Laurence Kotlikoff writes this rather ominous Tech Central Station piece regarding the financing debacle related to Medicare, in which he observes the following:
Buried deep in the bowels of the recently released Medicare Trustees’ Report is the first-ever official estimate of Medicare’s true long-run costs. Previous reports have considered only short- and medium-term costs. The new “infinite horizon” estimate adds up all future costs, telling us the amount of money we’d need today to cover Medicare’s commitments. This present value bill is unimaginably large — $73.6 trillion to be precise! It’s almost seven times GDP, twice the size of private net wealth, and 14 times official federal debt.
Can we pay this colossal sum? Medicare’s trust fund is a paltry $256 billion. And the present value of its future payroll taxes is only $12.0 trillion. Historically, we’ve used general revenues to cover the gap between Medicare’s expenditures and receipts. But continuing to do so will require a 50 percent immediate and permanent hike in federal income taxes! Alternatively, we can wait and raise taxes by an even larger percentage in the future.
Professor Kotlikoff’s solution is to limit benefit growth, and here is how he proposes to do it:
All Medicare participants would receive individual-specific vouchers on October 1st of each year to purchase insurance coverage for the following calendar year. The size of the voucher would be based on the participant’s current medical condition (an idea first suggested by Peter Ferrara of the Institute for Policy Innovation and John Goodman of the National Center for Policy Analysis). A healthy 67 year-old might get a voucher for $7,500, whereas an 85 year old with pancreatic cancer might get a voucher for $85,000. The vouchers would take account of the participant’s age, region, sex, and other factors that affect health costs. Because those in the worst medical shape would get the largest vouchers, insurance carriers would be happy to sign them up.
All insurance carriers would have to cover a basic set of medical services and prescription drugs. But Medicare participants would be free to pay out of pocket for additional coverage. The government would keep up-to-date records about each participant’s health status, release this information to insurance companies at the participant’s request, and assign insurers for those who don’t sign up on their own.
The government would cap total MSS voucher expenditures so that expenditures per beneficiary grow no faster than wages. Medicare participants would see their real medical benefits rise, just not as fast as in the past. And they’d realize that no matter how sick they got, they’d always receive a voucher large enough to purchase insurance coverage for the following year.
Compare Professor Kotlikoff’s plan with the one that John Kerry is proposing. And then compare it to the one that the Bush Administration is proposing . . . er, except that the Bush Administration is not proposing any reform for this mess. Rather, the current administration’s idea of reform is its dubious Medicare prescription drug legislation of last year.