Steve Verdon points to a speech by Laurence Kotlikoff with a plan for saving Social Security and Medicare.

The Personal Security System
1. The accrual of additional Social Security retirement (OAI) benefits is eliminated.
2. Current retirees and current workers receive their accrued Social Security retirement benefits.
3. The OAI payroll tax is eliminated and replaced with equivalent compulsory PSS contributions.
4. A new federal retail sales tax is used to pay off OAI accrued liabilities.
5. Workers’ PSS contributions are shared 50-50 with their spouses.
6. The government contributes to PSS accounts on behalf of disabled and unemployed.
7. The government matches PSS contributions on a progressive basis.
8. All PSS balances are invested in a single, market-weighted global index fund.
9. The government guarantees the real principle contributed to PSS accounts.
10. At retirement, PSS balances are gradually sold to buy inflation-protected annuities.
11. Prior to retirement, workers’ PSS accounts are bequeathable.

The Medical Security System
1. The traditional fee-for-service Medicare system is discontinued.
2. Medicare participants receive vouchers to purchase health insurance coverage.
3. Voucher amounts are participant-specific and depend on the participant’s health status.
4. New vouchers are issued annually, and participants can change plans annually.
5. Insurers/HMOs cannot deny coverage, nor delay service.
6. Insurers/HMOs must provide basic coverage, including prescription drug benefits.
7. Insurers/HMOs are free to market additional coverage at additional premiums.
8. Government sets voucher amounts to limit per capita MSS growth to that of real wages.

These ideas are interesting. However, I believe that Social Security could be rebalanced by raising the retirement age for workers now aged 50 and younger. I think that would be simpler than the scheme that Kotlikoff concocted. The Medicare plan sounds a bit better, although I still feel that raising the age of eligibility would be helpful even if such a plan were adopted.

For Discussion. Would Kotlikoff’s approach for providing health insurance to the elderly work just as well for those under 65?