Arnold Kling  

Your Planners at Work

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Andrew Biggs writes,


Over the next twenty years, fully 60 percent of total entitlement spending increases will stem from population aging. It is not until 2045 that per-capita health care spending growth becomes the majority factor. (See figure 3, which extracts data from figure 2 through the year 2045.) Yet, by 2045, entitlement spending—if left unaddressed—would already have risen to unsustainable levels. Thus, the larger role of excess cost growth post-2045 is in some ways academic: if the nation has not found a way to address rising entitlement spending before then, the issue will have resolved itself by precipitating a fiscal disaster.

His essay is about the current fashion on the left, which is to say:

1. Social Security and Medicare are not in trouble.

2. The long-term problem is health care costs, which can best be addressed by government action.

To Biggs and others, this is looking like a diversionary tactic, designed to fend off attempts to rein in promises to future retirees.

From my perspective, the health care cost issue is a bit of a red herring. If you had government out of the health care financing business, you would not worry about what health care costs are doing. If my fellow citizens choose to spend more of their money on their health care, that's not my concern. It's the prospect of my fellow citizens spending more of my money on their health care that has me worried.


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CATEGORIES: Social Security



COMMENTS (14 to date)
spencer writes:

It is amazing that this guy can cite the GAO study that shows that the aging of the population accounts will account for a small share of the growth in Medicare and come to the exact opposite conclusion.

You know better. why are you quoting this junk?

Dan Weber writes:

If you had government out of the health care financing business, you would not worry about what health care costs are doing.

Every time I write that check to the insurance company, I guarantee you, I'm worried about what health care costs are doing.

shayne writes:

As in numerous instances in the past, Arnold, you are exactly on point:

"If my fellow citizens choose to spend more of their money on their health care, that's not my concern. It's the prospect of my fellow citizens spending more of MY money on their health care that has me worried." [emphasis added]

Well said, reflecting my sentiments/concerns exactly.

One of the curiosities of the debate about health care in the U.S. is that the concept of government applying its coercive power to compel folks to spend their earnings to pay for other's health treatments is so often couched in misleading terms, such as "universal health care" or "universal health insurance". In the first place, "care" and "insurance" are two different things. Health Care is treatment. Health Insurance is protection from the risk of financial loss. And in the U.S., both care and insurance are already "Universally" available and accessible. The only thing missing is the statutory right of government to use its coercive power to compel someone else to pay for it - except in the case of Medicare/Medicaid, of course.

Spencer, did you actually read Biggs' piece?

Jim Glass writes:

Biggs is right, on both the numbers and the politics.

Just by 2030, income tax rates have to go up by 50% (or there has to be an equivalent other tax increase) to keep even with spending promises, says CBO. A larger tax increase than enacted after Pearl Harbor to fight WWII. That's almost all just aging -- one-third of it is for Social Security, with no medical costs at all. These programs are going to be re-written by then.

The Democrats focusing on the cost of Medicare after 40 years from now as somehow being the real thing that needs fixing is just a ploy to take the eye off of what happens in the next 20 years while also making a political pitch for national health care.

Here's how the Democrats have danced over this so far...

[] Clinton years with a Repub Congress: Clinton says "Social Security faces a 'crisis' [his word] we must fix it now or it will only get worse". He has a bipartisan commission on Medicare too. Then he gets caught with his pants down with Monica which blows the whole bipartisan reform thing, so to speak, as he has to line up the hard left with him to fight impeachment. End of the last bipartisan chance for entitlement reform.

[] Bush proposes SS reform. The Dem line now becomes: Why? SS is small and easy, Medicare is big and difficult. The responsible policy is to do the big and difficult thing first! Of course, we don't have any way to do it, so we won't. And we won't solve the small, easy problem either because it would be irresponsible to do that first. We must contemplate the big and difficult problem while we do nothing, responsibly.

[]Dems decide to make national health care an election issue this year: They discover that Medicare is going to crush the nation's finances 40+ years from now, the only solution to which is national health care now! That's the big responsible thing to do.

But what about the 50% income tax increase coming by 2030? How is national health care going to affect that -- other than by making that tax incease bigger???

Hey, that's the easy small stuff that it is irresponsible to waste time considering first, when the nation is faced with the crushing cost of medical care after 2050!

