What if Social Security Were Run Like Medicare?
Medicare and Social Security are often tied together as the two great pillars of America’s commitment to the well being of our seniors. But, in fact the two programs could hardly be more different.
Medicare is vastly complicated, paying directly for the health care services of some 50 million people and contracting with hundreds of thousands of health care providers. It fixes the prices paid for every service delivered and prohibits any charges above those prices. “Balance billing” is forbidden. Medicare decides what is and is not an appropriate service for coverage purposes, and is increasingly directing providers on how they must provide the services for which they are paid. Other than some strictly defined supplemental insurance, Medicare is a monopoly insurer.
Social Security, on the other hand, is simple. It sends out monthly checks (or electronic transfers) to about 60 million people — period. The amount of the check is based on the money paid into the program, but that maximum is $2,366 per month for people at full retirement age.
Once you receive your monthly benefit, the money is yours and you may spend it on anything you want. Don’t tell Mayor Bloomberg, but you may spend it on Big Gulp sodas. You may spend it on fois gras. You can even buy cigarettes with the money. You can take that money and overpay for things. You can waste it on silly stuff. The government doesn’t care! It’s none of their business.
If you’re on Social Security, not only is balance billing allowed, it is expected. If you want to buy a car and don’t have enough SS money to pay for it, you are perfectly free to add your own funds to make the purchase — neither you nor the car dealer is punished for doing so. Indeed, it is expected that most people will supplement their payments with other money — savings, investments, money earned from working, a private retirement plan, or contributions from family members. It’s all good.
Now many people in Washington think the elderly — and everybody else, for that matter — are incompetent to make their own decisions. “The people” are like fatted calves ready to be slaughtered by greedy profiteers. Regular people are too poorly informed to make good decisions and they are easily manipulated by clever marketing. Plus, they suffer from “information asymmetry” and don’t know much about the things they would like to purchase.
Certainly that is the thinking in the Medicare program, but why should it stop with Medicare? Perhaps Social Security should be run the same way. Why should our government allow people to spend taxpayer money on things that are bad for them? Why should we let them overpay for essential goods and services?
And just imagine the wonderful opportunities that would open up for federal bureaucrats! Why we could solve the unemployment problem by assigning every Social Security recipient a case manager to “help” them spend their money more intelligently!
Of course, first we would have to institute a program of third-party payment for Social Security benefits. Rather than just giving people money, we would pay directly the providers of food, housing, transportation, utilities, clothing and all the rest. We would have to develop participating contracts for these providers and audit them all to ensure they are not overcharging these vulnerable citizens.
Then we would need to educate recipients to make sure they are spending their allowance appropriately. For instance, where obesity and diabetes are such a problem, people should not be allowed to spend precious Social Security money on fatty foods. So our participating food providers will be strictly monitored to make sure they are not peddling bad things. They will also be responsible for counseling recipients on proper diet.
Now, of course we will have to drop the whole idea of fee-for-service payment because all these providers will want to sell as much stuff as they can. So, we will switch to a “bundled payment” system in which food providers will get a fixed amount of money for each recipient. If they can provide less food, they will get to keep more money. This will be good for people on Social Security, too, because eating too much food is bad for you. I expect there are studies showing that the ideal diet is rice cakes and green tea, so why should anyone need more than that?
This is gonna be GREAT! Utopia is just around the corner.
Great post, thanks Greg!
Genius column, Greg. And while you were being sarcastic in that column, I would not be surprised if one day government regulated welfare and possibly social security in such a way as to where they limited how much people could spend on certain kinds of items and where they could spend it.
You know that if a program could be successfuly reformed by making it MORE like Medicare, then it is truly messed up.
Good point! What if Social Security fixed prices of goods and services seniors used their benefits on? What if Social Security paid directly for rent, food, etc.? What if Social Security fixed the prices of these goods and services? It would be a vastly more complicated arrangement than cutting seniors a check. It would also limit seniors’ options. Seniors get Social Security benefits that vary based on contributions. They could get Medicare benefits that vary based on health status or some other calculation. Social Security is a far better arrangement than Medicare.
Best essay I’ve read today. Unfortunately, those who are already inclined to disagree with your point of view, will continue to do so in spite of your logic.
