Why not let the dead pay for Medicare?

Kevin Drum reports:

Medicare stays roughly the same, but every time you receive medical care you also get a bill. You don’t have to pay it, though. It’s just there for accounting purposes. When you die, the bill gets paid out of your estate. If your estate is small or nonexistent, you’ve gotten lots of free medical care. If it’s large, you’ll pay for it all. If you’re somewhere in between, you’ll end up paying for part of the care you’ve received.

Obviously this gives people incentives to spend all their money before they die. That’s fine. I suspect they wouldn’t end up spending as much as you’d think. What it does mean, though, is that Medicare has first claim on their estate, not their kids. But that seems fair, doesn’t it?

There is more at the link.

Comments

If this works, it may let the government borrow a lot to get over the elderly demographic bump - once they start dying, the government will get its money back! So it would be able to credibly borrow.

Wouldn't I just give my kids all of my money as I get older and older?

You would, unless you had accumulated capital in illiquid form and for whatever reasons couldn't finance a wealth transfer.

Have I mentioned I hate the government?

Alt. You would, unless you didn't want your behavior dicked around with.

Imagine having to liquidate assets any time in, oh, THE LAST DECADE!!!

Seriously? You think it would all be a government plot to get your money? How much money would you give your kids when you were older if Ryan pulled off his little scheme and you wound up paying for all your healthcare yourself?

A pay-when-you're-dead plan as Drum envisions it is an almost perfect user tax: by definition the proposal only bills your estate for the medicare services you consume. Don't get sick, pay for care out of your own pocket, or die early and the government doesn't get a nickel.

You could even set it up as private insurance where some holding company in Connecticut got all your money after you died instead of the government. Of course they'd skin you for more overhead, and probably wouldn't go into the business at all without a promise of at least 10% per year profit on their deferred return so your heirs would end up getting a lot less of your estate than through a government plan. But that's what public-option/private-exchanges are all about anyway.

What's not to like, even for the whiniest conservatarian?

figleaf

Seems to me you should be moving to the regions of Afghanistan where they also hate government; you can join those who hate government and use your guns to collect taxes err "protection from government" insurance fees at gun point to fight the existence of government. After all, the Taliban are the real libertarians who don't merely talk about getting rid of government, they act to get rid of government.

Eh, the Taliban exist to get rid one of government and replace it with another very un-libertarian government. Or is banning music a libertarian ideal?

There's a gift tax. So, this could be directed toward medicare as well.

What if you had a large gift tax?

But is this not Ryan's point; why is Medicare not income-based? Why wait for death when it comes to the rich. It's crazy inefficient so why not have it only for the poor or at least poor-middle. This is different from social security which I think ought to remain the same for the past payments into it whatever the age - you can change the terms for the next payments into the system for 25, 35, 45, 55, etc. year olds.

"But that seems fair, doesn’t it?" It's interesting that here he justifies it not on its merits but by appealing to childhood notions. "Mummy it's just not fair!" But government isn't like Mummy: quite the reverse.

It isn't fair for the poor and the middle class to protect the wealthy persons estate so they can pass it on to their kids.

By protect, do you mean "not loot"?

Property rights are a construct, there's a whole space of tenable systems of property rights and our current one consume a large amount of political and security (police, military, etc.) to maintain. Until you're willing to live in anarchy and defend your property rights from actual looters at the barrel of a shotgun, paying some price to protect a system of property rights that has clearly benefited those WITH PROPERTY seems both necessary, proper, and logical.

Save your breath. You'll never get through to these propertarian narcissists.

But now, of course, we're not talking about "fair". We're talking about "payment for services rendered". And it all comes down to cost/benefit....

Bernard - Propertarian Narcissist

Injuns voluntarily gift their land to Cliff's great grandpa? Did we mention "looting"?

Before there was medicare, the wealthy took medical expenses out of their estate.
Was that looting?

If you want to do it a different way so you do not view it as "looting", you could say that if you exceed a lifetime medical care benefit (ie, what you paid in), then, if you did, the last six months would come out of your estate.
That wouldn't be looting (although I do have a tough time understanding the concept of looting when we are talking about an insurance plan).

I have now looked at the link. I doubt his honesty since he didn't mention one of the big consequences - the pressure from the children that Mom and Pop don't have yet more expensive surgery and tests.

Someone needs to act as an informed buyer when there is unnecessary care.

People who make the argument that kids would throw their own parents under the bus are saying something about themselves or their parents.

But, at the end of life, if you do not have some skin in the game, there could be and there is futile care today, or an unwillingness to consider hospice.

There is a difference between "unnecessary", and "low ROI but hell, it's other people's money (or, at least the only way to get some of our money back)."

Agreed, but then you must be supporting this idea.

The reason many involved in care for the elderly supported explicit funding for optional patient directed annual end of life planning while the elderly are healthy is they have found the children are least prepared to give up when their parents are sick and have no hope.

The parents know their days are numbered, but they don't have the energy or will to make they children understand that everything dies, so they let their kids put them through torture as their kids grapple with the obvious. After all, what parent won't sacrifice themselves to save their kids from pain - their kids don't want them to die so they suffer from fruitless and painful treatment to delay dying because that's what they feel their kids want.

And Republicans are clearly on record as being in favor of desperate measures to extend life no matter the cost or the outcome even when paid for by taxpayers, especially when it comes to dead women.

Do you also advise against expensive traveling for old people as it might give their children an incentive to throw their parents under the bus before they've traveled away all their money?

What if there is? Isn't that a matter to be resolved between the parents and the kids? There's no force and it's all consensual. If father chooses to forgo surgery (I wouldn't!) to leave the kids more money; well, it's his funereal.

