Trends for 2009: Discussion Begins on Means Testing and Rationing of Entitlements (January 6, 2009)
As the impossibility of funding Baby Boomers' pensions and Medicare becomes ever more evident, a tentative, terrified-of-alienating-voters discussion begins on the most obvious ways to limit unaffordable entitlements: means testing Social Security and rationing Medicare/Medicaid.
Reader Maggie R. took me to task yesterday for being long on anti-Boomer diatribe and short on solutions. I would have to agree with her critique, so today's entry is on potential solutions. Maggie wrote:
I read with interest your essay this morning on Trends for 2009 Generational Optimism. But I was sorry to read that what began as an essay about the millennial generation degenerate into a diatribe against the "boomer" generation.Well said, Maggie, thank you. Maggie then offered solutions which many well-informed observers view as inevitable: means testing, rationing and a national healthcare plan of some sort.
I agree with you that Social Security and Medicare are unsustainable as is and need policy changes that will recreate them as entitlements for the poor. And universal health insurance may allow us to do that. . If SS is means tested, there will be no need for anyone to "fall on their swords." The financial impossibility of SS is due to its being owed to everyone, even those who could live quite easily without it. The upper and upper middle class will need to give up their SS benefits and new tax laws will likely accomplish that. But they won't like it having paid into the system all her life.The economy will need to become quite dire for people to swallow this necessity.It was not my intention to sound cavalier, so let me re-phrase my intent in saying Baby Boomers will have to "fall on their swords." What I meant was this: politically and culturally, we are in the deathgrip of an entitlement mindset in which the vast majority of the populace is focused on "what I was promised," "what I deserve," "what I paid into," etc. etc. etc. and not at all on what the nation can actually afford and what sacrifices might have to be made to restore fiscal prudence (and survivability).
That transformation from entitlement to sacrifice is "falling on your swords." That change will have to occur within millions of Boomers, and then as a result of that inner understanding, in the body politic of the nation.
I would say we're not even close to that transformation. But discussions--tentative, fearful, murmured, whispered--of limiting unaffordable entitlements are beginning, and will become ever more common as the U.S. economy continues its downward spiral.
Astute reader Jason submitted a link to this upcoming book The Narcissism Epidemic: Living in the Age of Entitlement with this comment: "Not out yet, but you have to love that title." Agreed, and thank you, Jason, for bringing this to our attention.
Maggie R. also observed that the Boomer generation is not solely responsible for the present financial meltdown and culture of entitlement:
I, too, have been frustrated by the short sightedness of my generation in regard to economic issues, but I believe that much of the blame can be laid at the feet of our whole culture that prefers to pay millions to football players and 30K/year to teachers. This is merely an example (I'm not an embittered teacher). These skewed values cannot be blamed on the boomer generation; they were inherited. One could blame the WWII generation for raising its children with these values. It's true that one doesn't need to accept such values. But the numbers of people with an independent mindset are few in a culture permeated by mass media culture. One would have to fault the human species for that.While I would agree no one generation bears sole responsibility, it is the Boomers who are about to retire and thus it is they who must step up to the plate and make the fiscal sacrifices necessary for the survival of the nation. The generation who got drafted to fight World War II didn't get a choice about what sort of sacrifices they would be called upon to make, and it can be said that those Boomers who got drafted (or volunteered) to fight the Vietnam War have already made enough sacrifices.
Fair enough, so let's place Veterans' entitlements at the head of the "entitlements triage" line. Medical care provided by the Veterans Administration is actually very cost-effective compared to the bloated, 50%-is-waste Medicare program, so that can be left more or less as-is.
As for retirement benefits, maybe some prioritization is in order: those who served in combat and those who served active duty for more than 20 years are at the head of the line, followed by everyone else. Do Veterans' widows receiving the benefits of their spouses "deserve" that entitlement if they have adequate income from other sources? Since my Mom fits in that category, it would be easy for me to say "yes," but I think the coming triage really requires us to get back to basics: the Vets get the benefits they earned with their service and when they pass away the benefits do, too.
It would be nice if we could pay every entitlement forever, but reality is about to impose limits on how much the nation can borrow to pay entitlement benefits to 75+ million people.
Is "means testing" fair? I would say: absolutely. Look, if someone is collecting a $4,000/month pension from a government/private retirement pension, then would sacrificing their $1,000/month Social Security put them on the street in a cardboard box? No.
Do they "deserve" Social Security" because "I paid into it"? Well, actually, yes and no. The truth is that virtually all Social Security recipients pull out the actual money they put into the program, and interest earned on those contributions, in a few years. Everything after that is welfare, paid by other taxpayers--i.e. the generational Ponzi scheme.
Most people refuse to accept this incontrovertable fact: after a couple years, every dollar of Social Security you get is flat-out welfare: an unearned benefit paid by someone else.
So far, we've been borrowing money from future generations to pay this welfare to retirees, but our ability to borrow trillions of dollars from foreign exporters is about to be radically restricted (by rising interest rates and the destruction of their surpluses), and as the worker-retiree ratio slips toward 2-to-1 then the generational Ponzi scheme that worked when the ratio was 10-to-1 or even 5-to-1 is about to collapse.
(Bernie Madoff has provided us with an example of how Ponzi schemes eventually collapse, and retirement "entitlements" are the world's biggest Ponzi schemes.)
