Mike Kueber's Blog

December 4, 2012

The Democrats are caught stealing from the Republican playbook

Filed under: Issues,Politics — Mike Kueber @ 12:40 am
Tags: ,

I have previously criticized the Republicans for aiming their budget-slashing knives at something they call “waste & fraud.”  Yes, I believe there is a tremendous amount waste and fraud in government programs, but if we knew how to eliminate it, wouldn’t we have done it already? 

Recently, I have noticed the Democrats are taking a similar position in dealing with America’s financial imperative to cut Medicare funding.  Instead of recognizing that Medicare cuts will unavoidably hurt Medicare recipients, the Democrats are taking the Pollyannaish position that any cuts to the program must not affect the elderly.  Instead, they argue that Medicare can be fixed by arbitrarily reducing payments to the vendors who provide Medicare services. 

That may be how you address problems under socialism, where government can set prices, but America is not there yet.  If the Medicare program won’t pay its vendors a fair price for their service, the vendors will no longer provide the services.  And ultimately, the elderly will still be hurt anyway. 

I assume all of this is more political posturing designed to satisfy a party’s base.  The men (and women) in the room surely are too smart to be distracted by this pablum.

November 29, 2012

How do the progressives propose to fix Medicare/Medicaid?

Filed under: Economics,Issues,Politics — Mike Kueber @ 2:07 pm
Tags: , , ,

One of the most fatuous charges made by Democrats during the recent presidential election was that Republicans plan to eliminate Medicare “as we know it.”  That charge is fatuous because every sentient person knows that Medicare as we know it is unsustainable and must be reformed.  At least, I thought every sentient person knew that. 

Before the election prompted both sides into making ridiculous statements, the conventional wisdom was that, because Social Security, Medicare, and Medicaid comprised such a large percentage of federal spending, the out-of-control federal deficit could not be tamed without making significant changes to those entitlement programs.  Everyone agreed on that.

Post-election, however, I have read a series of disturbing reports indicating that progressives/liberals are opposed to making significant changes to those programs.  Huh?  That doesn’t make any sense, but for some reason the mainstream media doesn’t press these people to explain their nonsensical position. 

An explanation for the media’s negligent conduct can, perhaps, be found in today’s editorial in the NY Times.  In that editorial, the Times asserts that neither Medicare or Medicaid can be touched without “hurting the most vulnerable Americans.” 

So, if the Times opposes any cuts, how does it propose to bring fiscal sanity to these programs?  Ironically, it suggests something that reminds me of the Republican plan to balance the budget through so-called dynamic scoring – i.e., a booming economy.  The Times claims that the costs of Medicare and Medicaid will become manageable in the future because ObamaCare will reform healthcare in America by making it better and more efficient.

There may have been a time in America’s past when we could afford to make economic decisions on the basis of what George H.W. Bush called voodoo economics, but that time is passed.  Neither party should be presenting budgetary proposals that depend on rosy, highly speculative scenarios.     

 

July 16, 2012

Medicare and socialized medicine

Filed under: Issues,Medical,Politics — Mike Kueber @ 1:13 pm
Tags: ,

While lounging in the apartment pool yesterday with an exceptionally enlightened friend (and insurance agent) and discussing America’s intractable deficit problem, he pointed out that Social Security was never intended to be sufficient to satisfy an individual’s retirement needs.  Rather, it was designed to provide a base of protection that most American’s would supplement with their separate retirement savings.  Everyone knows that. 

Later, when our conversation shifted to Medicare, it suddenly dawned on us we didn’t know whether the same concept applied to Medicare – i.e., was Medicare supposed to completely protect seniors from the cost of medical care or was it merely a base that was intended to cover a portion of an individual’s medical care?  In other words, are senior Americans paying a larger or smaller percentage of their medical expenses that they have historically done?