It's hard to sympathize with the kids. Should we really be doing stuff to give kids a misguided sense of hereditary entitlement?

Having everyone burn up all their capital on a governmentally efficient health care program does not strike me as a way to get over the technology hump that you wrote about.

You don't have to burn up your money if you want to pass it on to your kids.

You can buy insurance to cover the medical costs of your last days so that this money would get passed on to your kids.

Medical estate insurance.

Russell, Medicare is *more* efficient than private insurance. (Lower % of administrative costs, for one thing.)

Isn't this similar to a reverse mortgage?

Yes, and if you plan it correctly, what you can do is provide, for example, that the last 6 months of medical care comes out of the estate. If you want to protect that last 6 months of money (assuming you don't just fall over) you can buy medical tail insurance so that this 6 months money can go to your kids.

6 months is pretty arbitrary and pretty unfair considering how hit-or-miss the medical system is. What if you die from a medical mistake? You have to have a pretty big hospital to work with the law of large numbers, and a family certainly can't. So, then, as you allude above, you buy insurance. You are basically saying that the government gets out of the risk spreading business for end of life, and the last 6 months. Fine, but I don't understand how you get there.

Its just an end of life deductable. You can buy insurance to cover this risk if you want to pass these assets on to your kids.

(Smart) parents will just give their estate away before they die...

And that's a good thing. Middle class people can easily give away their whole estate without the IRS noticing.
But very rich people can not.

Basically it would be an increase in the estate tax, but sidestepping the libertarian moral arguments.

Sidestepped how exactly? It's still taxation. It's a little more progressive and means-tested in a kind of goofy go around your elbow to get to your wallet kind of way.

1. The wealthy already give it away today through trusts. You've got it backwards: the rich are very good at sheltering while the poor and middle class either have nothing to shelter or shelter poorly.

2. Giving it away before you die so you can go on medicaid (for example) for nursing home care is pretty restricted.

3. My proposal would be that you take just the last 6 months of medical care costs assumed by the government and have it come out of the estate. Since you do not know if you will pass quickly or peacefully, or in an ICU with tubes in the last 6 months, you can take the risk or you and your kids could buy insurance for this tail if you want to cap the risk and costs

(Smart) parents will just give their estate away before they die…

Why not tack on a large gift tax?

Do you mean a gift tax that is large or a tax on large gifts?

My gut reaction was that this is a dreadful idea. It would probably wipe out all small estates essentially eliminating the middle class. But your point indicates the likely result. Small estates will be transferred.

Incidentally, the cost of medical care for the last six months of my mother's life came to about $400,000, mostly paid for by Medicare (she also had a good corporate insurance plan). That was equal to about half her estate's value. She was on the verge of being responsible for most of her nursing home care. She died literally days before that happened. I sometimes think she died rather than part with a penny of her own for her care.

"It would probably wipe out all small estates essentially eliminating the middle class." I think you've hit it on the head, even with your example: medicare is a middle class benefit that preserves the value of an estate so it can be passed on to the children.

The question to ask is: how would your mother have felt if medicare had to begin at 69, or she had to go out and get insurance at 85 with a deductable, instead of taking some money out of the estate to cover the last six months of care.

The elderly are the most politically powerful demographics, so it will never work.

We should seriously consider representation by age groups instead of territorial groups.
That would greatly increase political power of the most productive people, and people with the largest stake in the future,
and reduce the political power of pro-stagnation rent-seeking geezers.

And it's politically incorrect, but old people are long past their peak IQ, and most are too stupid to be allowed to vote.

Wait a second, too stupid not to be smart enough to vote against their interests?

Why wouldn't the elderly support this type of funding if it preserves the underlying medicare insurance program?

Second, your comments presume that you will never pass through this phase of life.

If you want to think selfishly, think of your future self.

There are big conflicts of interest in voting and as Government grows it gets worse. People collecting SS, on Medicare, AFDC, food stamps, those attending Government schools, Government employees, parents of children in Government schools and people in the military and who work for defense contractors all have conflicts of interest in voting. It might good if we could un-bundle voting and not allow people with a conflict of interest to vote for that area. So soldiers could vote fir commander and chief. Have a secretary of retirement who could not be voted on people on SS and medicare. State education secretaries that parents of children in Government schools and students in Government schools could not vote on. Etc.

If by "pro-stagnation rent-seeking geezers" you mean Republicans, then I'm for it.

Benefits Lien. Almost. Not quite.

Why is this superior to self directed health accounts with inheritability? It seems to have the same "dead pay for it" aspect, but after a couple generations most healthcare costs could probably be paid for via assets instead of income streams.

This seems like a much better idea. What's wrong with the health-care IRA?

Because it doesn't expand the size of the state, obviously. And it doesn't have the emotional satisfaction of stealing money from rich people.

A health care IRA (or HSAs) are a Republican's idea. And we all know that Republicans are Evil.

Don't forget Whiny and Sarcastic. Republicans are Evil, Whiny, and Sarcastic.

The cost of health care rises faster than the IRA will appreciate, so the IRA won't cover costs. It's entirely different from Medicare, which is premised on giving the care one needs, not the care one can afford.

A non-starter, I think. One of the things that the elderly care very much about is leaving an estate for their children. The general idea here is that people of modest means could easily give all their money away while living, so it won't hurt them. But they won't see it that way -- they'll see themselves as being forced into a position where they must either give away their money (and with it, their autonomy) to the point of relying solely on social security -OR- not have anything at all to leave when they die. And I can tell you, to the people leaving only a few tens of thousands of dollars (and their relatives), those small bequests are still a BIG deal.