So let's envision a means-testing triage for Social Security. Let's say we aim for a non-taxable cap of $2,000/month. If a retiree pulls in $1,200/month from whatever sources, then their Social Security benefit above $800/month is taxed. If they receive $2,000/month or more, then their Social Security benefits are taxed at extremely progressive rates--essentially 99% by $3,000/month in all income (even Muni bonds--no loopholes).
It's called triage, folks. Why should people drawing $8,000/month in other government pensions receive Social Security? What number is "too much"? Well, once you finally admit the nation is effectively bankrupt, then you set that number pretty low because that's all the actual money we'll have to spend anyway.
Once you agree to live within the nation's means, i.e. what's collected in cash via taxes, then all sorts of entitlements melt away--there's simply no money for them.
As for Medicare care being rationed: while I understand that's one way to go, I'm not sure that's the fairest or most practical way to go. I would start with these limitations:
1. There is no entitlement or right to care: all Medicare/Medicaid benefits are privileges, not rights, which have to be adjusted to the fiscal realities of the nation's income and expenses.
2. Those who can afford private care/private insurance which duplicates Medicare are excluded via means testing. Transferring your wealth to your offspring a year before you retire won't cut it: all wealth transferred within the past 20 years is counted. (see item 1. There are no "rights" except what's in the Bill of Rights. Medical care is not in the Bill of Rights.)
3. Every doctor's visit under Medicare regardless of the patient's income costs a $50 co-pay. This will create a market for $20 visits at the Wal-Mart walk-in clinic, and the government won't get billed $700 for a $20 visit.
4. What gets covered by Medicare is severely restricted. The triage is based on age and the cost of the procedure. The amount to be paid by each procedure is based on airfare to New Delhi, Shanghai, or Bangkok, Singapore, etc. plus the cost of the procedure wherever it is the cheapest. (Thus a hip replacement which costs $43,000 in the U.S. would be reimbursed at the rate of $5,000. See Doing the numbers on medical tourism (S.F. Chronicle, 1/4/09)
The net result of this would be clinics popping up in Mexico with First-World trained staff providing the care at those prices at a profit. No, you won't be able to sue; you'll have to do the research on the clinics and doctors there, and take your chances. Or you can save up cash or buy your own insurance to pay the $43,000 here in the U.S.
It's peculiar that we don't have a "right" to drive or a "right" to auto insurance; if you get three DUIs and wreck your car, your "right" to the privilege of driving and auto insurance are revoked or severely restricted. The lesson here: if the "right" to medical care is likewise revoked, then maybe people will start taking responsibility for their health. It certainly works in other areas of life like driving.
Before you start writing me, please keep in mind the context: a bankrupt nation requires fiscal triage such that its expenses are aligned with its income. Now if you want to leave all the entitlement structures as is, then you have to raise the funds to pay for them via taxes. Go ahead and nail the corporations for $1 trillion a year (and see how many still generate a net income to tax), and raise income taxes to 65%--yes, 65%. That's what Danish and Swedish citizens pay, and they don't even have the world's mightiest and most expensive military to support--so maybe we better nudge that up to 75% for the U.S. tax rate.
If you think I'm joking, do the math on raising $66 trillion (or maybe it's $90 trillion, we're only guessing at how much Medicare will actually cost) via taxes. Right now the U.S. government collects about $2.5 trillion in taxes per year and borrows a $1 trillion more to squander/spend, mostly from non-U.S. exporting nations like Saudi Arabia, Japan and China--yes, the very nations which are also entering recession and seeing their trading surpluses vanish.
It would be nice if the coming triage were easy, and if it could be managed with a few minor nips and tucks. But that is fantasy. The reality is: we either trim spending by $60 trillion over the next 20 years or we raise taxes by $60 trillion to pay for the entitlements we "deserve." Or we cut $30 trillion and raise $30 trillion in taxes. One way or the other, the sacrifices will have to be made.
I personally think our nation's cost structure has become bloated to an insane degree and the first step is to "get back to basics" and cut costs rather than try to raise $60 trillion in new taxes. This isn't just philospohical; I just don't think raising $60 trillion in new taxes is practical, as the imploding economy won't support it. But that's a discussion for another day.
Here are some other thought-provoking reader comments on the subject:
I was born in 1980 so I'm one of the people you're talking about. It is accurate to say my generation is full of optimism.Dave E.
I am quite optimistic about the future, and I'm a baby boomer.Pat M.
Thank you, readers, for your thoughtful comments.
“Dad,” said Daniel after he walked into the log home from outside. “The French are uploading the video they shot by satellite link.”
"This guy is THE leading visionary on reality.
He routinely discusses things which no one else has talked about, yet,
turn out to be quite relevant months later."
NOTE: contributions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Or send him coins, stamps or quatloos via mail--please request P.O. Box address.
Your readership is greatly appreciated with or without a donation.
For more on this subject and a wide array of other topics, please visit my weblog.
All content, HTML coding, format design, design elements and images copyright © 2008 Charles Hugh Smith, All rights reserved in all media, unless otherwise credited or noted.
I would be honored if you linked this wEssay to your site, or printed a copy for your own use.
|consulting||blog fiction/novels articles my hidden history books/films what's for dinner||home email me|