NCPA - National Center for Policy Analysis


October 16, 2007

Retiree out-of-pocket expenditures to cover premiums, deductibles and co-pays for parts B and D of Medicare will gobble 29 percent of the average Social Security benefit check this year, says economic columnist Scott Burns.

And it's going to get worse, says Burns.  According to Alicia Munnell, director of the Center for Retirement Research at Boston College:

  • A worker who is 30 today can expect premiums, deductibles and co-pays for parts B and D of Medicare to absorb about 50 percent of his initial Social Security benefit.
  • A baby born this year can expect the same costs to absorb nearly 70 percent of future Social Security benefits.
  • Since Social Security benefits will have to be cut 25 percent by 2041 unless taxes are increased, today's newborns are facing a future in which the cost of health care will have gobbled up the entire Social Security program.

Given the situation, Boston University economist Laurence J. Kotlikoff proposes a major change -- vouchers:

  • Every American would receive an annual voucher to buy a basic health insurance policy.
  • The value of the voucher received would be related to individual health ratings; those in poor health would receive vouchers that were worth more money than those in good health.
  • As a consequence, private insurance companies would have no incentive to game their participant populations in search of lower risks.
  • The annual increase in the value of the vouchers would be limited to the rate of growth of per capita income.

Since vast amounts of medical care aren't covered by insurance, the voucher option would create a massive reordering of health care finance -- but the money would be there to pay the bills, says Burns.

Source: Scott Burns, "Medicare's monstrous appetite," Dallas Morning News, October 14, 2007.


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