Observations on life

The debate over health benefits, Medicare and Medicaid can be summed up in two words

For most employer health plans, Part B of Medicare and Medicaid spending open-ended. There is no cap on their rate of growth or a cap on total costs. That’s pretty much true for private health insurance too and look how we scream when premiums are increased.

Employers have been talking about these two words and many have acted on them for years. Republicans in Congress don’t use these words but substitutes like block grants or vouchers.

Those two words are “defined contribution.” No doubt Republicans are going to be battered by Democrats who do not favor such an approach to government spending. The alternative is simple, more and higher spending and more and higher taxes.

There are consequences to the defined contribution approach to be sure. Sooner later more costs are shifted to the beneficiaries under these plans or coverage is limited and/or they become less viable because fees to providers are further reduced.

So as Democrats decry the harshness of the defined contribution approach and Republicans seek to control government spending, there are millions of Americans caught in the middle (not to mention millions of workers facing the same dilemma).

The question for taxpayers is are we willing to spend unlimited funds for every government program? If the answer is yes, are we (everybody) also willing to pay more in taxes? If the answer is no, then what approach do we use to manage our spending?

Keep in mind the US is still spending nearly half a trillion dollars a year more than its revenue while adding to a $19.8 trillion debt


3 replies »

  1. Sorry, somehow deleted last sentence:

    “So, sooner or later, we will be in a “pay as you go” mode – but, never a “defined contribution” mode, where what each individual contributes funds her/his own individual entitlements.”


  2. Couldn’t disagree more.

    You state: “Keep in mind the US is still spending nearly half a trillion dollars a year more than its revenue while adding to a $19.8 trillion debt.” Should interest rates return to normal levels, that will be $1+/Trillion deficits for as far as an eye can see or a mind can imagine. And, that is assuming Trump/Republicans/Democrats don’t engage in a blowout of spending to buy voted and get re-elected. And, remember, there is no option to spend “unlimited funds”. Stein’s Law applies: “If something cannot go on forever, it will stop.”

    You have many, many times confirmed that current levels of spending are not sustainable – whether it is the looming exhaustion of funds in the Medicare Part A or Social Security trust funds, or other programs.

    So, whether we like it or not, we will ultimately end up with entitlement programs that are a function of our willingness to tax ourselves – yes, that means future AND CURRENT beneficiaries – that is, assuming Democrats want to continue to assert any proposed, rational change is just the newest attempt by Republicans to throw grandma and her wheelchair over a cliff (aka, buy votes), we will soon (<15 years) get back to a pay as you go system for Medicare and Social Security. Because so many individuals will be both taxpayers and beneficiaries at the same time, pay as you go looks like higher taxes reaching people with less income coupled with higher Part B and Part D contributions, etc. So, at some point, expect to see a repeat of the Medicare Catastrophic Coverage Act of 1988 – when, once retirees recognized that they would be shouldering 100% of the cost to expand benefits (or to increase benefits to keep pace with inflation), they balked and, for one of the few times on record, the legislation was scuttled before most of it took effect.

    Socializing the fund raising (e.g., taxes) will ultimately bring about the situation highlighted a couple of decades ago by Margaret Thatcher: "Socialism works just fine until you run out of other people's money". I am afraid, with the Bernie Sanders', Elizabeth Warrens, Chuckie Schumers, George W. Bushes, and others of similar ilk, who offer entitlements funded by future generations to buy votes, that we will have to first run out of other people's money – before we wise up, as a nation.


What's your opinion on this post? Readers would like your point of view.

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s