A little basic research on Wikipedia reveals some surprising facts:

  • Medicare covers 75% of the cost of covered services on average and 48% of average costs for all medical services, and the typical enrollee faces over $3,000, while 10% of enrollees have over $8,300 in out of pockets costs.

From these numbers we can infer that 25% of covered services are paid by individuals through co-pays and deductibles.  Uncovered services includes long-term, dental, hearing, and vision care, plus supplemental insurance.  Sounds like Medicare covers about the same percentage of a retiree’s medical needs as Social Security does for a retiree’s non-medical needs.

While doing this research, I learned that the current Medicare tax of 2.9% is scheduled to increase in 2013 to 3.8% on those individuals who earn more than $200k.  This tax is used to provide Part A Benefits (hospital care), while Part B Benefits (doctor care) are funded by premiums, which are highly progressive – i.e., $99.50 a month for individuals making less than $85k a year to $319.70 a month for individuals making more than $214k a year.  

Thus, unlike Social Security, which has some resemblance to insurance and an earned benefit, it is clear that Medicare is already closely akin to socialized medicine – i.e., from each according to their ability to pay; to each according to their needs.  You have to give the big-government types credit for maintaining the perception that Medicare is an earned benefit.  It may be for some, but certainly is not for most, and that is why it is going broke.

p.s., just like universal health coverage, I think socialized Medicare is a good idea, but it needs to be implemented in a way that our government can afford it.

December 4, 2011

Dr. Berwick leaves Medicare/Medicaid

Filed under: Issues,Medical,Politics — Mike Kueber @ 2:52 am
Tags: , , ,

The New York Times reported today that the federal head of Medicare/Medicaid for the last 17 months, Dr. Donald Berwick, had his last day on the job on yesterday.  According to the Times, Berwick believed “20 percent to 30 percent of health spending is ‘waste’ that yields no benefit to patients, and that some of the needless spending is a result of onerous, archaic regulations enforced by his agency….  [He] listed five reasons for what he described as the ‘extremely high level of waste.’ They are overtreatment of patients, the failure to coordinate care, the administrative complexity of the health care system, burdensome rules and fraud.”

One of the reasons that Republicans in the Senate refused to confirm Berwick was his statement in 2009 that, “The decision is not whether or not we will ration care — the decision is whether we will ration with our eyes open…. My point is that someone, like your health insurance company, is going to limit what you can get. That’s the way it’s set up. The government, unlike many private health insurance plans, is working in the daylight. That’s a strength.”

Sounds to me like Berwick is the kind of guy we need in Washington, at least until we can repeal ObamaCare.

 

 

October 19, 2011

The rising cost of medical care

Filed under: Economics,Issues,Medical,Politics — Mike Kueber @ 10:39 pm
Tags: , , ,

Two weeks ago, I had my knee partially replaced.  Because I hadn’t received any sophisticated medical care for many years, I was interested to learn first-hand the effect of the medical-care inflation that I had been reading about.

A few days before the surgery, my surgeon’s office called me to make arrangements for that part of his bill not covered by insurance.  Because I have a group-insurance policy that ObamaCare has characterized as gold-plated (i.e., a family policy that costs more than $23,000 a year), my share of the surgeon’s bill was only 10% because I had already met my deductible.

Much to my surprise, my doctor’s office said that my share would be $136. I was so surprised by that amount that I twice asked my doctor’s office to repeat the amount.  Based on my rudimentary math, I calculated that the doctor’s total bill would be $1,360.  That couldn’t be right, could it?

Even though knee-replacement surgeries have become so streamlined that the procedure takes less than an hour, $1,360 didn’t seem reasonably related to the partial replacement of a knee.  But applying further math to this situation – if my doctor did 20 of these surgeries a week, he would be able to gross $1,360,000 a year, plus income form his office practice, so I guess his fee was adequate.

Regarding the cost of sophisticated medical care in 2011 – so far, so good.