This would lead to family conflicts and bad results -- greedy relatives encouraging elderly family members not to have expensive treatments (or even failing to take them to receive medical care) on one side and on the other side, some elderly will be so determined that the government isn't going to deprive their children of their inheritance that they will refuse to seek medical care for treatable diseases.

And from a policy perspective, we really don't need to figure out where to find a big new gusher of tax money so we can relax, stop worrying, and continue to increasing Medicare expenditures at the current rate.

They'd give the money to trusts. Their children would be the beneficiaries of the trusts, and they'd live off the income of the trust. This is slightly inconvenient, but really doesn't change any aspect of your lifestyle. It does cost money to set up.

The present estate tax isn't really a 50 percent tax on estates, it's more like a $3,000 per family subsidy to the estate planning industry. The new idea isn't much different. You already get people practicing fake impoverishment today (hiding assets to qualify for government care, particularly long-term care expenses), and you would just get more of that.

What if you added a tax to such bequests to trusts?

Well, it begs the question of why this is not done right now. Artificial impoverishment is big business.

I think the answer is that few people are really interested in actually having an estate tax, and a lot of people like the idea of supporting a vocal and wealthy bunch of lawyers who donate to campaigns.

greedy relatives encouraging elderly family members not to have expensive treatments and on the other side, some elderly will be so determined that the government isn’t going to deprive their children of their inheritance that they will refuse to seek medical care for treatable diseases.

I'd be less queasy if a person died because he knowingly refused care (to confer benefits on greedy kin), than if he went to a hospital and died because society couldn't offer him the care he wanted.

"old people are long past their peak IQ": have a care. Raising the issue of IQ and voting is potentially dynamite.

It sounds like a pretty clean form of means-testing. Can anyone think of any problem this creates that an alternative means-testing scheme would not?

And, yes, any means-testing scheme is by its nature a tax on wealth.

One problem, it's another loan. People are not good at predicting the future. The government, for the most part, is still people.

Can anyone think of any problem this creates that an alternative means-testing scheme would not?
And, yes, any means-testing scheme is by its nature a tax on wealth.

It depends on whether you'd use the term "means-testing" for it, but I'd prefer schemes such as that proposed by Bowles-Simpson for Social Security that decrease benefits based on lifetime earnings / contributions into the system. I see no reason why someone who was working class but scrimped and saved should have lower benefits than someone who was upper middle class but spent and consumed all their lives. Yet most means-testing systems based on wealth in retirement do just that.

One reason is that the main idea behind Medicare-style social insurance is that people should not die because they don't have enough money for treatment. That means if you are going to cut benefits at all, it would have to be for people who already have the money to pay for treatment themselves. If you cut benefits for people who don't have the money, you are rolling back the idea of social insurance.

Second, we know very little about why someone with a history of high earnings has little accumulated wealth. That person may have been a careless spender but may also have suffered set-backs that cannot be insured against. Cutting benefits for those people would be a double-whammy: first, their life savings goes up in smoke and second they have no way to get medical treatment when old because Medicare refuses to believe they cannot pay for the care themselves.

Obviously this gives people incentives to spend all their money before they die. That’s fine.

To me, this shows a bizarre view of inequality. It's far worse for inequality if the very rich actually spend their money on consuming things, rather than hoard their money. After all, the money is just numbers; consumption, on the other hand, actually means competing for real resources with other people and forcing other people to have less.

It makes no difference whatsoever if someone has $100B or $50B in the bank, if they (and their heirs) never actually spend that money. How could it? The real upshot of inequality isn't the pieces of paper and the numbers associated with them, but the stuff you can and do get for them.

It makes perfect sense if you assume that either they don't know how this stuff works (people pay taxes, not estates) or that they know what they are doing and just want to bust up accumulated capital to make sure that all our wealth funnels to trusts and corporations.

What's wrong with encouraging consumption (by the rich, of course!) in a country like the USA of today? Consumption on goods and services leads to jobs; with unemployment looming large such wealth transfers may not be bad. Would Warren Buffet eating more lobsters and caviar cause the rich to get less food? In a subsistence economy the zero-sum arguments would be more valid.

If suddenly the rich bought loads of fancy cars would it cause the rest of us to have "much less"? Or would it be at least marginally good for the economy.

Most often the consumption profiles of the wealthy are not directly in competition with those of the poor.

This sort of reasoning is at best valid only during a recession, when there's slack in demand and productive resources are lying idle as a result. Under normal conditions, more consumption means less investment, since the resources needed to produce more fancy cars means that resources have to be diverted away from producing something else, say, construction equipment. Less investment means less economic growth in the future.

Plus, there are transition costs. If demand for construction equipment drops, some people who make it are going to lose their jobs and need to be retrained to do something else. You can't just close down a construction equipment one day and reopen it as an automobile factory the next day. It's a complicated and expensive process.

And of course, more consumption is bad because it's not what people want to do. If people preferred to consume more rather than passing wealth onto their children, that's what they'd be doing now.

Finally, this isn't really about the wealthy. If you have a $5 million estate, you're not going to burn through it all before you die just to keep the government from getting $500k back. This is more about middle-class people whose estates are, say, less than 150% the cost of what the government will be looking to recover.

Maybe this problem can be solved by limiting the amount the government can recover from an estate to half of its value. A 50% marginal tax rate is pretty steep, but it's a lot better than 100%.

My mother-in-law passed away earlier this year at the age of 87, medicare has taken first claim on her [minimal ]assets. My in-laws are already complaining about my mother-in-law's poor estate planning. This has already sparked conversations and initial planning for my other elderly family members. The main topic is selling assets for $1 before death to prevent medicare claims. The major concern is the younger family member taking advantage of the sale, which is probably why all elderly folks don't sell the assets to children before death.