Privatizing both programs is clearly the best solution. Who knows if we’ll ever get there.
If you run ANY health care program like Medicare expect nothing good out of it.
As a senior on Medicare I would like to compliment you for a cute column. But it exhibits a fundamental misunderstanding of Medicare that inhibits solving the Medicare problem. You say
“Other than some strictly defined supplemental insurance, Medicare is a monopoly insurer.”
That is not true. Medicare is a huge premium support system today that provides most retired seniors over 65 in 2012 a $700 (+/-) a month voucher (if they worked enough SS quarters). Once retired seniors sign up for their $700 a month premium support voucher (that is, sign up for Medicare Parts A and B), they are allowed to buy supplemental private fee for service (FFS) insurance from their former employer (about 35%), FFS insurance from a Medigap provider such as AARP (about 15%), or mostly capitated insurance from a private insurer under Medicare Part C (about 25%). A small percentage get their supplemental insurance from the VA.
In addition to getting the $700 a month voucher, the senior pays $100 a month to the Part B (basically MD payment) Trust Fund. The rest of the money in that fund is provided by general tax revenues. The Part A (basically hospital payment) Trust Fund was funded by 40 years of 3% payroll taxes paid by most senior turning 65 today and going forward.
Medicare Parts A and B are terrible insurance. The seniors that sign up (almost all) have no catastrophic coverage, no drug/physical-exam/vision/aural/dental benefits, up to $6000 in annual hospital addmitted-inpatient deductibles, and even higher 20% co-pays for observed-inpatient and outpatient hospital charges, doctors and a few other things. Despite having no catastrophic coverage, seniors end up — on average — responsible for over half of their health care expenses.
As I said, this premium-support voucher is basically just the ante into the system. Over 80% of seniors (and the disabled) on Medicare A and B choose to buy private insurance. Another 14% get Medicaid (there is some overlap between the two; some people on Medicaid also get private insurance). Only about 5% presmubably very rich or very uninformed people do not choose to supplement what they get for their voucher.
Unless you understand that this is how Medicare works in the real world, that Medicare is not “a monopoly” but already a voucher system providing premium support for private insurance, you’ll never understand the pros and cons of possible solutions.
But still your article was cute. (In addition as a senior, I think you have your analysis of SS screwed up too but I won’t bore your readers any further.)
Mr. Byron,
You’ll have to elaborate. If you are referring to Medicare Advantage, only one-fourth (including me) are on it. True many people buy Medigap (for about $100/mo) and some employers pay for gap coverage (though ever fewer), but it sounds like you have something else in mind.
Both Mr. Scandlen and Mr. Byron make good points. Mr. Scandlen’s analysis applies to the traditional fee-for-service (FFS) Medicare program. Mr. Byron is correct to point out that there exists a private, comprehensive alternative to FFS Medicare called Medicare Advantage or MA. MA plans receive a capitated amount each month to pay for services provided to their enrollees. The amount is based very roughly on the per capita cost of beneficiaries in FFS Medicare in the same county, though in recent years, MA plans in some counties have received more.
The 2010 health care reform legislation (referred to as Obamacare) aims to reduce that “overpayment.” Mr. Byron refers to this system as a voucher or premium support. However, those terms usually refer to a system that has been proposed, but not implmented in Medicare. As noted above, under the current system, the government’s contribution to Medicare premiums is based roughly on the cost of FFS Medicare in each county. If an MA plan costs more than FFS Medicare, beneficiaries must pay the additional cost of their pocket, in addition to the Part B premium. Under premium support proposals, all plans, FFS Medicare and MA plans, would submit bids to cover the cost of the Part A and Part B entitlement benefit package in each county. The government’s contribution to premiums would be based on those bids — perhaps set at the second lowest bid. If FFS Medicare was a higher bidder, beneficiaries would have to pay the difference out of their pocket, just as MA enrollees do now. In other words, FFS Medicare would be placed in direct price competition with MA plans instead of enjoying its current protected status. Out-of-pocket premiums would be risk-adjusted to ensure that a plan’s premiums were not high simply because they enrolled a sicker population. If you would like to learn more about premium support, there is an article by Antos, Pauly and Wilensky in the current issue of the New England Journal of Medicine.
to Greg Scandlen
You ask: “You’ll have to elaborate. If you are referring to Medicare Advantage, only one-fourth (including me) are on it. True many people buy Medigap (for about $100/mo) and some employers pay for gap coverage (though ever fewer), but it sounds like you have something else in mind.”
