Medicare, continued

Reader and commenter Greg refers me to this important story on Medicare in the Boston Globe. It’s an oped by two professors, Jacob S. Hacker, assistant professor of political science at Yale and Theodore R. Marmor, professor at Yale School of Management. There’s a lot of good stuff in the piece, some of which I’ve touched on already, but there’s one little piece that I hadn’t heard about until now:

In a relatively unnoticed provision that wasn’t in either the original House or Senate legislation, the bill creates a new standard for Medicare “insolvency.” It would define the program as insolvent whenever, in two consecutive years, more than 45 percent of its spending comes from general income tax revenues (not incidentally, the most progressive source of Medicare financing) rather than payroll taxes and premiums. When this ceiling is hit, which is likely to happen sometime in the next decade, the law will require the president to propose spending cuts and tax increases within the program.

What this provision means is that if premiums do not cover 55% of the costs of the programs, then the president has to cut benefits or increase payroll taxes (which are a flat 2.9%), rather than income taxes (which are progressive). And the adverse selection problem seems almost certain to ensure that enrollees’ premiums do not cover 55% of the costs.


P.S. All of these posts are not intended to endorse a broad and generous Medicare drug benefit. In fact, my feelings about this issue are quite mixed. I’m in favor of coverage for poor seniors (as measured by wealth, not income) and even catastrophic coverage for most seniors, but there are a number of other social programs that may deserve even more attention. For instance, education and health care for children. What I am definitely opposed to is the media systematically overstating the benefits and understating the costs of the plan (Hint: if it truly is fantastic, then why delay implementation untill after the 2004 election?)