• Medicare, redistribution, and politics

    The very fact that Medicare is a mildly progressive income transfer program underlies much of the contemporary political debate, even if that dimension is rarely acknowledged. Efforts to transform the program from one of defined benefits to defined contributions, to encourage medical savings accounts (MSAs), or to raise the share of program costs paid by beneficiaries are all part of the broader political and ideological attack on all policies that redistribute income or wealth from the more affluent to the less affluent (policies that redistribute income in the other direction remain much less controversial). Indeed, even much of the insistence that Medicare and Social Security face a “crisis” because of the aging of the baby boomers is rooted in visceral hostility to redistributive policy in all of its forms; the baby-boomer crisis simply goes away if one allows into the discussion the possibility of increased taxes on the more affluent. […]

    [However,] the argument that Medicare must somehow be insulated from the day-to-day workings of the political system is, at root, an argument that in some basic sense we have lost the capacity as a nation to govern ourselves. The flaws in our current political system are real and profound, and there is a long-standing tradition in American politics in which academic and social elites have sought to insulate one public function or another from “politics.” That tradition has given us civil service; the Interstate Commerce Commission; and independent, ineffectual boards of public health. But that tradition is, at root, fundamentally antidemocratic.

    Inside the psychic Beltway occupied by the policy elites, there is broad consensus that “we” could run Medicare, or other parts of the health care system, much better if only the ugly exigencies of the political process could be pushed aside. But if we take that approach to Medicare—which affects almost every American family, reflects a profound and long-standing intergenerational compact, and often literally involves matters of life and death—then we are saying either that the American people cannot be trusted with something so large and so important or that we cannot trust our political processes to adequately protect the American people. Either conclusion would suggest that our problems are far worse than the pending insolvency of the Hospital Insurance trust fund or the economic impact of the retirement of the baby boomers.

    Bruce Vladek’s words (pdf, ungated) were published over a dozen years ago. They hold up pretty well, don’t they?


    • II agree that the debate about Medicare is partly about redistribution, but I think the role of the political process is to express our values as a people. How much public funds, if any, should we spend to pay for procedures that have 1 in 100 chance of giving someone an extra year to live? a 1 in 1000 chance of giving someone an extra month? Do we fund services for which there is no evidence but in which some patients and practitioners passionately believe in? How do we raise the funds needed? To me, creating policies and programs that express those values is more of a scientific question than a scientific one and should be at least partially insulated from the political process. I don’t think that that is saying that democracy doesn’t work.

    • When you say that Social Security is solved by increasing the taxes on the affluent, there are 2 repercussions:
      1. Those in the highest income bracket receive 15 cents for every dollar of tax paid, an effective tax rate of 85%.

      2. You seem to be assuming that all is fine, as long as the trust fund is not exhausted.
      The financial dynamics at trust fund exhaustion are the same dynamics when the trust fund is tapped (as it has been since 2010, when cash outgo exceeded cash income): either new general revenues must be raised (if a budget surplus), or additional debt held by the public must be issued (if a budget deficit).
      The trust fund dollars have been loaned to the Treasury over the years to pay for expenses, every dollar of principal and “interest.” For the last 2 years, the cash shortfall was made up the way we pay for all pay-as-you-go expenses, like Medicaid. You seem to be suggesting that the interest was liquidated, as if it was pre-funded, and kept intact.
      Don Levit

    • What was posted in the article, which I assume, you support.
      Don Levit

    • “is, at root, an argument that in some basic sense we have lost the capacity as a nation to govern ourselves”

      To the rest of the world, as outsiders looking in, this appears self-evident, bolstered by the fact nothing seems to have improved in “over a dozen years”.

    • “1. Those in the highest income bracket receive 15 cents for every dollar of tax paid, an effective tax rate of 85%.”


    • It is my understanding that the Medicare trust funds did actually exist until President Johnson cashed them in to pay for the Viet Nam conflict. As I recall, it was all handled “off the books,” and the conflict costs did not appear on the national Income Statement. If I am wrong, would someone please correct me! If I am right, can we all stop referring to these funds as something that applies to reality, other than another example of beltway mystique.

    • Ken:
      There are 3 “bend points” for Social Security payouts.
      Contributions at the highest bend point pays only 15 cents per dollar paid in.
      Don Levit