I believe Medicare can go back 3 years on assets, in order to stop this.

Tell your relatives they can't do medicare or medicaid fraud and that will end the argument.

Wait! If Medicare can already use assets to pay for a dead persons healthcare then what is this whole post about?! Why are we debating this proposal if it is already the law? I'm confused.

Medicaid has always been able to do this since it is a means tested program. I would be curious to learn how Medicare does this, and why.

Agree with you Yancey. Medicaid does this; I don't think medicare does unless it relates to care in nursing homes or something like that.

I'm pretty sure the OP is just confounding Medicare and Medicaid. Medicaid spend-down is basic estate planning stuff so that long-term care is "free" for the moderately wealthy. It sounds like that's what Nathan's mother-in-law failed to do.

Finch is correct. Medicare only covers short term nursing home care. Long term nursing home care is provided by the patient himself, his insurance, his family, or by Medicaid. That fact that many such Medicaid recipients evade the spend down legally suggests this idea will actually garner little money in the end. To make it work, you would definitely have to change the legal methods of estate planning, but I am doubtful you could ever create something very airtight without political blowback.

The idea certainly tries to align the incentives in a more rational manner, but I have to believe there is a better way to accomplish the same thing.

I think people have figmentary beliefs that there is always some way to game the system, if they only knew what it was.

You might look at some elderlaw websites and find out it isn't that way or isn't worth the effort because what you end up in is in a nursing home medicaid will pay for, and not the one you want.

Why can't people defer their payment to the IRS? It's not like the government can't borrow.

For the people who think they know what "ability to pay means," when they start talking about this as a great way to grease in an estate tax increase my original semi for their ideas go flaccid at blinding speed.

Looks like wrong incentives:
1) Kids won´t take parents to hospitals for expensive care;
2) Medicare gets rewarded for inneficiency (i.e. spending a lot and killing the patients).

can you really say killing the patients. Most of the spending at the end of life is just trying to put off something that is going to happen anyway.

Yes, why spend any money on healthcare - death is inevitable. There, problem solved!

Do you really know what the quality of life is for someone on a ventilator? Or for those after they get off of it?

Do you really think YOU will throw YOUR parents under the bus,
Or that YOUR children will throw YOU under the bus?

I agree with this. It's a little upsetting people are talking about kids as being vultures. I would like to think I was raised better and that I would raise my children better.

Re 1: Do the parents really depend on kids to take them to hospitals? Pretty often the kids are in a state a 1000 miles away.

It seems to me like a tax on rich dumb people, or rich, unlucky people, who can't figure out how to get around the law through trusts or gifts before they die, or they get killed in an accident before they have time to set stuff up - kind of a variation on dumb, as they could have planned ahead better.

They will find ways to give their money to their children but I am not opposed if this can be worked out.

I don't think it is going to be that much of a difference. You could limit this to the expenditures of the last six months of ife, insure for it, or expect that you will pass quickly and suddenly.
I think what it does do is reach the issue of futile care at the last six months of life and engages more of the family in end of life discussions.

It would incentivize:

1. Moving out of the USA in your old age, good.
2. Killing your parents, there is already some incentive for this, bad.
3. Caring for your parents yourself as much as possible in their old age, good.
4. Seeking cheaper care (Apollo healthcare) I could see nursing homes and hospitals popup south of the Mexican boarder and in the Caribbean, good.

Overall I like it but I may not be thinking of all the implications.

#2 seems unlikely to matter much. The disincentive of going to prison is quite large.

The data for whether that matters ought to already exist. Were there a larger than usual number of deaths in late 2010 of people who would have had to pay estate tax had they survived until 2011. I don't know where to find that information, but it's presumably a matter of public record.

so .... the way gov't speeds up payments into medicare would be to reward doctors to kill people sooner??

so .... the way gov't speeds up payments into medicare would be to reward doctors to kill people sooner??
this *might* be a good thing in some cases (e.g. where people really should have signed a DNR but didn't ...) but it does seem to create some problematic incentives.

I thought of another negative it hits savers harder than spenders.

Except that you have to be a big spender to get a large bill.

Saving is often overrated; especially if have been saving to the point of giving your kids a large bequest.

Actually, if you have health care risks covered with social insurance, as a saver, you are more likely to spend....and enjoy it today, rather than saving for a possiblity and enjoying your money when you are DEAD. You do not know today whether your future health care bills will be big or small, whether you will die suddenly with no cost, or linger on for 10 years. So, you oversave relative to the risk.

Anxiety is not a positive utility. So, taking away that anxiety with social insurance increases utility over all periods. Savers have more freedom, not less.

Frankly, that's why you see the elderly more concerned about losing social security or medicare. You goose their anxiety levels and you do not know what will happen. They face uncertainty, and they do not like it.

That's why you even see the Tea Party sign being carried by an elderly person: Don't Touch My Medicare.

why not have people who make extensive use of govt health care (say to save their lives) pay a higher tax rate thereafter? (i will save your life for an equity stake therein.) no idea how much money this would generate - certainly not much for older folks

The commenters so far don't seem to like this idea, but few of the criticisms are legitimate.

The incentives of the plan are exactly as they should be. The elderly won't receive care when it costs more than the benefit they or their kids expect to get from it - which is exactly how we want such a market to work. Incentives are right at the margin, but affordability does not exclude people from any amount of medical care.

The current estate tax exclusion rates could hold, so parents could give children ~$10,000 per year in order to wind down their assets in the final years of life. Parents with some degree of planning can still leave bequests, but many estates will still have cash leftover to pay medical expenses. A further exclusion might be desirable, so the first $50,000 goes to the estate and then Medicare gets paid.

