What will happen with Medicare?
Daniel Shaviro writes:
While the future is inevitably opaque, here is a forecast. The next few years may see the adoption of policies that widen the fiscal gap, including the enactment of unfunded prescription drug benefits that keep getting larger through a political bidding process [good call here!]. By 2010-20, however, the entitlement programs’ fiscal prospects will look grave enough to prompt significant tax increases that are now unthinkable. These will include the enactment of a VAT that is officially earmarked to one or both of the entitlements, because the lure of a dedicated money machine will have grown too great to pass up.
Medigap will be addressed at some point, because cross-subsidization is so hard to defend, but the impact of the change will be unduly deferred. Copayments will increase and the Medicare eligibility age be postponed, though again with a deferred effective date. Explicit means-testing within Medicare is unlikely…And Medicare will continue to misdirect its insurance coverage toward the low end as opposed to the high end…
Inflation will be used to narrow the fiscal gap…these might include eliminating or reducing the indexing of income tax rate brackets and Social Security benefits. Medicare will benefit fiscally from inflation because it permits payments to providers to decline in real terms without declining nominally. Indeed, doctors will drop out of Medicare in increasing numbers as its payment fees shrink relative to those that patients with the cash are willing to pay…
We are then told that we will see health care rationing, lower investments in health care human capital and technology, and growing disparity between rich and poor in terms of health care access.
For a useful comparison, here is Shaviro on what should happen.
The bottom line: The fiscal burdens of Medicare are, by far, the biggest economic problem in today’s America. David Cutler (p.77 of the book) estimates that restoring long-term fiscal balance to the program would require immediate benefit cuts of 38 to 61 percent. That’s not going to happen.
What should we do with Medicare?
Daniel Shaviro offers the following suggestions:
1. Reduce Medicare’s low-end coverage of routine expenditures, and use replace deductibles with lesser copayments that extend over a broader range.
2. Provide prescription drug and catastrophic care coverage without increasing the overall value (net of premiums and copayments) of Medicare [Ha!, interjects TC, this must have been written before the Bush bill passed]
3. Impose a tax on Medigap coverage of Medicare copayments, or else bar such coverage altogether.
4. Make copayments income-related…[“means-tested”]
5. To the extent that income tax increases are needed, use base-broadening in lieu of rate increases to the extent possible.
6. Enact a consumption-style VAT without transition relief for old wealth.
7. Use accounting rules to discourage Congress from dissipating the net revenue from tax increases that are meant to help meet future Medicare liabilities.
8. Attempt to realize cost savings by modifying Medicare’s current fee for service structure. While managed care has had disappointing results as applied to workers under age sixty-five, this may reflect the political and legal obstacles to imposing rationing.
My take: This is a serious effort to solve a real problem. I’ll endorse 1-4 and 7. When it comes to higher taxes, let’s just hope that productivity growth remains high. If I have to, I’ll get out and push. #8 sounds too much like putting old people out on ice floes, but it would solve at least twenty percent of the problem with only minimal impact on life expectancy. And for the proposal to be effective, how voluntary would managed care be? For those reasons, I can’t press the “do it” button on #8; I’ll give it a pass and plead political infeasibility. And while I am fully aware that Medicare is the fiscal train wreck, compared to which most other economic problems pale, shouldn’t the words “cut spending” somehow play a role?
Here is my previous post on Shaviro’s illuminating book. Today was Shaviro on “what should happen.” Stay tuned for Shaviro on “what will happen.”
Who are Britain’s most influential public intellectuals?
Here is one list, from Prospect magazine. Here is some discussion. Economists include John Kay, Samuel Brittan, Martin Wolf, Adair Turner, Robert Skidelsky, Amartya Sen, and Richard Layard. You have a chance to vote for the top five of the one hundred. Here is a Richard Posner list of public intellectuals, not restricted to the UK. Here is a related review of Posner.
Markets in everything
Loyal reader Eric sends in this prurient example. The text, however, is rated PG-13 and the link is (one hopes) acceptable viewing, even at the Bank of Ireland. Here is a discussion of the related trade on ebay. Sadly, here is the new ebay policy.