But today I received my hospital bill. This looks more like what I expected.  I went into to Methodist Texsan Hospital on Tuesday morning and was discharged Wednesday afternoon, thus I was in only one night.  Yet the total charges were $28,987.35.  Wow.  The dominant drivers of the bill were:

  • $9,092 for the OR, $1,305 for the recovery room, and $2,100 for my room.  I would love to know what formula a hospital administrator uses to come up with those amounts.
  • $6,264 for supply/implants.  This charge must be for the two items that partially replaced my knee.  It would be interesting to see how the forces of supply-and-demand resulted in that price.
  • $2,548 for anesthesia.  Could it be that the anesthesia costs more than the surgery?
  • $575 for physical therapy and $260 for physical therapy evaluation.  Based on the limited services that I received (a 15-minute evaluation, a 30-minute group
    session, and a 15-minute stair-climbing class), the therapy must be a huge profit center for the hospital.  The therapist was bringing in almost as much money per hour as the surgeon.
  • $1,615.46 for pharmacy and $414.54 for drugs.  Big Pharma needs its cut of the action, too.
  • $1,755 for sterile supplies.  Are you serious?  I wonder if there is any fat that could be cut from this item.
  • $780 for Lab/Chemistry and $569 for Path/Lab.
  • $370 for EKG/ECG.  From what I saw, this is a simple test with a simple machine.

My bill was contractually reduced by $12,022.21 to a less shocking $16,965.14.  Of course, that contractual arrangement is the only thing that makes insurance affordable today.

When I was growing up, insurance companies typically paid a percentage of the total bill (usually 80%) and didn’t have much leverage to prevent the hospitals and doctors from charging whatever they wanted.  In fact, their only contractual protection was against their insured, not the doctor/hospital – i.e., the insurance policy promised to pay “reasonable and necessary” medical expenses, and the insurance company could argue that excessive charges were not reasonable or necessary.  The patient might remain personally liable for the unreasonable component of a bill.

Nowadays, insurance companies survive by pre-negotiating prices with doctors and hospitals and then by insisting that its insureds use doctors or hospitals with pre-approved prices.  Thus, instead of being concerned and outraged by some of the apparently exorbitant prices on my bill, I am comforted to know that my insurance company, Humana, negotiated all of the prices with Methodist.

This same concept needs to apply to Medicare and Medicaid.  And it needs to apply utilization as well as pricing because excessive pricing isn’t the only way for medical vendors to screw the payor.  They can also screw the payor by including services and treatments that aren’t necessary, which is called over-utilization.

Republicans set back the movement to get control of medical costs when they demagogued that nothing should come between a patient and the doctor.  Although that statement has some merit with respect to the treatment provided, it has no place in determining what treatments and services will be paid for by the insurance company or government payor.  Capitalism and supply-and-demand don’t function properly whenever the individual making the purchase decision is not the same person who has to pay for it.  That’s an economics fundamental that we need to get back to.

The CLASS Program and long-term nursing care as a part of Medicare

Filed under: Issues,Medical,Politics,Retirement — Mike Kueber @ 4:34 pm
Tags: , , , ,

A few days ago, I blogged about the need to modernize Medicare.    The blog posting was prompted by a critique in the NY Times that suggested the 1965 Medicare program was providing generous coverage for things that participants didn’t want or need (exotic drugs and treatments), and was failing to cover things that participants wanted and needed (nursing care).  The critique suggested, and I agreed, that Medicare coverage should be shifted from what participants didn’t want to what they did want, and that this could be done in a cost-neutral way.

Yesterday, the NY Times published an editorial commending the Obama administration for eliminating coverage under ObamaCare for nursing-care coverage (CLASS or Community Living Assistance and Support).  Although the coverage was meager (up to $50 a day), the Obama administration concluded in a 50-page report that there was no way that the coverage could pay for itself because the benefits to old people were too generous (they could start collecting after paying in for a mere five years) and the costs to young people were so excessive that there would be a serious problem with adverse selection.  (The same Ponzi-type thing happened to Social Security many years ago, but it was circumvented by requiring the young to participate – i.e., a mandate.)