The voting question is interesting... while the elderly will resist any tax on the elderly, taking the proceeds after their death certainly will make them less resistant, though perhaps not enough.

The proposal is its own criticism. The government feels like they didn't collect enough money from earnings because de facto some people die with capital, they created a SNAFU unfunded medical plan that has CREATED the end-of-life cluster of errors, so they want to go after the money where they think they can get away with it politically because their constituents don't understand that dying with capital means they didn't want to liquidate it beforehand.

Paul,

I agree with you. I particularly like the comments that say the children will be incented to deny useful care to their parents in order to get the inheritance.
Wow, before medicare, when health care DID come out of the estate, the children must have been pushing grandma over the cliff.
These types of arguments do not make any sense since there IS a history of how humans acted before medicare, and it was not to prevent their parents, if they had money, from spending it on their health.

So, would the supporters of this plan agree that it is OK to just abolish medicare? Then, those that can pay for medical care do so, and those that can't get treated anyway like they are now.

Some people seem to be missing the point that medicare is supposed to be a type of insurance. If you bill people for their actual medical expenses (whether that is now or later), then medicare isn't insurance any more.

This is still insurance because your assets may or may not pay for your bills. Maybe it's like a variable deductible on a sliding scale linked to your wealth.

Stop me if I'm wrong, but isn't this guaranteed to screw farmers?

Why? What's the connection?

Farmers have, by definition, huge amounts of illiquid assets--land, harvesters, planters, etc--relative to their incomes. A farm estate, compared to, say, a hedge-fund manager's estate, will be heavily weighted toward things that can't be sold quickly and lose value if they aren't maintained. So unless the children are farmers, there is no way to slowly, over time, transfer them ownership in the estate without causing it to lose nearly all its value.

Farmers can buy tail insurance if they don't want it to come out of their estate.

Ask yourself this question: before medicare existed, did farmers pay for medical care out of their farm estate? Yes.
You could craft this so their would be an exclusion if there is a surviving spouse, you could have it apply only to the last six months of life. Persons, if they want to pass on assets to their kids could purchase insurance IF they have high medical expenses in the last six months of life. Most people die peacefully without large expenses, but the outliers who do, and the kids who pick futile care in the ICU should have some skin in the game.

jb, the other thing with farmers is that you have to separate land rent income from work income. We shouldn't exempt or treat one form of income differently than another. Farmland can be valued and sold quickly or slowly.

If I had to encapsulate in two words what's wrong with modern American liberalism, it would be Drum's statement; "That's fine."

Confused! Can you be more direct?

I would think the Libertarian would support some version of this to eliminate free riding.

Actually, the dead won't be paying for Medicare, although I like the image of all those invoices attached to tombstones in the cemetery. I am glad to know that Mother Jones is seeking innovative ways to stick someone else with the bill (preferably the rich, since they have too much ill-gotten money). Stand and deliver, plutocrat!

I don't think Medicare should be the claimant other than as pass-thru. Let health care borrow from Medicare based on expected payouts, but let them gain or loose by how much they can trim care and cut costs. One could shorten the duration from lifetime to annual or even monthly. Care provided in the last year or month would then be heavily discounted and providers would have to consider whether they could get them through the next year or month.

Nathan
Stop me if I’m wrong, but isn’t this guaranteed to screw farmers?

There are no farmers, just agribusiness. Whenever you see "farm anything" like farm subsidies, think agribusiness

There are no farmers, just agribusiness

We don't encourage plumbers kids to be plumbers; why are farmers special in a way that the government ought to incentivize a hereditary transfer?

PS. Is an estate tax paid (in the US) on farms when they are transferred from father to son? Just curious.

My father in law is a farmer. 2500 acres. Good living, hell of a time in retirement.

The next thing you know Tyler will be turning to Ezra Klein for health care ideas.

Am I the only one who thinks that this wouldn't actually raise that much money? Medicare isn't being bled dry by the uber wealthy with lots of assets to seize after they die.

No, you aren't the only one.

Michael, I don't know if that is true. First, it is not wealthy who have assets now after their death...it is actually, the middle class as well...that 401k etc. With the estate tax exclusions and exemptions, more passes below the radar, particularly as we moved from a defined benefit to a defined contribution model of retirement savings.

Speaking as a person who has, and will inherit even more in the future, you can find middle class parents who saved extraordinary amounts of money but who did not live a wealthy lifestyle. And, they saved the money, not for passing it on to their kids, but because they had a concern that they would lose the house, have to go on medicaid,

Bill, sorry if I was being too flippant, I'm well aware of middle class retirement savings. However, speaking broadly, middle class retirement savings is designed to spent down over time. Those who die early in retirement with lots of left over savings will not have accrued that many medical expenditures. And those who live long into retirement and rack up lots of bills will have significantly less savings to tax. Add in some basic estate planning loopholes, and you're not left with much.

While the principle is sound, especially in reducing expenditures, health care IRAs and HSAs are a far simpler and more effective way to do this.

And, Michael, its effect is not only to raise money, but to minimize wasteful medical expenditures where someone is not watching whether the care is necessary or even desirable.
Two cases: One, my dad, who some problem with bloods pressure on the brain which made him unable to walk--permanent damage. So, he goes to a nursing home. Only because I watched his care did I find out that the rehabilitation person was putting him through walking treatments (getting paid well to do it) and totally unaware of his medical condition. When told later, the person said: Gee, had I known this, I wouldn't have put him through this. Yeah, sure, you wanted the money and didn't check.
The other is a case told to me by my pathologist daughter by one of her fellow pathologists: relative in hospital in the ICU for 2 months, virtually brain dead and recommended to have the tubes pulled. Kids say no, because medicaid is paying. Hospital says we have to move him from the hospital to a nursing home and it will cost you $35 for contribution to the ambulance. Kids say no, pull the plug. $35 was too much to pay for a comatose parent who was never going to come out.

