienced a greater drop (4.1 vs. 2.6 percentage points). Even workers who worked full time and year round had significant declines in coverage between 2000 and 2004. In 2000, 66.2% of full-time, full-year workers had coverage. By 2004, coverage for this group had declined 2.3 percentage points to 63.9%.

The decline in employer-provided insurance that covered children fell from 65.6% to 60.8%, a drop of 4.8 percentage points. Ranking children by their family's income is particularly revealing of the unequal distribution of employer-provided health care. Only 18.2% of children in the lowest income quintile were found to have employer-provided health insurance, compared with 87.4% of the children in the highest income quintile.

Comparing 2000 to 2004 data reveals employer-provided children health insurance coverage losses of -25.2% for the lowest family income quintile, -15.7% second quintile, -5.6% third quintile, -4.2% fourth quintile, -1.6% highest quintile.

Why does it matter that health insurance coverage for children is declining? Well, aside from the obvious moral implications that some may not appreciate when they glare into the mirror each morning, the cost burden appears to be shifting to federal Medicaid. Even for the cold hearted and Dumb and Dumber crowd, the increased cost pressures on Medicaid run counter to attempts to minimize federal programs' growth. Unless, of course, the nation intends to write off these children.


Share of private sector workers receiving employer-provided health insurance coverage, by industry, 2004

55.9% - All Workers

Industry:

26.0% - agriculture, forestry, fishing, and hunting
30.5% - arts, entertainment, recreation, accomodation, and food services
42.5% - construction
60.1% - education, health, and social services
65.2% - financial, insurance, real estate, and rental and leasing
70.2% - information
71.8% - manufacturing
79.0% - mining
39.2% - other services (excluding public administration)
55.8% - professional, scientific, management, administration, and waste management service
66.9% - transportation and utilities
52.8% - wholesale and retail

* In order to qualify as employer-provided insurance coverage, workers had to receive health insurance from an employer who paid at least part of the health care insurance premiums.

http://www.epi.org/content.cfm/bp167

CalculatedRisk writes:

Professor, My post is correct. I explicitly referred to the "General Fund" deficit - you apparently misread my post and confused the General Fund with the Unified Budget deficit.

Thanks for the laugh on health care! There is no way I implied a "free lunch".

Best wishes and good luck with your new book.
CR

翻译公司 writes:

I love tax,everyear I hand in millions money.I am so happy,because that show that I earn more money!

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