The U.S. Supreme Court's current consideration of federal health-care legislation has triggered thoughts not only about health care but other policy areas where reconsiderations might be in order. How should things work?
First, health-care and other so-called entitlements programs.
President Franklin Roosevelt's Social Security legislation, passed in 1935, was the landmark measure that gave the federal government a universal, safety-net function for the first time. The country was deep in depression and FDR wanted, most of all, to provide a safety net for needy citizens. But the tradition had been for families, churches, charities, and localities to fill this role. He feared that a federal program benefiting needy citizens only could not gain majority support in the country or Congress. So Social Security was designed to be "universal" — that is, benefiting every citizen, regardless of income.
Roosevelt was right. A universal Social Security program passed the Congress and has benefited every retiree since. It has been financed by payroll taxes, withheld up to a worker's capped income level. Many retirees have thought that they had individual Social Security accounts to which they contributed over a working lifetime and from which they would derive benefits after their retirement. (You can get an earnings statement from the Social Security Administration showing your contributions year-by-year. But your total contributions will never equal your eventual benefits. The eventual benefits will be small, if you die soon after retirement, or ample, if you are long lived). Social Security is an income-transfer program. Its benefits are received by eligible senior citizens. It is financed by younger working citizens.
Depression-era workers were big Social Security winners. They contributed for only a few years, but got benefits over the rest of their lives. I can recall former Council of Economic Advisors Chair Walter Heller telling me, during his retirement, that he had received many times his total contributions to the system. My own Depression-born generation had a low birthrate and, thus, we were no great burden to the big wage-earning boomer generation behind us.
Our benefits begin to exceed our lifetime contributions about 10 years into retirement. But demographics, in the end, rule. The high-birth-rate boomers are now entering retirement but there are not enough working-age Americans to finance their benefits at current levels.
How to address this problem? You could change Social Security from a universal program, benefitng everyone, to a needs-based program, as FDR originally considered. But public opinion would not accept that. The other options are straightforward: Reduce benefits slightly; raise the eligibility age slightly; adjust the annual cost-of-living adjustments slightly downward; increase the amount of salary income subject to Fed/FICA withholding. A mixed package, including some or all of the above, would fix the problem immediately. But, as we have seen, neither successive presidents nor a congressional majority have had the guts to do it. It will happen, however, when and if enough retired boomers and others become sufficiently alarmed to force their elected leaders to act.
President Lyndon Johnson designed the 1965 Medicare program on the model established 30 years earlier by his hero FDR. He made it universal, with premiums to be paid by all during their working lives and benefits to be received by all over 65. A supplementary prescription drug benefit was added during the George W. Bush presidency, supported in particular by Democratic Sen. Ted Kennedy, paid for partially by premiums deducted from retirees' monthly Social Security payments. Johnson added in 1965 a Medicaid program designed wholly to benefit low-income Americans. It is administered and partly financed by the states, which offer differing benefit levels.
Medicare is in more difficult financial condition than Social Security. A combination of the same fixes would have to be applied to achieve long-term stability.
Over the years leaders of both political parties, of many interest groups, and in many non-profit and academic institutions strove for a federal health-care program which would provide benefits to all Americans, of all ages. In the 1950s and early 1960s, many of those who had backed Medicare proposed a universal, "single-payer" federal program, which would be similar to those in the United Kingdom, Canada, and many other countries. There would be a government-run program that would, in effect, put everyone into a Medicare-like system. The labor movement supported the concept. It appeared in several Democratic national platforms. But such a program could not be enacted, even when Democrats held the White House and congressional majorities. There were financing problems. Medicare-level payments to health-care providers (i.e., doctors, hospitals, laboratories, etc.) were not covering the cost of the services rendered. Non-Medicare patients and insurance companies were paying higher fees to subsidize Medicare and Medicaid patients. If everyone shifted to a government-run program, therapies and procedures eligible for coverage either would have to be reduced or taxes would have to be raised sharply.
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