The answer is no I am not referring to Medicare Part C. I am referring to “All of the above and more.” What you describe in your question is not “some people” buying Medigap and “many people” getting employer retirement insurance; it is almost all people on Medicare doing one of those three things (with about 14% getting Medicaid, some of whom also do one of those three things).
Unless you look at Medicare as the whole integrated market, you — I mean you in the plural — cannot begin to understand the issues and the possible solutions (true single payer vs true voucher vs. kill the whole thing vs. etc. etc.) Most research I’ve seen (dominated by agenda-driven Democratic-Party academics) tends to talk about the Medicare market as one in which
— a bunch of Republican dupes (25%) have chosen Part C and are sucking off the public treasury with money that really goes to nasty for-profit insurers and
— another group (75%) has sanely and safely chosen “public, government-run” Part A/B, and are happy and healthy and forever prasing Truman and FDR for coming up with the idea.
The recent totally deceitful CommonWealth Fund study (mentioned elsewhere on this blog and in which Commonwealth Fund actually validated my point in its Methodology section and still went on to conclude that most people love “public, government-run” A/B) is just the latest example of such Democratic Party research. You feed that meme (I assume unintentionally) in your orginal post by calling Medicare “a monopoly insurer.” It isn’t. It not only does not have a monopoly on senior health insurance but almost no one (about 5%) depends on what you call the monopoly, Medicare Parts A and B.
However A/B — which is terrible insurance, combining the bad characteristics of (1.) very high deductibles/severly limited benefits and (2.) lifetime limits, characteristics often found in one type of insurance or the other but no insurance except for Medicare A/B has both — is the ante you have to pay to buy the private insurance (including Part C) you need. So in a sense Medicare A/B is already premium support insurance, just really confusing premium support insurance.
to bryan dowd
No I am not talking about just Part C. (You all further the left wing meme also by calling it Medicare Advantage instead of what it is, Medicare Part C.) The premium support to which I am referring is the implicit government contribution in A/B, not the small rebate in C, which is inconsequential, a couple tens of billions out of $541 billion. (I argue that the premium support is the non-SS-contributor price of A plus the government share of B. I could even argue that the premium support is only the government share of B since I paid into the A trust fund for 40 years but I really know — despite what Truman and FDR promised — that that money was not saved for me.)
Greg
P.S. I am also one of the Republican dupes on medicare Part C
Dennis,
Now I’m really confused. I agree that A/B is lousy insurance, but it is not made better by MediGap, which doesn’t fix the underlying issues of price-fixing, provider controls, lack of balance billing, etc. etc. All MediGap does is offset your OOP costs.
The government contribution to A/B is not “premium support” if you don’t get to choose a different insurance plan with the money.
Greg Scandlen
I agree with your analysis of Medigap but again I urge you to think of the whole Medicare picture. You are fixating on Medigap but Medigap is in fact the least popular of the three ways people supplement A/B (four ways if you count the 10% or so that need Medicaid and also get no private insurance).
Again my contention is that A/B is premium support because it is basically the ante for buying one of the three private approaches, which is what seniors really need. And it is premium support in that you only pay for 25%-65% of the insurance you really need (depending on how you analyze your lifetime of Part A contributions). Ok, you don’t agree with my characterization but at least now it sounds like you get what I’m saying. (Although I don’t get your OOP comment; all insurance offsets OOP costs.)
I do say it is complicated premium support in my first comment but the effect is the same. Despite A/B’s faults, it has nothing in it you wouldn’t have in a useful policy. In just lacks many of the things that are additionally needed. As a result the insurance choices that end up on the Wyden/Ryan list are going to look like A/B plus Medigap (pick a plan letter) and A/B plus the various Medicare Part C choices and A/B and some of the more generous employer plans (I also agree with you that that part of the list is shrinking except for govt employees)
But my bigger concern is that you are fixating on Medigap in your thinking. Think of the dynamics of the entire market.
