Arnold Kling  

Voucherization of Medicare

Heilbroner on Forced Labor... One and a Half Cheers for Fox ...

The Washington Post reports,

President Barack Obama's deficit commission on Wednesday debated a dramatic plan to gradually turn Medicare from a system in which the government pays most beneficiaries' medical bills into a program in which seniors would purchase health insurance with government-issued vouchers.

The shocker is that Alice Rivlin joins Paul Ryan in backing the plan.

If you want to have a fixed (as opposed to open-ended) Medicare budget, you either need rationing or vouchers. What individuals want is unlimited access to medical services without having to pay for them. But that is unsustainable.

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COMMENTS (19 to date)
MikeP writes:

People need to realize that Medicare, unsustainable as it is, does not insure health: it insures savings.

And even more to the point because of who gets it, it insures inheritances. As such, it is a direct transfer from the working class to the pockets of people in their 40's and 50's -- their prime earning years.

If the excuse for Medicare is that some elderly are poor, then offer Medicare to the poor elderly. That rich people get Medicare -- indeed more of it because they live longer and are better connected -- while holding on to gobs of money they will never use, should be considered a travesty and should be reason enough for reform.

Hyena writes:

I don't see the difference. Vouchers are rationing.

Rick Stewart writes:

>If you want to have a fixed (as opposed to open-ended) Medicare budget, you either need rationing or vouchers

No you don't - you can have FEEDs (Flexible Expected Eligibility Dates).

1) establish a tax rate,
2) establish benefits,
3) have the trustees match taxes to benefits EVERY YEAR by adjusting the eligibility age

It never goes out of balance, it can handle even a severe economic downturn (in the recent downturn perhaps people on the cusp would have had to wait a mere 8.5 extra months to start Medicare), it allows Congress to increase/decrease the tax rate in the future, should it so desire, based on a clear understanding of what it would do to the expected eligibility dates.

Why is this option not discussed?

Yancey Ward writes:


Your proposal, while intriguing, is still a variant of rationing.

Milton Recht writes:

More fundamentally, why a limited purpose voucher just for health insurance instead of an unspecified use tax credit for people over 65 years old.

By specifying a medical insurance use for the voucher, it acts an health insurance subsidy and increases the cost of elderly health insurance while minimizing industry competition.

An unspecified use elderly tax credit would force health insurers to more vigorously compete for the elderly consumers' dollars on price and quality among all consumer consumption choices. It would broaden competition for the dollars, which would force greater efficiencies in the medical sector and allow the medical sector to shrink as a percentage of US GDP.

Chris Koresko writes:

Hyena: I don't see the difference. Vouchers are rationing.

I'm not completely sure I have this right, but:

Rationing is a means of artificially restricting demand so that the market price for whatever's being rationed falls below what it would be in a free market. Typically they're used in a way which enables a central authority to do a relatively fine-grained allocation of resources.

Vouchers don't work that way -- they're direct subsidies to the consumers, so they actually increase demand, while the market can be otherwise left free. Thus they can be expected to increase demand. The advantage is that the otherwise-free market retains the ability to allocate resources efficiently.

Rick Stewart writes:


OK, but that means we are already rationing.

I believe just about every American would understand and support the FEEDs system - there is a line on the chart with your birth year on it, it tells you the month and year you will probably get to move to the Medicare system, which only happens when some one dies and you are next in line (or when XX new workers enter the workforce - but why make it complicated?).

Americans stand in line a lot, and if the line is too long we look for alternatives. Everybody understands this system, with no 'education' required.

FEEDs should be part of the discussion.

jorod writes:

Rahm Emanuel proposed such a system in 2004..See the Chicago Tribune 1-20-04...

Tax credits are useless for seniors.

R Richard Schweitzer writes:

At 86, as a "forced" beneficiary[?]of Medicare, its years of taxes at the max, and its extractions from SocSec, why should it issue anything - just phase out these unconstitutional appropriations. Spend the money on bike paths that impact interstate commerce.

Rick Stewart writes:

jorod -

So why is it completely absent from the conversation?

[do you have a link - can't get the Tribune to give it to me]

Rick Stewart writes:

jorod -

Sorry - found the article and see it is re: vouchers, not FEEDs.

