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April 27, 2015

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The reality of deficits, politics and life expectancy

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America’s political landscape is infested with many zombie ideas — beliefs about policy that have been repeatedly refuted with evidence and analysis but refuse to die. The most prominent zombie is the insistence that low taxes on rich people are the key to prosperity. But there are others.

Right now, the most dangerous zombie probably is the claim that rising life expectancy justifies a rise in both the Social Security retirement age and the age of eligibility for Medicare. Even some Democrats — including, according to reports, the president — have seemed susceptible to this argument. But it’s a cruel, foolish idea — cruel in the case of Social Security, foolish in the case of Medicare — and we shouldn’t let it eat our brains.

First of all, you need to understand that while life expectancy at birth has gone up a lot, that’s not relevant to this issue; what matters is life expectancy for those at or near retirement age. When, to take one example, Alan Simpson — the co-chairman of President Barack Obama’s deficit commission — declared that Social Security was “never intended as a retirement program” because life expectancy when it was founded was only 63, he was displaying his ignorance. Even in 1940, Americans who made it to age 65 generally had many years left.

Now, life expectancy at age 65 has risen, too. But the rise has been very uneven since the 1970s, with only the relatively affluent and well-educated seeing large gains. Bear in mind, too, that the full retirement age already has gone up to 66 and is scheduled to rise to 67 under current law.

This means that any further rise in the retirement age would be a harsh blow to Americans in the bottom half of the income distribution, who aren’t living much longer and who, in many cases, have jobs requiring physical effort that’s difficult even for healthy seniors. These are precisely the people who depend most on Social Security.

So any rise in the Social Security retirement age would, as I said, be cruel, hurting the most vulnerable Americans. And this cruelty would be gratuitous: Although the United States does have a long-run budget problem, Social Security is not a major factor in that problem.

Medicare, on the other hand, is a big budget problem. But raising the eligibility age, which means forcing seniors to seek private insurance, is no way to deal with that problem.

It’s true that thanks to Obamacare, seniors actually should be able to get insurance even without Medicare. (Although, what happens if a number of states block the expansion of Medicaid that’s a crucial piece of the program?) But let’s be clear: Government insurance via Medicare is better and more cost-effective than private insurance.

You might ask why, in that case, health reform didn’t just extend Medicare to everyone, as opposed to setting up a system that continues to rely on private insurers. The answer, of course, is political realism. Given the power of the insurance industry, the Obama administration had to keep that industry in the loop. But the fact that Medicare for all may have been politically out of reach is no reason to push millions of Americans out of a good system into a worse one.

What would happen if we raised the Medicare eligibility age? The federal government would save only a small amount of money because younger seniors are relatively healthy and hence low-cost. Meanwhile, however, those seniors would face sharply higher out-of-pocket costs. How could this trade-off be considered good policy?

The bottom line is that raising the age of eligibility for either Social Security benefits or Medicare would be destructive, making Americans’ lives worse without contributing in any significant way to deficit reduction. Democrats, in particular, who even consider either alternative need to ask themselves what on earth they think they’re doing.

But what, ask the deficit scolds, do people like me propose doing about rising spending? The answer is to do what every other advanced country does and make a serious effort to rein in health care costs. Give Medicare the ability to bargain over drug prices. Let the Independent Payment Advisory Board, created as part of Obamacare to help Medicare control costs, do its job instead of crying “death panels.” (And isn’t it odd that the same people who demagogue attempts to help Medicare save money are eager to throw millions of people out of the program altogether?)

We know that we have a health care system with skewed incentives and bloated costs, so why don’t we try to fix it?

What we know for sure is that there is no good case for denying older Americans access to the programs they count on. This should be a red line in any budget negotiations, and we can only hope that Obama doesn’t betray his supporters by crossing it.

Paul Krugman is a columnist for The New York Times.

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  1. Krugman is unbelievable. His advice to President Obama: Don't give an inch on the social programs, Social Security, Medicare, Medicaid, Obamacare, ad infinitum that are insolvent and bankrupting the USA and Americans now and well into the future. With economic advisors like you, who needs enemies.


  2. Krugman raises some good points. Medicare spends 25% of its funds on patients in the last year of their life which begs some questions:

    1. Is prologation of life for a matter of months really health care?

    2. Is agressive prolongation of life absent any possibility of healing a wise use of healthcare resources?

    3. Do we need to reexamine our personal attitudes about death? Many of us adhere to religious beliefs that promise a rewarding afterlife and eternal life of the soul, yet when death nears we act as though this life is all there is.