CBS News reported the demise of the CLASS Act as follows:

  • But a central design flaw dogged CLASS. Unless large numbers of healthy people willingly sign up during their working years, soaring premiums driven by the needs of disabled beneficiaries would destabilize it, eventually requiring a taxpayer bailout. 
  • After months insisting that could be fixed, Health and Human Services Secretary Kathleen Sebelius finally acknowledged Friday she doesn’t see how.  “Despite our best analytical efforts, I do not see a viable path forward for CLASS implementation at this time,” Sebelius said in a letter to congressional leaders.
  • The law required the administration to certify that CLASS would remain financially solvent for 75 years before it could be put into place.  But officials said they discovered they could not make CLASS both affordable and financially solvent while keeping it a voluntary program open to virtually all workers, as the law also required.
  • Monthly premiums would have ranged from $235 to $391, even as high as $3,000 under some scenarios, the administration said. At those prices, healthy people were unlikely to sign up. Suggested changes aimed at discouraging enrollment by people in poor health could have opened the program to court challenges,
    officials said.
  • “If healthy purchasers are not attracted … then premiums will increase, which will make it even more unattractive to purchasers who could also obtain policies in the private market,” Kathy Greenlee, the lead official on CLASS, said in a memo to Sebelius. That “would cause the program to quickly collapse.”
  • That’s the same conclusion a top government expert reached in 2009. Nearly a year before the health care law passed, Richard Foster, head of long-range economic forecasts for Medicare warned administration and congressional officials that CLASS would be unworkable. His warnings were disregarded, as Obama declared his support for adding the long-term care plan to his health care bill.

In hindsight, the CLASS Program was remarkably naïve.  How can the federal government develop a program that is voluntary and does not require subsidization?  If such a program were feasible, private business would have already done it.  If private business can’t do it, there is no way the federal government can.

The critique in the NY Times is correct in suggesting that CLASS Program should be suspended, not repealed.  Nursing care is an issue just as big as universal healthcare.  America wants and needs both, but without busting the budget.

Republicans need to prove that “Repeal and Replace” is not an empty slogan.  If ObamaCare needs to be repealed (it does), then the Party should tell voters what it should be replaced with.  The same thing applies to nursing care – i.e., if we don’t like the CLASS Program, what do we like?

As noted above, the CLASS Program is a lot like Social Security except that, instead of trying to reform it, we are starting with a blank slate.  I suggest that creative Republicans should use this program as an opportunity to test their ideas for fixing Social Security.  For those who think Social Security can be privatized, show us how it can be done with the CLASS Program.  For those, like me, who think that Social Security needs to be mandated, we should pursue legislative tweaks to the CLASS Program so that it includes a mandate for public or private nursing-care coverage.  Alternatively, we could incorporate some coverage for nursing care into Medicare.

The bottom line is that we need to do something; it’s just a matter of deciding what would work best for America and Americans.  This is exactly the kind of issue that Mitt Romney is ideally qualified to handle.

October 17, 2011

Modernizing Medicare

Filed under: Issues,Medical,Politics — Mike Kueber @ 1:11 pm
Tags: , , ,

The Sunday Review in the NT Times this week contained an outstanding critique of Medicare.  According to the critique by Jane Gross, the problem with Medicare is that its bloated spending is designed to benefit Big Pharma and pay-for-service doctors while doing essentially nothing to help individuals deal with end-of-life nursing needs.  As Gross succinctly states about the universal medical coverage afforded by the 1965 Medicare law – “What Medicare paid for then is no longer what recipients need or want today.”

Medicare provides essentially unlimited coverage for any drug or treatment that Big Pharma or doctors can invent or create.  In fact, much of Medicare’s supporting legislation specifically prohibits the agency from considering cost or cost-effectiveness in approving coverage for various drugs or treatments.  Is it any wonder that America’s healthcare industry is thriving and that its share of America’s GDP and will soon reach 20%?

