by Dale Coberly


I was thinking that someone could fault my essay the other day about the “Intelligence Squared” debate. I said that Howard Dean’s side did not really help anyone understand why, or what, or how to “save the program.” I hope I helped explain the why and what, but I probably wasn’t any more clear than Dean about how.

This will attempt to address that. Recall the original article about the debate

Arithmetic still matters,” Zuckerman began. “Medicaid now pays for both health and long term care for roughly 55 million Americans. It finances more than one third of all births in the United States, and pays the cost of almost two thirds of the people in nursing homes. The federal government underwrites 50 to 77 percent of the cost, depending on the income level of each state. Even so, Medicaid is the second biggest and fastest growing category of state spending. Costs are up more than 60 percent in the last five years and are expected to exceed $450 billion this year and to keep growing by about eight percent annually for the next decade. In the next — by the mid-2030s, the 65 and over population will nearly double, and health care costs, which have been rising far faster than worker productivity since the end of World War II, may be completely out of control, resulting in a tidal wave of federal spending.

Perhaps arithmetic still matters, but Zuckerman is careful to avoid giving us any. Instead he seduces us down a path that begins with apparent sober numerical facts and ends with pure demagoguery.

You need to learn to beware of words like “costs are up more than 60%”…

Sixty percent of what? If Medicare costs went up 60%, they would go from 3% of payroll to about 5%. This might be more than you want to pay. It might even be more than it should be. But it is not exactly an intolerable burden if that’s what it costs to live a longer and healthier life.

But, just as a matter of “arithmetic,” note how a 2% increase in costs becomes a scary “60% increase.” This is typical of the “it’s just math” school of liars.

Similarly, the rest of Zuckerman’s seduction presents numbers intended to scare you into thinking that Medicaid costs are high and growing alarmingly. It would be just as reasonable to think that health care costs are high and will get higher, and that government programs are the best way people have to pay for them. Or even that government needs to step in and find a way to control costs (which is not the same as cut benefits).

But finally we reach the payoff.: be afraid of costs “completely out of control” and “a tidal wave of Federal spending.”

None of the “arithmetic” Zuckerman gives us here actually supports that scary rhetoric. His theorem amounts to: “If costs are going up, we must cut our insurance.”

I don’t know how much costs are going to go up. Neither does Zuckerman. But I can suggest that you try to find out what costs are now in terms of your own personal budget, and what they are likely to be in terms of your personal budget at some reasonable time in the future. And what the estimate is based on. And whether it is a cost you are going to have to pay one way or another… either through taxes or private insurance or out of pocket. Don’t forget this is insurance. You may be healthy today, but with insurance you are paying a little bit now “just in case” you are faced with life or death huge costs…personal costs…in the future.

And what is the safest way to pay for them. Private insurance cannot guarantee that it will be able to pay for your care, even after you have paid premiums for your entire life. The government can.

There is also some reason to suppose that the government might be in a better position to control prices than private insurance. But only as long as we can remind the government that we are paying for our own insurance here, and not just some budget item they can cut “to balance income” with no consequences to the people who thought they were paying for insurance that would be there when they need it.

Pay as you go is the only way that I can think of to make this work. Under pay as you go the people just pay for current costs. Their own future costs will be higher, so they are not bearing an unfair burden. Their own future costs will be paid for (directly) by the workers of that time… who will have higher wages and will be more able to afford it. Those future workers own higher costs in turn will be paid for by the workers of that later time… who will have higher wages… and so on.

Perhaps the process can’t go on forever. But it can go on a lot longer than retired people can afford to pay each month for the “insurance” that would pay for their current level of risk. The ultimate answer to high costs is to find a way to control them, and to decide how much of your current income you are willing to set aside for what level of health care you may want in the future. Please note there is no “looming deficit” here. We just pay the costs as they come up. The magic of pay as you go will assure than none of us pay more than our own “expected” costs. The fact that we are paying in advance of our own need does not mean that we are paying for “someone else” or that we are not paying for ourself.

I don’t know what the whole health care arithmetic will turn out to be when it is done by someone honest, but I can point at something which may be important to keep in mind:

Table VI.F2 of the 2011 Trustees Report tells us that the cost of Medicare (HI) in 2030 will be about 4.4% of taxable payroll, compared to about 3.8% today. This looks to me like about a half of one percent increase in your payroll tax, and half of that will be paid by your boss. That is not a staggering burden. [It might be more reasonable to compare the future cost to the present tax rate.. 2.9%, half from the worker, half from the boss. This would suggest a need to raise the tax 1.5% over the next 20 years. That would be less than half of one tenth of one percent per year for each the boss and the employee….still not a staggering burden. And it goes to pay for your own eventual health care needs.]

Moreover, the real wage is expected to increase at least 1.2% per year between today and 2030. This would result in a real wage that is about 25% higher in 2030 than it is today.

Lets say that today you are making 1000 dollars per week. You are paying 1.45% for Medicare or about $14.50 per month. (your boss pays another $14.50, but if you want to say that is “really” your money, you need to add $14.50 to your income. ) This leaves you with about $986 a week after you have paid for your Medicare.

In 2030, your income would be 1,250 dollars per week (real). And if there were no increase in the Medicare tax rate, your tax would be $18.12, leaving you with $1232 per week after you have paid for Medicare.

If the cost of Medicare goes up to 4.4% of taxable payroll and the tax rate is raised to meet the cost, your share goes up to 2.2%, and you would pay $27.50 per week for Medicare, leaving you with about $1222 after paying for your Medicare.

So even with the increased cost of Medicare, you would have 236 dollars in real money more than you have today AFTER paying for your Medicare.

There are, of course, other taxes, but the arithmetic is the same. After calculating the increased costs, and your expected increase in wages, you are going to be richer in the future, not staggering under a load of “debt”.

All you have to do is pay for what YOU ARE GOING TO NEED. You are not “paying for granny.” Granny already paid for herself.

Note that even if costs for health care go up faster than your wages … in real terms… you are still paying for something you may want more than a new car when you get sick.

I suggest this is the real arithmetic you need to keep in mind.