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The hoax of entitlement reform

Former Labor Secretary Robert Reich CHALLENGES the conventional economic wisdom that the only way to get control over federal deficits is to reform entitlements:

Social Security won’t contribute to future budget deficits. By law, it can only spend money from the Social Security trust fund.

That fund has been in surplus for the better part of two decades, as boomers contributed to it during their working lives. As boomers begin to retire, those current surpluses are disappearing.

But this only means the trust fund will be collecting from the rest of the federal government the IOUs on the surpluses it lent to the rest of the government.

This still leaves a problem for the trust fund about two decades from now.

Yet the way to deal with this isn’t to raise the eligibility age for receiving Social Security benefits, as many entitlement reformers are urging. That would put an unfair burden on most laboring people, whose bodies begin wearing out about the same age they did decades ago even though they live longer…

That leaves two possibilities that “entitlement reformers” rarely if ever suggest, but are the only fair alternatives: raising the ceiling on income subject to Social Security taxes (in 2013 that ceiling is $113,700), and means-testing benefits so wealthy retirees receive less. Both should be considered.

What’s left to reform? Medicare and Medicaid costs are projected to soar. But here again, look closely and you’ll see neither is really the problem.

The underlying problem is the soaring costs of health care — as evidenced by soaring premiums, co-payments, and deductibles that all of us are bearing — combined with the aging of the boomer generation.

The solution isn’t to reduce Medicare benefits. It’s for the nation to contain overall healthcare costs and get more for its healthcare dollars.

We’re already spending nearly 18 percent of our entire economy on health care, compared to an average of 9.6 percent in all other rich countries…

Why? Doctors and hospitals in the U.S. have every incentive to spend on unnecessary tests, drugs, and procedures.

(Snip)

An estimated 30 percent of all healthcare spending in the United States is pure waste, according to the Institute of Medicine.

We keep patient records on computers that can’t share data, requiring that they be continuously rewritten on pieces of paper and then reentered on different computers, resulting in costly errors.

And our balkanized healthcare system spends huge sums collecting money from different pieces of itself: Doctors collect from hospitals and insurers, hospitals collect from insurers, insurers collect from companies or from policy holders.

A major occupational category at most hospitals is “billing clerk.” A third of nursing hours are devoted to documenting what’s happened so insurers have proof.

Cutting or limiting Medicare and Medicaid costs, as entitlement reformers want to do, won’t reform any of this. It would just result in less care.

In fact, we’d do better to open Medicare to everyone. Medicare’s administrative costs are in the range of 3 percent…

Healthcare costs would be further contained if Medicare and Medicaid could use their huge bargaining leverage over healthcare providers to shift away from a “fee-for-the-most-costly-service” system to a system focused on achieving healthy outcomes.

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3 Comments

  1. Neftali

    “whose bodies begin wearing out about the same age they did decades ago”

    That’s highly debatable at worst, and more probably more accurately, simply wrong. Yes, we are much better at recognizing and treatment of illnesses and this sustaining life. But there is a good part of the population that is living healthier than ever, starting at an earlier age.

    Look around us. Its beginning to be common to see a pro athletes still playing at 40. Hollywood types still look amazing past 40, and sometimes past 50. Every year we’re getting healthier, and for longer. The biggest problem we have is an obesity epidemic. But reports released a couple of days ago have stated that a little weight may not actually be too bad.

    Couple all this with the reality that we don’t do anywhere near the physical labor in our careers than even 30 years ago. We have better tools and more automation.

    Look, I’m not thrilled with the idea of retiring at 69 or 70 instead of 67, but science is science, and facts are facts. We are living longer, and its simply more expensive. If we want to keep Social Security around, we need to raise the retirement age.

  2. I thought the ACA was going to fix all of these problems?

  3. Craig Knauss

    Nef,

    It’s easy to think people are living longer since that’s the conventional wisdom. It may or may not be true. Just because the average lifespan is slowly increasing does not mean people are living longer. It could also mean that less people, especially children, are dying younger. If a child dies at 2 and an adult dies at 80, their average lifespan is 41. (2+80)/2=41. In the early 1800s the average lifespan was only 35. That was because of high infant mortality, severe living conditions, etc. However, we still had some people living to 80+. And for those of you who take the Bible literally, Adam hit about 860 years, Methuselah was almost 900, Noah lived to be about 600, etc. (Personally, I think these ages were the result of a translation problem, but that’s beside the point.)

    And FYI my grandmother passed away at 100 (about 20 years ago) and my mother is almost 98.

    And Nef, don’t you think better training, better equipment (e.g. helmets), and better rules might be helping the pro athletes? I mean, just how much did those leather helmets help? They just kept all the pieces in one place, like a garbage bag.

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