No offence, but I am skeptical of the $35 story. It just doesn't ring true. If you had said $3000 I might have been less disbelieving.

I agree with your underlying point though!

I can absolutely assure you this is true. The head of my daughter's pathology department told her, and she repeats it as a lecturer at the University, and my daughter also has similar examples of people running up tests and staying in the ICU. In fact, the head of the department is a member of a very, very wealthy family (whose name you would recognize), and when grandma was dying with cancer of the spinal cord, somewhat of the opposite happened as well: her life was prolonged--painfully prolonged--while she was in brain dead state, because everyone could afford it, over the objection of the pathologist granddaughter.

Sometimes money buys you things you would not want if you were conscious.

You could just collapse Medicare into Medicaid and get the same thing. If you can answer why this hasn't been done already, then you will know why this idea is a likely political failure.

Medicare covers different things than Medicaid, such as nursing homes. If you are without means, you go into medicaid. The reason it hasn't been done is obvious. It would cost too much and would be unnecessary so long as medicare recipients can pay for part of their care as they do today.

Completely irrelevant since it doesn't matter what pays for what today. The idea Drum presented was to make people pay to the extent of their assets for medical care that the elderly consume. Medicaid already does this because it is means tested, and if Medicare were folded into it, then it wouldn't matter one whit how much of today's costs Medicare recipients themselves.

Also,if "it would cost too much" then Drum's plan would also cost too much since they would essentially the same. It isn't done today because there is no political support for turning Medicare into a more means tested program.

Why is it irrelevant if this reduces medicare costs and increases medicare revenue? Medicare is not means tested, medicaid is.

Also, I'm not advocating Drums plan: I would just charge the estate for the last six months of care, with a spousal exclusion (that is, if there is a surviving spouse, no charge to the estate).

Now, you could be more refined if you want: you could do something like the estate gets charged for over and above the amount of total lifetime contributions to medicare, or you could make the estate pay the last six months if the the total lifetime cost exceeds the total lifetime contribution.

Now, if you want to give money to your kids, just buy tail insurance to cover this risk.

Most people die sometime in their lifetime.

I'm not sure this is good policy, but it would give people some incentive to learn just how useless or hurtful much medical care is. So purely as a thought exercise it should be given thoughtspace.

This is just a convoluted way to do means testing... Why in the world don't we do the right thing from the start and only have the government paying for health care for the truly very poor and stop with these political schemes that just add more and more loopholes?

Because even the wealthy, or persons who think they are wealthy, may not have enough to cover their medical bills.

Now Bill, if that is true, WHERE DO YOU THINK THE GOVERNMENT WILL GET THE MONEY TO PAY THESE SAME BILLS?

As Tyler says, the laws of economics have not yet been repealed!

They'll get it by paying into social security!

Rather, paying into medicare.

Let me try to rephrase this: Richer people should pay for their own health insurance. The government should only pay insurance for people who really can't pay for it. Now, what you were saying is that richer people wouldn't be able to pay for insurance... Medicare is just insurance, even though it is subsidized. Now if you have to subsidized everyone, including the rich, that means you are providing something that no one can afford - hence, you get into deficits and such.

We need to live within our means. The government should not provide something we cannot afford just because it can run a larger deficit than you can. Get it?

FYI, when you begin your working life at 24, you do not know, usually, if you will be rich or poor.

Bill

I am not even sure what you mean. There are ways to measure if you are rich or not: income and assets. If you have them, you have to pay your own insurance. If you don't, the government will help you get very basic coverage. Once your income goes up (or you received an inheritance or whatever happens) you lose government coverage. If you have the means to buy insurance but decide to not buy it, you pay out of your pocket. If you go bankrupt, so be it. Everybody pays taxes and that is where the money to fund the poor's coverage comes from.

What's the problem with that system?

FYI, Let me explain what I mean when I responded to your comment: "Why in the world don’t we do the right thing from the start and only have the government paying for health care for the truly very poor and stop with these political schemes that just add more and more loopholes?"

1. Social insurance is a benefit to the wealthy as well--you can die quickly, you don't have to oversave, you pay over a lifetime, etc. Also, social insurance is not premised on subsidy...it is actually supposed to be set up so that it pays for itself--people come in the system, people leave it; income increases, etc.
2. When you start paying in your youth (let's say medicare) you do not know your future state: wealthy or poor (poor by what standard???): any social insurance to work requires a large pool to get the law of large numbers going. If you want to think of it differently, think of it this way: let's say you picked an insurance company at the age of 20 and kept paying them a premium to cover your healthcare costs beginning at 65. The premium would be very low and would extend over your lifetime. You may die before 65 or you may live to 100, but because it is a large pool and because there probably (but not certainly) an adverse selection bias, the carrier can predict the frequency of illness. (You know, in writing this, I must say that the carrier probably couldn't predict future healthcare costs, so maybe a private carrier wouldn't write the insurance....an even better argument for social insurance!).

Now, if you are starting as a 20 year old, do you know whether you will be wealthy or poor at 65? Would you purchase the insurance or wait? Would you wait to 45? What is the price of insurance then? 55? What if the stock market crashes and you have no wealth or lose your job? You see, even a wealthy person, or a person who thinks they are wealty, have or face risks, and have a benefit to purchasing insurance over a lifetime. It has value. It even helps those who might otherwise oversave relative to the perceived risk so they can enjoy life now without fearing the future.

