Thoughts on Medicare
My (partial) list of the interesting questions:
1. Is Medicare well structured to provide good health care to the elderly?
2. Is Medicare encouraging today’s workers to save less than they will ultimately need? In other words, is the program likely to be severely curtailed in the future, leaving workers who counted on it worse off than they would have been had it never existed?
3. Is Medicare encouraging, or discouraging, the medical innovation that could make future generations better off?
4. What is the deadweight loss of the taxation required to pay for Medicare, and does this represent a good use of our money?
5. Is this massive transfer from old to young just? Does this answer change if it turns out that future generations are likely to massively trim the program?
My answer is that Medicare is a bad program on many fronts: badly structured, economically and medically destructive, and a fairly injust transfer of resources. But none of those things have anything to do with eye-popping NPV figures. A bad program doesn’t become a good program just because it’s cheap.
She is suggesting that we should take one of my favorite arguments about Medicare, that it is the fiscal equivalent of the Titanic, off the table. I can see her point.
As a matter of economics, I think that the weak points of Medicare are its savings-discouraging and deadweight loss aspects (points 2 and 4 in Megan’s list of questions).
The main benefits of Medicare are psychological. For old people to worry about medical expenses is very stressful. My mother-in-law could afford to pay for all of her medical care herself. But one could argue that at the margin she would suffer more psychological discomfort from doing so than would the younger, less affluent people whose taxes are taking care of her.
I am not enough of a paternalist to beat the drum for this psychological stress-transfer story. But I suspect that when all is said and done, it’s the best (only?) thing that can be said for Medicare as we know it.