By contrast, Medicare provides almost no coverage for nursing care for frail or demented old people, and this absence of coverage is what prompted Gross to become an expert on this issue.  According to Gross, her mother, who was incapacitated by a stroke, received neurosurgery of questionable benefits under Medicare, but had to pay for her own nursing care for a decade until she had depleted her $500,000 estate, at which time she became eligible for welfare-type nursing coverage under Medicaid.  Her mother shamefully called herself “a welfare queen.”

Obviously, her mother should have used some of her estate to buy nursing-home coverage, but only a small percentage of Americans do.  Most rely on the likelihood that they will die without lingering, but sadly that does not happen to millions of Americans:

  • “By now, you may be wondering if your parents have a half million dollars for old age. Or if you or your children do. You may be counting on quick and easy deaths. Shoot me, so many people say. Alas, 70 percent of the elderly will need extended care before they die. Denial is powerful but doesn’t pay the bills.”

So there are two components to this issue.  Assuming that we can’t change the amount of Medicare dollars available for the elderly, the optimal reform of Medicare should consist of equal amounts of (a) cuts to inefficient drugs and treatments, and (b) increases to efficient, desirable services.

Refusing to pay for inefficient drugs and treatments, however, is a concept that opponents can easily demagogue.  Please recall Sarah Palin and the Republican Party wailing about Death Panels, i.e., anyone who refuses to pay for any drug or treatment that the patient and the doctor want.  The reasoned response should be that the government will never come between a patient and the doctor, but don’t expect the government to give them an unlimited charge card to do whatever they want.  That is economically crazy.

Demagogues will be difficult to defeat because people are fearful and the demagogues will leverage those fears.  For example, I have a friend who is getting ready to go on Medicare, and his ortho has recommended to him that if he wants to have his knew replaced, he should have it done now with private insurance because coverage for it under Medicare might be taken away at any time.  I thought this was an Urban Legend, but the Times critique actually listed joint replacement as the type of treatment that shouldn’t be covered by Medicare in certain situations – e.g., if the patient has dementia that will prevent him/her from receiving physical therapy.

Gross lists the following as examples of treatment that in the past year has been determined to be ineffective, but which remain fully covered by Medicare:

  • Feeding tubes, which can cause infections, nausea and vomiting, rarely prolong life. People with dementia often react with agitation, including pulling out the tubes, and then are either sedated or restrained.
  • Abdominal and gall bladder surgery and joint replacements, for those who rank poorly on a scale that measures frailty, lead to complications, repeat hospital stays and placement in nursing homes.
  • Tight glycemic control for Type 2 diabetes, present in 1 of 4 people over 65, often requires 8 to 10 years before it helps prevent blindness, kidney disease or amputations. Without enough time to reap the benefits, the elderly endure needless dietary limits and needle sticks.

Reformers should explain that, for every dollar saved by eliminating ineffective drugs and services, the saved money will be redirected toward improved coverage for nursing care.  This will force the demagogues to argue not only that the drug or treatment is effective, but that it is more beneficial than improved coverage for nursing care.

Two important aspects of this issue that were not addressed in the critique:

  • The critique acknowledges that individuals, either reasonably or unreasonably, decline to buy coverage for nursing care when they are younger and the coverage would be affordable.  But there is no discussion of possible tax reforms that might encourage more individuals to buy such coverage at that earlier time.
  • Paul Ryan’s plan to reform Medicare relies heavily on the federal government issuing payment vouchers that would enable private insurers to develop flexible coverage options.  Thus, we can hope that private insurers will take advantage of this flexibility to create affordable policies that provide enhanced coverage for nursing-home care and restricted coverage for state-of-the-art, cutting-edge drugs and treatment.  If Jane Gross is correct (and I think she is), many Medicare beneficiaries will choose a policy with reduced coverage for neurosurgery and joint replacements and enhanced coverage for nursing care.