  3. Why not fix healthcare delivery in this country? Because it would take too much effort, and would require that we take on three very powerful special interest groups: Insurance companies, attorneys, and the medical "industry" itself.

    The effort would likely require some form of tort reform. But wouldn't that sacrifice medical accountability? The attorneys would argue that it would.

    It would also require that we alter the supply/demand equation for medical care providers and drug companies. For instance, how about making a medical education cheaper and less time consuming to obtain? A bacheloreate medical degree? that would lower medical standards.

    Unfortunately for all of us not somehow attached to the medical care"triad" these, and other solutions are all too extreme for an industry that has constantly increased the velocity with which it overtakes the rate of inflation.

    They talk about Medicare taking up an increasing percentage of tax revenues? If they were serious about doing something, they would attempt to fix the underlying problem, rather than using bandaid approaches such as increasing eligibility ages, or talk of allowing the economic drag of millions of otherwise productive Americans from slowly descending into ill health and an early death.

  4. It doesn't happen often, but I am in complete agreement with the post by PISCES41.

    I have long said that we can not make a rational decision regarding health care until we have a substantial debate on the philosophical issues he raised.

  5. Perhaps it is living in Las Vegas for five years but a thought came to me while discussing with retired friends some of the issues noted by Pisces41. I have no real interest in prolonging my life by extraordinary transplants, no heroics, no 10K a month drugs to keep me going for another 3.75 months. If they come up with a cheap cure for lupus I'm ok with that but gene therapy? Gimme a break. I am, however, covered for many of these things through Medicare, Part D and my MediGap policy. Suppose I get the dread disease and the actuaries figure it would cost 250K to keep me drooling along. Gimme half in cash, no taxes, and I'll be glad to forgo those treatments. If a miracle happens and I struggle through, I win. If I don't, the house wins. On the plus side I live in a state where which has "death with dignity" procedures.

  6. Some things to think about. People of modest means must tune in to financial reality. We see over and over again, the long-term unemployed guys who could always find a (construction) job but now can't. 40 or 50 something and out of work, single again, no home ownership and no income. SS at 62 USED TO allow those in construction and similar physically demanding occupations to limp into early retirement--cause disability is still difficult to substantiate. And then, SO FEW realize how modest SS benefits are, at 62 or even full-retirement age. So the can-do guys and gals work into the labor pool at 18-23 and bounce around in life. WHAT would you have done differently if you only knew that in 20-40 years you'd be ON YOUR OWN without income? Maybe many could DO THAT NOW.

  7. For my committed fans (and the certifiable), the above includes much of the reasoning behind my other stances: no more paying for illegals to have a free ride at our expense, no more paying for legals to have a free ride at our expense, a little more media and other attention to what's likely gonna happen to the finances of single, married, families here, a lot less funding for other nations, wars, military presence every where on the glob.

  8. Would we? Could we save more? Fund our own retirements? IF we didn't have to pay 30-50% and more of our gross income for mandatory taxes....
    (federal income tax, sales tax, property tax...)
    So while we spend years working and paying in so everybody else can have a free (or reduced) ride, we get stuck in the end. So, instead of a new vehicle, perhaps more of us can fund that Roth IRA, regular IRA, 403, 10-month EMERGENCY fund.

  9. Jim 6:51: I love your intelligence and succinctness.

  10. Don and Pat: Here's a part of the new plan: consumer-driven health care for Medicare and also Medicaid. Some means of encouraging individual responsibility for health. Possibilities include a financial award for not abusing the system--for taking care of yourself so you don't need endless medical care and procedures. I've mentioned the financial savings, (in the multi millions for the State of Nevada) for employee consumer-driven health care. So why aren't all the local governments buying in DESPITE union contracts that taxpayers must fund 100% of LEO health care? And we need to ADDRESS the career-dependent mentality: "Whatever problem I can come up with, it is up to the government to figure it out, nurture me, and pick up the tab."
    While short-term out-of-work citizens are in need of a real safety net, the long-term dependents need to be CUT BACK to subsistence care--whatever is PC to call it. Maybe this would take a nurses hotline call to get approval before a Medicaid recipient gets to make an appointment. Screening for same an Emergency Rooms?