Greg … is his usual brilliant here.
Of course, what I would like to see is a treatise on “what if Medicare looked like Social Security …” Of course, a defined contribution would solve most of our Medicare issues….
It comes down to the question …”who owns my life?”
This is, if I may borrow a term, cute, and “cute” is not a compliment I would want given to my writing.
If I may, to borrow another term, further the left wing meme while avoiding the details, you can’t compare social security to medicare/medicaid on the grounds that social security is better-managed (I agree) because it isn’t a third party payment system.
Social Security is designed to provide for seniors’ basic needs at a time when many are unable to do so themselves. Medicare is designed to provide for seniors’ medical needs at a time in their lives when medical costs are at their highest and earning potential is at its lowest.
The difference between the two is that everyone has the same basic needs, but not everyone has the same medical needs. If you hand a senior a check for $2000, they’re going to have their basic needs fulfilled. They’ll have a house, they’ll have food, they’ll be able to keep the heat on in the winter, etc. If you want to cover medical costs, however, it isn’t so easy. Let’s say the average annual medical costs for a senior citizen is $10,000. If you hand them a check for that amount, a lot of people won’t get the care they need because $10,000 isn’t enough, and a lot of people will spend the money a cruise ship, because they’d rather die sooner on a boat than later in a bed (and who can blame them?).
The goals of the program are very different, and any serious commentator (even seriously facetious ones) should recognize that. If your point is that we should free up how seniors can spend their medicare dollars, you may have a point, but would that include cruise ships? What about luxurious massages? I’m sure I could get a doctor to say it would be good for my health.
What you seem to be suggesting is absolute nonsense. If you think it’s a problem that 500 elected officials can waste taxpayer dollars, don’t you think it would be a nightmare if 50 million unaccountable citizens could do the same? If a senior citizen wants insurance that pays for massages, no problem, but they should have to pay for that insurance. If a senior citizen wants to live in a high-rise, no problem, but they should have to pay for it–and they won’t be able to with a couple thousand in social security benefits.
You’re trying to say that our approach to managing medicare is absurd, but your patent inability to discern meaningful distinctions among the goals of the left and the programs designed to implement them leaves you with arguments that are nothing themselves but absurd.
David,
I will ignore the insults and pretend you have some serious observations.
You write: “Let’s say the average annual medical costs for a senior citizen is $10,000. If you hand them a check for that amount, a lot of people won’t get the care they need because $10,000 isn’t enough,”
True enough, and that is the purpose of insurance. That does not mean the government needs to micromanage how one gets health care services, prohibit balance-billing, fix prices, and so on.
You also write: “What you seem to be suggesting is absolute nonsense. If you think it’s a problem that 500 elected officials can waste taxpayer dollars, don’t you think it would be a nightmare if 50 million unaccountable citizens could do the same?”
That is precisely the point of the article. People like you take it on faith that ordinary people will waste more money than bureaucrats and politicians will do. With that mind set, why stop at health care? You believe you would be a better steward of my resources than I am. That is very sweet of you, but I think I will decline.
First of all, you can’t say you will ignore my insults and then insult me. That only motivates me to offer real insults, none of which can be found in my first comment.
“micromanage how one gets health care services, prohibit balance-billing, fix prices, and so on.”
That is exactly what insurance companies do, save for balance-billing. The insurance we’re speaking of, while it may be sub-par, is funded by taxpayers. Medicare is an insurance company we manage, and there is no reason that we can’t manage it in a way that limits waste.
Finally, I’m not sure which people like me you’re speaking of, but I don’t think I ever suggested that one group of people will waste more of other people’s money than another group. The difference in 50 million seniors and 500 legislators is that the latter is at least indirectly accountable to the people whose money they are spending. The point is that people’s basic needs cost basically the same for every person, so you can give them a flat rate without being worried about waste. Medical needs don’t work that way, so you should manage the program differently to meet the different needs.
Your claim that I think I would be a better steward of your resources is untrue and irrelevant. Medicare dollars are not “your” resources. They are tax dollars, and the people who collect and distribute them have every right to manage how they are spent. The same is true of social security but, for reasons I’ve stated, waste isn’t as much of a worry there as it is with medicare.