Bill,

1 - Yes, and that is exactly the problem. Why in the world do we need to government providing a forced savings account? Not only this is totally viable in the private market (people before SS also saved money you know) but by allowing the government to keep this money you will most definitely end up in situations like the current one - the money is not saved, it is just a bunch of IOUs that are worthless and add even more to our debt.
2 - That's right, you don't know the future. That applies to health insurance, savings, buying a house, anything really. The fact is, unless we allow people who are stupid to suffer people will never learn. That means letting people who don't buy insurance even when they have the means to do so suffer the consequences. Again, this is how things used to work before we started this madness of trying to have the government being your daddy who covers up for all our stupid mistakes.

My point overall is this: private citizens should buy insurance. They should be allowed to buy that insurance or not - and suffer the consequences. The government by definition should only help the very poor to pay for private insurance and to make sure that insurance companies are not scamming customers. I can even accept the fact that since health insurance is really a special case, it should be regulated in a way that is very strict - plans cannot drop coverage, cannot deny coverage to kids with pre-conditions, etc.

This idea that you can force people into a bug government plan and get everybody covered without having explosive costs is absurd. The reason we cannot afford medicare now is because we are covering rich old people who could pay for their own health care. Worst of all, now we created this priviledged group of people who are benefiting on the much poorer younger people. And on top of that, no one ever wants to lose a benefit so these old folks are a voting block so powerful that very few politicians have the will to propose any real change to the system.

That is a sure way to destroy our country.

FYI,
1. Forced savings account answer: because you are a free rider otherwise and I will somehow have to pay for you otherwise.
2. Destroy the country: ask yourself this question: what is a common characteristic of all developed countries and why did they choose it. You might want to listen to Shillers course on the economics of finance at oyc.yale.edu where he discusses social insurance. the bottom line: its cheaper and there is less risk with mass pooling. There is no variance: for a mass population with no opt outs, I know there will be virtually x number of heart attacks per x million people, whereas with insurance, you have adverse selection and you have carriers adjusting premium for it and you don't have selective underwriting. Or, you can think of it this way: before you were born and before your genetics were known, would your parents have picked a lifetime insurance plan for you with very low rates because everyone would be in the pool, or would they have opted for a fend for yourself model, knowing that you always could be born with a birth defect. Your choice.

Bill,

Free rider of what? As i said before, SS and Medicare should only be provided (in a much smaller and scoped fashion) to the very poor. At the same time, everyone should pay taxes that fund those programs. If anything, I would be a non-benefitiary of these programs. My retirement and health insurance should be pay directly out of my income to the private health insurance company.

Regarding the savings on large pools for insurance, I don't argue the logic of that. However, if that is the argument you will use to force people to buy insurance will you also use the same argument to force people to stop drinking and smoking? After all, if you elimiminate these the overall number of problems decrease and you benefit everyone.

However, I will concede that the question on requiring insurance is much less problematic than the question on who pays for it and who provides the care. I know Republicans are using the coverage requirement as the main legal argument to block Obamacare but to me that is not a big issue. You could have the government forcing everyone to buy a policy. But whoever can pay for a policy should do so. And people who cannot pay should not get a 'government insurance': they should get a voucher and use that money to pay a private company.

FYI, Just my luck that the health insurance company I picked when I was committed to pay insurance to for the next 45 years until I retired was AIG. Or, maybe there'd be a government guarantee, like Fannie Mae for health insurance companies, and we'd be back where we were before. Who needs the middleman, particularly when you have the same problem of adverse selection and selective underwriting.

Bill,

I did mention that health insurance needs to be regulated right?

if that is your final big concern with everything I said then we are much closer to agreement than I thought.

FYI, solvency regulation is not the only issue. It is adverse selection and selective underwriting, if you chose a private option, that makes it more expensive both for you and for me relative to social insurance. And, besides, because someone likes you, your care will be covered even if you were a free rider or believed, falsely, you were immortal.

Think of this as a negotiation between yourself today and your future self tomorrow.

What's great about this solution is that it's 100% in line with both Thomas Jefferson and (believe it or not) Ronald Reagan's philosophy about estate a.k.a. "death taxes."

First because Jefferson actively advocated for estate taxes to reduce the tendency towards development of an aristocratic class. Second because as much as Reagan hated giving anybody money that he'd earned, he was pretty indifferent to what happened to his money after he didn't need it any more.

Third, because contrary to some of the reflex pants-wetting, above, it would be an entirely-avoidable tax: don't get sick after age 65, or pay for your own medical care after age 65, and you keep every nickel when you die. Call it a user fee with an extraordinarily consumer-optimal payment schedule.

It even has the benefit of market incentives since most people (though never, evidently, Ronald Reagan) generally want to leave something for their families if they can. But, even under current medicare/medicaid terms families are often obliged to deplete their entire net worths before they qualify for extended care. So in the event you realize you're going to go over and have no estate behind you'll *still* receive some care. Which is more than that gleeful Sermon-on-the-Mount-repealing Ryan or Rand plans would ever do.

figleaf

Ronald Reagan signed the Tax Reform Act which brought the top rate down to 28%. Guess you're in favor of further tax cuts, too.

Eh. I dunno, that tax cut seemed pretty Keyensian at the time. As did his huge infusion of deficit-spending (which of course perfectly mirrored his crippling deficit spending on colleges and highways as Governor of California.) Since I care far, far more about the impact of bottomless/endless deficits than I do about marginal tax rates. For instance I didn't work any harder when my (marginal) tax rates went down from 36% to 28% but (since I've always been drawn to real work and therefore never worked in investment banking) my options for earning more have been repeatedly and severely curtailed by the dead-weight consequences of public debt service and consequent lost opportunities for both private enterprise and publicly-financed infrastructure improvements and economy stabilization that higher (marginal, remember) tax rates would have helped avoid.

