You're on the verge of bankruptcy so you apply for more credit cards, take on more debt, spend more money.
Dumb idea, right?
Right. But that's what President Clinton's proposed Medicare expansion does — adds more people to a program that can't handle those already in it.
The Medicare trustees' annual reports suggest that by 2045, when today's 22-year-olds become eligible, Medicare and other government-paid health care for the elderly will take almost a fourth of the nation's entire taxable payroll. And that is based on the trustees' intermediate assumptions. Based on the pessimistic assumptions, which are arguably closer to reality, this elderly health care will take almost 45 percent of taxable payroll.
That means if we don't change the current system, future workers will have to fork over almost half their earnings just to pay medical bills for a booming population of old people. And don't forget that taxes for Social Security and for everything else that government does will still have to come out before the worker gets any take-home pay.
Despite this, President Clinton wants to add more beneficiaries and more costs. Americans ages 62 to 64 (Medicare eligibility age is 65) would be able to join Medicare for $300 to $400 a month. Those ages 55 to 61 who have involuntarily lost their jobs would have the same option. In some cases, employers would be forced to give retirees over age 55 the right to buy into the employer's health plan.
The president's proposal stresses that this part of Medicare will be financed entirely by premiums and that it won't involve regular Medicare funds at all. (Which reminds us that when Medicare began in 1965, we were assured by its originators that its costs would never be more than minor.)
But even if we believe that dubious promise, Clinton's proposal still has a host of flaws.
For one thing, this is a government solution in search of a problem we don't even have. About 87 percent of Americans between the ages of 55 and 65 currently have health insurance. Those who don't can buy insurance for an average of about half the Medicare buy-in price of $4,800. Even the White House estimates that only 10 percent of those eligible would take the offer.
Moreover, the Kassenbaum-Kennedy health insurance reform (passed in 1996) has removed the problem of portability. Therefore, there is no pre-existing condition barrier to purchasing individual insurance if a person retires or is fired.
But for the seriously ill, with expected medical bills far in excess of $4,800, the offer will be irresistible. As a result, the government will spend more on additional medical bills than it collects in additional premiums. Whether that deficit is paid with Medicare tax or from general revenues, it means the Medicare funding mess will only get worse.
Second, the plan will encourage more people to retire early. By the middle of the next century, we'll have only one-and-one-half to two workers for every retiree (compared to 3.3 to 1 today). This is partly due to the elderly living longer and women having fewer children. But it's also due to people retiring earlier and becoming beneficiaries rather than taxpayers. That is why federal policy since 1983 has been designed to encourage later retirement. For example, the Social Security retirement age is being gradually increased from 65 to 67 beginning in 2003. Last year the Senate voted to raise the eligibility age for Medicare to 67.
Many near-retirees remain in the labor market specifically to take advantage of employer-provided health insurance. But the Clinton proposal would remove that incentive, discourage the unemployed from pursuing other employment opportunities and encourage early retirement instead. As more people retire early, fewer will pay into the Medicare and Social Security system, and more will draw benefits. Employers will gladly label retirements as "layoffs" to help their employees get government insurance instead of employer-provided insurance.
To make matters worse, the Clinton plan is very regressive. It would subsidize the medical bills of higher-income families with taxes paid by everyone. Even minimum wage workers pay the 2.9 percent Medicare tax. But only people who can afford to pay $4,800 a year would ever cash in on Clinton's offer. Lower income families will get no subsidy. Those currently on Medicaid also will be excluded.
Why, then, propose a new program? Because Bill Clinton never surrendered on the idea of a government takeover of the health care system. He simply made a clever tactical retreat.