August 26, 2011

Reforming Medicare

Filed under: Issues,Medical,Politics — Mike Kueber @ 4:10 am
Tags: , ,

An excellent op-ed column in the NY Times today by Ezekiel Emanuel and Jeffrey Liebman contrasted good and bad budget cuts to Medicare.  It provided three examples of good cuts:

  1. Stop paying for Avastin, an ineffective anti-cancer drug that costs $88,000 per year per patient and causes serious side effects.
  2. Stop paying for colonoscopies on patients older than 75 years because the procedure is ineffective and risky on patients older than 75 years.
  3. Stop paying for placement of stents in patients with stable heart disease because drug therapy is just as effective and costs substantially less.

The column also provided three examples of “ill-conceived” cuts:

  1. Across-the-board cuts in payments to providers.  This will diminish availability of care.
  2. Raising the eligibility age from 65 to 67.  This will (a) shift financial responsibility to private insurers, or (b) result in
    an increase in the number of uninsureds.
  3. Increasing co-pays and deductibles.  This will (a) shift financial responsibility to beneficiaries, or (b) result in deteriorating
    health as beneficiaries decline to see their doctor or use prescription drugs.

I agree that the so-called ill-conceived cuts don’t address the underlying problems associated with escalating healthcare costs in America and that ObamaCare contains the “seeds of a solution” to some of those problems.

But I don’t agree that the cuts are ill-conceived.  Medicare and Medicaid are bankrupting America, and the federal government needs to stem the bleeding by cutting its costs.  (RyanCare with vouchers for Medicare and block grants for Medicaid are examples of similar cutting.)  Then on a parallel track, it can explore methods and policies such as those in ObamaCare that enable healthcare to become more available and affordable.

August 25, 2011

Entitlement has become an ugly word

Filed under: Issues,Politics — Mike Kueber @ 4:18 am
Tags: , , , ,

The following diatribe is floating around Facebook:

  • Entitlement my butt!! Older Americans paid into Social Security with every paycheck. Their benefits aren’t some kind of charity or handout! Congressional benefits – free health care, outrageous retirement packages, 67 paid holidays, three weeks paid vacation, unlimited paid sick days – now THAT’S welfare.  And Congress has the nerve to call Social Security and Medicare entitlements? Re-post if you are sick of their crap and ashamed of our “leaders”!

Many Americans appear to have conflated entitlement with welfare even though there is a stark difference.  An entitlement is simply something that a person has a right to.  A government entitlement is a program that provides benefits to those beneficiaries who satisfy the eligibility requirements provided for in the law that authorizes the program.  The beneficiaries are legally “entitled” to the benefits.  By contrast, government welfare means a program that provides benefits to individuals who are in dire straits and need help.  Eligibility for welfare benefits is “need-based.”

Based on these definitions, Medicaid, TANF (temporary assistance to needy families), SNAP (food stamps), and Section 8 housing are America’s dominant welfare/entitlement programs.  Social Security, Medicare, and Unemployment Benefits are entitlement programs, but not government welfare because they are not need-based.

Welfare has always had a negative connotation because most Americans want to be self-sufficient and don’t want to depend on government charity or handouts, so entitlement beneficiaries don’t want to be lumped in with welfare beneficiaries.  The problem is that, because of the constant refrain that entitlement programs are bankrupting America, many people have begun to attach a negative connotation to all entitlement programs, too.

The author of the Facebook diatribe is trying to distinguish Social Security from other entitlements on the basis that individuals have earned the benefit by virtue of contributions, and that point has some merit, although Social Security benefits have always exceeded the amount that was actuarially justified.