Lord writes:

There will be a larger elderly population so of course spending on them will go up. It would be criminal if it didn't. Yet, this is not the problem as SS taxes will cover these. The general fund is spending borrowed money. If general taxes can't be raised then cut general spending, starve the beast as they like to say. Don't blame your unwilling to raise general taxes or cut general spending as a problem of entitlement spending. Entitlements has taken on a whole new meaning. It now means whatever taxes someone is unwilling to raise and whatever spending someone is unwilling to cut. Shame on them.

Jonathan W writes:

It would be nice to be able to opt-out of Social Security.

The benefit to me is that I would have the liberty to decline a faulty system which doesn't realistically address contemporary economic concerns.

The benefits to the government would be immediate as I would forfeit all monies placed into the "trust fund" to date. They get to keep it all and pay me nothing.

The ability to choose whether or not to stay in the government financial system seems very American, which is why it would be portrayed as idealistic and libertarian instead of being viewed as fiscally prudent assumption of personal liability.

Brian writes:

Arnold,

This is a little off-topic, but somewhat related. We always talk about the future fiscal consequences of Medicare/Social Security, but since demographic profiles are even less favorable in Europe (i.e. a higher share of elderly, and below-replacement fertility rates), what do you see as the possible outcomes across the Atlantic as it relates to health-care spending? These nations already have very high tax burdens to support nationalized care (among other things), but without a growing labor pool to help fund these social programs, won't they eventually suffer the same fate as us or possibly sooner?

8 writes:

The deficit starts this year. SS surplus is spent by the Congress, but it has peaked. Every year, spending cuts or tax increases will be required to keep the budget balanced...heh, problem solved!

r musgrave writes:

Jonathan W,

Congress could decide at any point that you will get nothing from social security. The money you paid into the trust fund is already spent, and you have no right to receive a single payment in return. They don't get any benefit from your opting out because they have no obligation to you from the beginning.

Jonathan W writes:

r musgrave:

Yes, the government being the government, they can do pretty much what they like. I don't pretend to know much about law but there is a conditional agreement inherent in Social Security, some call it the "social contract." If I paid money into an annuity I would expect at least the rate of return to reflect my actual deposit - now again, the government being the government, it can and will do what is expeditious for its own interests, however it would be extraordinarily difficult to simply stop payments to benificiaries.

And the government would get a benefit from my opting out. They money I have paid in to the system to date (and it is plenty) would be forfeited with no requirement for any future repayment. I understand the money is already spent, it is the future payments that are of concern to the solubility of the fund, therefore the fewer people requiring a government supplement at retirement the better, no?

ws1835 writes:

Jonathan, I think you missed musgrave's main point.

There is NO requirement that the government give you any of your contributions back. If you had listened to the 'means testing' discussions going on Congress, you would realize that Congress already assumes that a good number of us will get nothing from the program regardless of what we paid in.

Hence, letting anyone out of the ponzi scheme actually increases the program's long term liabilities. You are a cash cow pure and simple.

Barkley Rosser writes:

My only problem with all this is I am not aware of any Dems who are running around saying that medicare has no financial problems. Who are these supposed individuals? If anything the complaint has been about these "entitlement crisis" types who tend to lump all of them together (usually throwing in medicaid as well) and then conclude that "something must be done about social security now!" (Biggs tends to be one of those, and there are some Dems into that game also).

All those out year projections of doom and gloom are due to projecting forward our current rates of medical care cost increases. One way or another something must be (and probably will be) done about those. But the issue is indeed the medical care system itself, much less the aging of the population, which is not nearly as severe a problem in the US as in other high income countries, most of which have much more government intervention in their health care systems than we do.

Andrew Biggs writes:

Barkley said:

"the issue is indeed the medical care system itself, much less the aging of the population, which is not nearly as severe a problem in the US as in other high income countries, most of which have much more government intervention in their health care systems than we do."

The point of my paper was to disaggregate the effects of an aging population from those of per capita cost growth. They're both big problems, but they're different and imply different solutions. The overall solution we adopt will probably differ based on how we view the components of the overall problem. Some people think that virtually the whole problem is due to per capita health care inflation, and so favor a structural reform of the larger health sector. I show that the problem is roughly half aging even over the long term, and more than half aging over the next several decades or so. This may imply different policy solutions.

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