Sunday, December 5, 2010

Privatizing Medicare: Caution! Highly Explosive!

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In response to my recent post where I averred that the cigarette companies were treated as scapegoats, I have had several cyber and actual conversations about personal responsibility. I believe that folks should realize the consequences and the benefits of freely made decisions. While we want American society to be compassionate, we do not want to punish success and reward failure. Our goal is to do all that we can to maximize everyone’s success. We should be ready to assist those who need and deserve our private and governmental assistance, but personal effort and responsibility are necessary elements of these interventions.

In our gastrroenterology practice, when we see patients who are in financial difficulty, my physician partners and staff will do all that we can to help them. While it is not our policy to do colonoscopies for free, we will make whatever adjustments that are necessary to make sure that the patient receives necessary medical care. However, when patients who owe us money hang up on our calls, or express their view of medical entitlement with foul language, then we forward these accounts to a collection agency.

There is also a self-interest angle to supporting assistance for those in need.. One day, we may need a boost ourselves.

Recall the concept of privatizing social security, a sound proposal that was vilified and snuffed out during George W. Bush’s presidency. Antagonism against this modest proposal was seasoned with a large measure of arrogance, a splash of hubris and a dash of paternalism.

In summary, this proposal argued that if folks could manage a small portion of their own social security money, which they earned themselves, that it could be a force that could empower earners and reinforce the system. The political left turned white hot over the notion of the government transferring any responsibility for managing retirement funds to the citizens who earned the money. Isn’t this preposterous? They predicted doomsday when our imbecilic citizenry, who were somehow smart and industrious enough to earn the money in the first place, would squander it all, vaporizing the last remaining safety net that would keep them afloat. Then, the lefties argued, the rest of us would have to rescue them at much greater expense.

Their argument is transparent. Review some pesky facts below.

The plan only permitted individuals to invest 4% of wages that are subject to social security taxes into private accounts, with modest increases permitted in subsequent years. So, even if these investment tyros lost it all, which is hard to do in any investment, it wouldn’t be a game changer.

The government was not permitting folks to invest in hedge funds, penny stocks or junk bonds. They were required to select from a list of legitimate investment vehicles.

The program was voluntary. If an individual did not have the skill or desire to make personal investment choices, he did not have to. He could continue to allow the government to manage his money.

The program is so modest and so reasonable; it seems that it would be difficult to attack it. Why, then, did it provoke such ire and vitriol from the left?

These guys were scared. They weren’t frightened that folks would lose money and be vulnerable during their retirement years. They weren’t spooked that it would jeopardize the social security system’s financial stability. They were terrified that the program might actually work. They couldn’t tolerate any fissure in their edifice that stood for total government control of other people’s money and personal decisions. If this initial privatization effort succeeded, they knew that the public, now empowered, would demand greater control of their own money.

Yes, I am familiar with some of the criticisms. The government would have to borrow gazillions of dollars to replace the monies being deposited in beneficiaries’ private accounts. In addition, retirees would have to repay the government their privately deposited funds back, plus interest, so it is possible they would lose money if their accounts did not outperform this low interest rate. It would increase the federal deficit, and is not risk free, as stated above. As is obvious, I am not an economist or an actuary. It may be that the dirty details of the program would pose drawbacks, more dire than I realize. Indeed, many liberal advocacy groups vigorously denounced and derided this program. Yet, I support the notion that I have the right to participate in a voluntary program to manage money that I have earned.

To those who believe that the government knows best how to invest my social security retirement money, then why shouldn’t it control all of my investments? Should I be trusted to invest money that will one day be used to pay tuition for my kids? Indeed, anti-privatizers could argue that all of our money should be turned over to the government, so they can wisely manage it and then disburse it as it sees fit.

Recently, Alice Rivlin, a Democratic economist and Paul Ryan, a Republican congressman, both members of the president’s deficit reduction commission, advised consideration of privatizing the Medicare program. Of course, this is political dynamite, but their bipartisan proposal from two thoughtful public servants shows that this strategy deserves air time and public discussion.

So, when you stumble across dynamite, what should or response be?  Call the bomb squad or light the fuse?

5 comments:

Anonymous said...

I think the real flaw in the argument about Social Security is that it was never meant to be a retirement plan- it's supposed to be a safety net! When FDR enacted it, it was meant to protect people who were unable to provide for themselves. Social Security should be seen more as Medicaid: our taxes support it, but we hope we never have to use it!

Anonymous said...

It's interesting to me that Dr. Kirsch trusts individuals to make their own medical decisions. Yet he doesn't believe they have the intelligence or wisdom to correctly decide a medical malpractice lawsuit or its value.

Michael Kirsch, M.D. said...

To the contrary, I do believe that they have the wisdom. For all of us, it's hard to do the right thing when there is so much self-interest at stake.

Anonymous said...

Yet you support taking away their ability to decide the value of cases and would give it to people who have NOT heard the evidence. Case of actions speaking louder than words?

Maybe your self interest got in the way when you cast that vote.

John said...

Social Security does not mean Retirement Security, as the first comment points out. We already have privatized retirement arrangements that are tax-advantaged in the form of IRAs 401ks and the like. Pension plans (company paid and now becoming obsolete) are being replaced by employee-paid plans of various types. All these are INDIVIDUAL security plans. These are your "privatized" retirement plans, thank you.

SOCIAL Security, on the other hand, was never conceived to be individually targeted, other than for tax collecting purposes. The plan is that the working population is taxed for the purpose of collecting enough to pay for disbursements to the non-working population. It has worked extremely well for decades, even collecting a generous surplus for decades (my working lifetime) which has been gleefully spent by our elected representatives as part of the general revenue, replaced by special-purpose bonds that President Bush carelessly referred to as a file-cabinet in West Virginia full of IOU's.

This back-up reserve was expected to last another twenty-five or so years, but the Great Recession has put so many new people into the early-retirement column I think it got eaten up sometime in 2010.

Comes now the president's "tax holiday" which will further deplete those resources, so the plan seems to be to cripple what remains of the system so the "privatization" arguments will seem realistic.

To imagine that anyone's nest egg will be better off with brokerage and transaction fees getting skimmed off every transaction is about the nuttiest idea anyone can have. For years simple government accounting has been far more efficient and my experience with Social Security has impressed me with the speed and accuracy of all they do.

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