Arnold Kling  

The Age of Government Dependency

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Timothy Taylor writes,

moving back the retirement age could have a large effect in addressing the financial problems of Social Security, but would have a much smaller effect in helping Medicare.

Read the whole thing. The reason that raising the age of eligibility for Medicare does not produce a large effect is the phenomenon of "morbidity compression." Basically, no matter how long you live, if you die a natural death, most of your health problems will be concentrated in roughly the last three years of your life. Bad problems kick in at around 72 for people who die at 75, and at 92 for people who die at 95. These days, if you make it to age 65, there is a good chance you will not have really expensive medical problems until you are in your late 70s, so raising the age of government dependency for health care does not do much to reduce Medicare's cost.

On the other hand, however, I think that raising the age of government dependency is still a good idea. You want to get people into thinking in terms of financing the years 65-75 with their own money. That would increase labor supply and savings. Also, reducing the proportion of the population on Medicare would help to lower the political rigidity that surrounds it.

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COMMENTS (6 to date)
foosion writes:

The downside is that private insurance is more expensive than Medicare, so we have either an increase in societal medical spending or a decrease in societal medical care.

Tracy W writes:

I'm a bit puzzled by the claim that reducing the number of people on a government programme would lower political rigidity, doesn't public choice theory imply that a programme that transfers money to a small part of the population be more stable, all else being equal, as each beneficiary has an incentive to lobby for a lot, while the cost to any individual taxpayer is very small?

Roger writes:

The solution of the debt crisis is so simple and uses concepts right out of "Unchecked and Unbalanced":

We need Democrats and Republicans to agree to a voluntary increase in medicare/SS age (for those under a certain age) OR a voluntary tax increase as needed to fund it. One or the other, every worker chooses.

This allows the Republicans to honor the no tax pledge, as their constituents can choose the higher age, and Democrats to get higher taxes to fund these bloated programs.

Richard S writes:

Arnold, I applaud you for refusing to use the misnomer "retirement age." This is a deft left-wing term, like income "redistribution" (as if it were "distributed" initially), that libertarians should shun. People are allowed to retire at any age they want. The proper term would be "eligibility age."

Mary R writes:

Removing people from the program who contribute less to the costs will just raise the average cost per enrollee. Retirees do pay premiums to Medicare, so they are a source of some funding for the program. If raising the enrollment age was combined with a repeal of the ACA, it would have a catastrophic negative effect for many retirees. It is very difficult, if not impossible, to get decent medical insurance as an individual without ACA guarantees. You would have a large population of 62-66 year olds without coverage, at risk for losing their nest egg to any health problems. They will tend to work longer if they can find work that provides health coverage. If not, their financial security will be threatened. I would prefer to see Medicare extended to people 60 and over, with appropriate premiums. This could be used to fund the system more effectively.

Arthur_500 writes:

Social Security was never intended to be used. The expectation was that most people would die before they collected any funds. It was set up as a Ponzi scheme and it remains so.

Medicare was intended to be insurance. However, it has never utilized the insurance tools to invest the premiums, adjust those premiums based on actuarial information or, god forbid, negotiate rates.

Why not run Medicare as any insurance? Raise the rates, eliminate your chance to participate in the benefits, and negotiate rates the insurance company feels are appropriate. In short, get it out of government mis-management and make it work.

On the other hand, then politicians can't raid the cookie jar.

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