Furthermore, Social Security is a red herring because most experts agree that Medicare and Medicaid, not Social Security, are the programs that need to be reformed before they bankrupt America.  Medicare is like Social Security in that beneficiaries have contributed to the system, but their contributions aren’t even close to actuarial justification.  And there are no contributions from beneficiaries entitled to benefits under Medicaid.   Interestingly, one of the suggested fixes to Medicare is to convert it to a welfare program – i.e., make it need-based.

Entitlement reform is needed.  Everyone agrees that Social Security is in a category by itself because contributions approximate benefits, but that is not true about Medicare.  Any serious attempt to balance the budget, like the Paul Ryan proposal, will need to make major changes to Medicare and Medicaid.

August 21, 2011

Scott Burns gives a Social Security tutorial

Filed under: Economics,Finances,Issues,Politics — Mike Kueber @ 12:42 pm
Tags: , , ,

Scott Burns is a nationally syndicated financial columnist, and for many years I have read his column in the San Antonio Express-News.  Each Saturday he responds to financial questions from readers, most of whom are from Texas, so I assume his column is most popular here.

In Burns’ column this week, the first question was submitted by Austin resident G.R., who wanted to talk about Social Security.  G.R. began by noting that Social Security is not a retirement plan, but rather is social insurance to prevent the elderly from becoming destitute, and then asked how the solvency of Social Security would be affected if we instituted a 1% tax on all income above the current income cap of $105,000.

Burns used the question to address some misunderstandings about Social Security:

  • While it’s true that there is an earned-income cap of $106,500, a person who makes more than that doesn’t get a free ride under Social Security because their benefit is based on their income that was taxed by Social Security (i.e., $106,500), not on their entire income.  Thus, these people have to save more of their income to avoid a dramatic drop in income when they retire.  (Although this is an interesting point, I don’t think it defeats the argument that high earners are getting off easy.  See the 3rd dot point.)
  • Although the income cap has been increasing, it has not been increasing enough.  In the past, 90% of income was taxed by Social Security.  Currently only 86% of income is taxed by Social Security.  The Simpson-Bowles commission recommended adjusting the income cap so that America returns to the 90% figure, and Scott Burns endorses the idea.  (Adoption of Simpson-Bowles would have been great for America; unfortunately, Paul Ryan and the House Republicans allowed “perfect to be the enemy of good” and defeated it.)
  • The Social Security tax of 12.4% is actually not a flat tax, but rather is sharply progressive because the benefits are calculated so that those with income up to $9,000 receive benefits that amount to 90% of their income, while any income between $9,000 and $64,000 is credited at 32% and income between $64,000 and $106,800 is credited at only 15%.  This math corresponds with an earlier article in the Express-News by Oscar Garcia asserting that workers with “average earnings” can expect retirement benefits that replace about 40 percent
    of their average lifetime earnings.”  By way of contrast, high-paid workers near the top of the income cap can expect a benefit of only 27.7% of earnings, even though they contributed at the same rate.  (This is fascinating information. It supports G.R.’s point that Social Security is not a retirement plan, but rather is social insurance or quasi-welfare.)
  • The Medicare tax of 2.9%, which is not subject to the earned-income cap of $106,800, is even more progressive than the Social Security tax because all people, regardless of how much or how little they contribute, receive the identical benefit – i.e., full Medicare coverage.  A person who makes $10 million would pay in 1000 times as much as a person who makes $10k, but their respective benefit would be identical.  Burns notes that, despite this progressivity, “In terms of our national future, Social Security is a sideshow.  The big problem is Medicare.”  (Indeed.  Imagine how progressive Medicare would be if they start means-testing it, as has been suggested by some.)  Medicare is not a simple actuarial problem, like Social Security is.  Currently, Medicare provides essentially unlimited coverage, and America’s health-care industry is doing its best to provide unlimited care.  Rationing will be an essential component to resolving this problem.)

Through the years, I have found Scott Burns to be an interesting thinker who provides useful and accurate information, and his column is time well-spent for anyone wanting to improve their financial management.

Next Page »