Also, not to sound like a 5th-grader but Reagan didn't care about the estate tax, guess you favor restoring that too.

figleaf

And, the reality is today that people have defined contribution plans, and not retirement plans, so there will be more money passed on to kids than in the past.

The world is choices: ask an elderly person: would you rather have medicare begin at 69 or would you rather have this proposal.

Guess what they would choose. (Hint: most people really don't give a damn about their kids inheritance if it would mean delaying or crimping their own medicare coverage.)

Maybe Drum's idea has another not-so-obvious innovation: normally insurance transfers all the uncertainty onto the insurer. I pay a fixed premium and in return the insurer takes up all the uncertainty of my future health.

In Drum's scheme though, we have a compensating uncertainty that I am forced to accept: the fact that my estate may or may not end up with my children.

I'm not sure how to judge this innovation but I suspect it is somehow quite relevant.

If you want to preserve consumer choice, you could also devise a program where people would irrevocably choose at 55 whether they wanted one option or the other, depending on whether they want to start medicare at 69 or instead have their estate taxed for end of life care.

Isn't it true that for most Americans, Medicare expenses would outstrip their estate? I'd love to believe that all Americans are walking around with a couple million in the bank, but I know that's far from true. This might be anecdotal, but taking my grandmother, who is now in her 80s, who has almost no estate. This provides no incentive for her to control what health care she chooses. For her, the optimal choice is to get as much healthcare as she can possibly get to live even one more day.

Unless I'm missing something, this seems like an extremely regressive tax on the upper-middle to lower-upper classes, at least compared with the truly rich.

On those grounds, I'm pretty opposed.

Yes, the lack of incentive to control health care usage is a problem. But it is only a problem if we continue with the current system which is not controlled in any meaningful way.

Again, this issue drives me crazy because people keep trying to come up with these immensily complex mechanisms to provide the illusion of unlimmited coverage when all we need is common sense. The government cannot provide a service that is unlimited no matter what. The government cannot provide a 'universal' service when our funds are not 'universal'. Health care is a scarce resource like any other.

This is not that complicated, is it?

FYI, I don't think it is an issue of "one or the other" I could certainly envision limitations on futile care, not paying for things that only extend life by a month, etc.

Re: For her, the optimal choice is to get as much healthcare as she can possibly get to live even one more day.

Is that really the optimal choice? While she's realtively healthy, maybe. But at some point, assuming a gradual decline into misery, frailty and incompetence, death becomes the optimal choice.

Medicaid does this already. My mother-in-law passed away recently, and Medicaid has billed her estate $19,000 (payable upon liquidation of the estate = sale of her house).

She probably died in her house and medicaid was better off with that than if she went to a nursing home at $8k a month.

If you want to means-test, a better idea is to index premiums and co-pays to wealth.

That's what will happen ultimately with the Ryan plan, except that you will get an insurance intermediary.

Yes -- but wouldn't a feasible political compromise involve simply introducing premiums?

The best argument for recovery of welfare expenditure made through medicare applies equally to social security -- it reduces the subsidy to those who need it least and yet maintains the subsidy during their lifetime. Given the practical realities, it is difficult to take money away from those who falsely believe they have paid it into the account in past years. Crediting them in full for all past payments and for compound interest on those payments would make this comfortable argument moot. Such a plan would naturally require legal restrictions to prevent transfers of wealth in contemplation of death.

One benefit of such an approach would be that individuals who do not require social security payments for living would be more likely to avoid collecting social security payments beyond their contributions and interest, since these payments (plus compound interest) would come from their estates.

Older people in our society tend to be quite conservative, so they might be disinclined to spend vast sums in the months immediately preceding death.

Nevertheless, in a government of representatives (rather than a democracy), any group able to manipulate the representatives can vote themselves generous shares from the looting of others, which always prevents solutions which might shift the loot to other hands (including those of the looted). It is a new and improved version of tyranny of the majority.

This ignores the benefit of social insurance: you do not know at 20 what your wealth and your health will be at 65, so you would either not save or oversave, relative to having insurance where you pool these risks with others and pay over a lifetime. Some in and some out of the pool raises the costs of both social and private insurance relative to all in a pool.

My biggest problem with social security is it's highly progressive benefit structure -- in some cases, earners at the top of the SS wage base (~$100k) earn 1/40th of the return on their money as the marginal worker who qualifies.

Why not simply buy the poor annuities when they hit 65 and zero out their estate at death?

The standard liberal would hate an important element of this proposal, because it leads to uneven provision of health care. Those with wealth would have to make a c/b analysis of whether to accept each and every proposed treatment, those without can consume what they want. That would be inequitable and hence unfair. Of course, on the other hand, a liberal would approve of this increase in the inheritance tax.

Not being a liberal myself, I generally like the price incentives of the idea, but I would add this: the heirs of the deceased, not just the estate, should repay the Medicare expenses of the deceased. This would take away the incentives for donating assets before death, and it would be more equitable, on a family basis, than the basic proposal. Why should a poor guy with rich kids get a break over a rich guy with poor kids? Let the family bear more of the burden and make Medicare a payer of last resort. My proposal creates strong incentives to assist grandma -- either by providing her good care while alive to minimize Medicare expenses, or by assisting her into a quick and early grave before she begins to cost a lot.

I also propose that Medicare should no longer be financed by payroll taxes, but by general revenue.

My mother-in-law would stop using any medical care. She is very averse to doing anything that will reduce the size of her estate, despite any of our arguments to the contrary.

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