Thomas DeMeo writes:

Rick Stewart-

The idea of FEEDs sounds crazy to me. The burden of any particular adjustment lands on the neck of a narrow group of citizens in a particular eligibility range, while other ranges might luck out.

Lord writes:

These don't force reductions of anything, they just increase the number of parties with stakes to increase the size of benefits, which is why the private alternatives always paid more than medicare.

Rick Stewart writes:

Thomas DeMeo -

The burden is so tiny I have a hard time seeing why it is important. For most people their expected eligibility date will be precisely calculated well in advance.

In the case of a major disruption - our recent recession, for example - EVERYONE's expected eligibility date will be pushed back, assuming the trustees didn't see it coming.

As for the tiny cohort you correctly identify as thinking the free ride was going to start next month, but wake up to discover there will be a six month delay, they aren't the only 'unlucky' ones in the country when the economy tanks. They didn't lose their jobs, or their savings, or their businesses, they just have to delay their Medicare gratification a few months.

That doesn't strike me as unfair, nor does it strike me as hard to understand for the people affected.

Thomas DeMeo writes:

Rick Stewart-

Going on Medicare is worth hundreds of dollars per month, and for those who are unable to afford insurance prior to going on, it can be invaluable. I don't get the argument that this burden is tiny. It also seems very odd to argue that since there are already plenty of unlucky people in our society, that no one should mind if we add one more thing to be unlucky about.

Why distribute the burden onto just a few? Your only argument is that it is easy to make the math work. It would be like solving an education budget shortfall in a town by having everyone whose last name begins with B or C pay an extra $1000 in property taxes.

Hyena writes:

Mr. Koresko,

I'm still rationing. Rationing is a policy of controlling the supply of a specific good. Since vouchers can only be spent on health insurance, they're health insurance chit, regardless of their dollar value.

It's rationing as sure as if I issued a stamp book for it.

Rick Stewart writes:

Thomas DeMeo -

Are we talking about the same idea? The person who is 'unable to afford' insurance prior to Medicare eligibility is Medicaid eligible - they would simply stay on Medicaid a few extra months before converting.

Add one more thing to be unlucky about? I know of no way to eliminate the vagaries of human existence. Waiting a few extra months - AT MOST - to get on Medicare is no worse than having a thief steal your car, and you needing to cover the $1000 deductible. Regrettable, but not enough to throw very many people's lives out of kilter.

Your analogy fails me. A closer one would be ending high school mid-way through 12th grade, after a major flood reduced the property tax base. Nothing you wanted to happen, but hardly a life changer for the 'undereducated' students.

While I appreciate your thoughts, I can't help thinking you have your eye upon the hole, and not the donut. FEEDs completely save the current MEDICARE program, permanently, without eliminating the possibility of raising tax rates later, should politicians need more votes.

Thomas DeMeo writes:

Rick Stewart-

A very significant percentage of people who cannot afford insurance are not Medicaid eligible. The 10% uninsured in this country are not just a group of people who have elected to save money.

Yes, bad things happen, but that is quite different from being stupid enough to cause them to happen on purpose.

Your idea is unfair. You make no argument to suggest that it isn't. You just claim it isn't a big deal to take a $1000+- hit. That is true for some people, but for some others, it's quite a hardship. Either way it is unfair and unnecessary. There are other ways to do what you want to do while spreading the burden evenly.

Rick Stewart writes:

Thomas DeMeo -

I have previously done the arithmetic here, so won't repeat it, but 10 hours of minimum wage work per week will buy a nice Blue Cross/Blue Shield health insurance policy for me, a 59 year old male. Only an insignificant number of retirement aged people 'cannot afford' insurance (the ones unqualified to work as Walmart greeters - it doesn't strike me as a high bar).

But, since you continue to insist all of life must be 'fair,' how about this - the actuaries can be instructed never to adjust an age cohort's expected eligibility date by more than one month, each year. This would result in mild but temporary imbalances in the revenue/benefit match.

Rather than continue to debate the size of the donut hole, however, perhaps you could go ahead and let us know of the 'other ways' to do it? Remember, it must be a permanent solution, and accommodate changes in life spans, medical technology, national income, etc.

I'm all ears.

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