Glen Whitman adds another romantic example of markets in everything, though here I predict the equilibrium price is negative.
Are trains environmentally friendly?
“I know this will generate howls of protest, but at present a family of four going by car is about as environmentally friendly as you can get.”
Can this be true?
They [researchers] calculate that expresses between London and Edinburgh consume slightly more fuel per seat (the equivalent of 11.5 litres) than a modern diesel-powered car making the same journey.
It gets even less politically correct:
Roger Ford, of Modern Railways magazine, said one reason for declining energy efficiency [of trains] was the impact of health and safety and disability access regulations.
Here is a relevant Telegraph article. Here is David Nishimura’s post, my source on this matter. Here is the researcher’s home page. Here is The Transport Blog, perhaps they will offer comment.
N.B.: I have not seen the underlying data, and cannot find the study on the web. In the meantime, for some further revisionism, read Eugene Volokh on the myths of the Cuyahoga River Fire.
NBA economics
Read Mark Cuban’s thoughts on the Detroit Pistons, and why the Lakers lost. Mark Cuban, in case you don’t already know, is the owner of the NBA’s Dallas Mavericks. His blog pretends to be about basketball but like so much of the best sports writing it concerns personnel management, human motivation, and how to measure achievement. I loved this line from yesterday: “Believe it or not, even in the NBA [trade] discussions start based off of what we read in the newspapers.”
Word of the day
Lou Dobbs and outsourcing
Read this one, courtesy of the ever-intelligent Daniel Drezner.
Whose face appears on the most banknotes?
2. Christopher Columbus, 12 different issuers
3. Simon Bolivar, 4 different issuers
4. George Washington, 4 different issuers
5. Vladimir Lenin, 2 different issuers
That’s from Foreign Policy magazine, July/August 2004 issue, p.31.
Are we in a housing bubble?
Ed Leamer says yes, Brad DeLong takes issue. Here is a wide array of writings on the topic.
Housing has never, to me, seemed like an especially bubbly asset. You use it every day, most of the market is not driven by speculation, and the transactions costs of asset churning are high. Furthermore the rental alternative would appear to keep prices somewhat in line with fundamentals.
A deeper question is what makes for a bubble, ex ante. The “cheap” definition of a bubble is to wait for the price to fall, and then declare that the earlier, higher price was a bubble. We can throw out this cheap definition, but then we are stuck in the vagaries of modal logic. “Hey, I just knew that price had to fall…” Not very convincing. I am convinced that bubbles are real, I am simply unable to define them.
One reader asked for investment advice about the real estate market; this is hardly my forte. Nonetheless I will offer the following: If you are investing in multiple real estate purchases, as opposed to just buying a home, ask yourself the following question? If a “dirty bomb” went off in my area, would I still be a wealthy man?
Is Medicare progressive in its impact?
Maybe not.
If just one assumption about Medicare’s distributional effects would seem to be safe, it would be that the system results in substantial progressive redistribution, or transfers from people who on a lifetime basis are high-earners to those who are low-earners. After all, everyone gets the same insurance coverage upon retirement, but during your working years you pay a flat rate tax, with the result that high-earners pay more.
Think again. Here are some reasons why wealthier people use Medicare more:
1. Wealthier people demand more health care and greater treatment intensity.
2. Wealthier people tend to live longer.
3. Wealthier people don’t mind Medicare copayments as much.
4. Wealthier people are more likely to live in or near major cities, where access to care is greater.
A variety of studies offer mixed results, but in general do not support the view that Medicare is progressive in its effects. Note, however, that these studies do not consider the distributional impacts of the recent Bush drug prescription bill.
The above is taken from Daniel Shaviro’s Who Should Pay for Medicare?, an excellent public policy study. You’ll be hearing more about this book soon.
My observations: The correct notion of progressivity would account for the value of benefits received, not just dollars spent. Of course this is harder to measure. In the meantime, the result suggests that partial privatization of Medicare, as would allow the wealthy to opt out, would not create an (additional) fiscal crisis for the rest of the system. That being said, if the wealthy are gaining on net, don’t be surprised if privatization doesn’t get off the ground. Furthermore the medical benefits of privatization will be correspondingly limited. The main benefit of privatization would be to stop Congress from spending the money in the mythical “lockbox.”
The economics of storage
Data storage is becoming cheaper at rapid rates. This is one reason why I don’t ever expect a totally converged information superhighway, supplying our television, computer, music listening, etc., all in one service. Why obsess over your piping when you can have milk delivered cheaply at your doorstep? Netflix and Google’s Gmail, rather than Verizon, may represent our cultural future. Data storage and delivery also tend to be less regulated than centralized piping, plus they limit natural monopoly problems. Under this alternative model, I might receive “cultural disks” in the mail, every month or week, and decide what on those disks I am willing to pay for. Yes there will be hackers but we will be rich, the discs will be cheap and convenient, and they will offer ancillary services of organization and presentation. I can hardly wait, except now I remember I don’t even have time for the current menu of cultural offerings.
Addendum: One reader sent me this data set on the falling price storage on hard drives.
Spam revenge
Are you tired of hearing from deposed, desperate Nigerians seeking a bank account in which to deposit their funds? Some people are striking back:
…an ad hoc militia of self-styled counterscammers on several continents is taking the fight directly to the thieves. Aiming to outwit the swindlers, they invent elaborate and often outrageous identities (Venus de Milo, Lord Vader) under which they engage the con men, trying to humiliate them and, more important, waste the grifters’ time and resources.
The possibilities are endless:
…a fraud baiter posing as one Pierpont Emanuel Weaver, a wealthy businessman, appeared to persuade a con man in Ghana in 2002 to send almost $100 worth of gold to Indiana – for “testing purposes as my chemist requires” – after being asked to put up $1.8 million for a share in a gold fortune. In other cases, swindlers are tricked into posing for pictures holding self-mocking signs, pictures then posted online. Or they are led to travel hundreds of miles to pick up a payment, only to come up empty-handed.
A 47-year-old manufacturing executive in Lincoln, Neb., said he had been engaged in such pranks for almost three years. “I’ve had many, many good laughs at their expense, and have spent nothing but time,” he said. “They have spent countless hours creating fake documents, obtaining photos of themselves holding funny signs, running to the Western Union miles away from where they live to obtain money which I never actually sent, and printing out counterfeit checks to send me.” As for his motivation, he said, “Hopefully, along the way, I’ve diverted enough of their time and resources to keep them from successfully scamming at least one hapless (albeit, most likely, greedy) victim.”
Here is the full story (NYTimes). Here is a website detailing Internet scams, and how they have been stopped. Here is one con man-vigilante exchange, which becomes increasingly humorous. By the end you will see why the scammer is labeled the “world’s rudest investment advisor.”
One question I have: Far be it for me to challenge the voluntary and welfare-enhancing provision of a public good. Nonetheless I cannot help but ask what are the motives of these vigilantes? Is this their idea of fun? Would they be equally keen to aid the vaccination of African children? Part of me is happy that both sides are kept busy with these shenanigans.
Popular culture update
Dodgeball is a genuinely funny movie, if not always in the best of taste. Ben Stiller shows once again that he is best when playing the villain.
Lakers center Shaquille O’Neal has asked to be traded. He is upset that the Lakers appear to be making Kobe Bryant the center of their team.
Oprah has selected Anna Karenina for her book club; Amazon.com apparently has retitled the book Anna Karenina (Oprah’s Book Club).
After a five-year trial period, the Himalayan fiefdom of Bhutan may ban TV once again. Wrestling programs and pornography have come under particular criticism.
Do you love Dad more than Mom?
Sons and daughters plan to spend just $86 on their fathers this year, according to a survey by the National Retail Federation. That’s $12 less than the $98 they spent on their mothers on Mother’s Day last month…
But if you interpret these figures in per hour of labor terms, I would say that Mom is greatly underappreciated. And let’s not forget that these expenditures, in reality, often come from Dad rather than from the kids.
What’s the bad news for Dad?
This year the average family spent $13 less on Dad than last year. It gets worse:
While nearly 81 percent of Americans celebrated Mother’s Day, only 72 percent plan to celebrate Father’s Day tomorrow [today], according to the survey of 6,899 persons.
Here is the full story.