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The Redistributions and Distortions of the Health Care Market

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A while back I talked about the health care and health insurance market and how it is the result of tremendous government regulation.  There are portions that involve competition, but they are limited by a variety of matters, including large distortions from licensing, regulation, tax exclusions, and government provided health care. The matters are so complicated, it is hard to get a handle on it.  The transfers and redistributions are significant and hard to follow.  But it is worthwhile just attempting to describe some basic aspects of this sector. One take on what is happening is the following story.  It is my…

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Entitlement Reform Delayed Is Entitlement Reform Denied

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Social secruity

The longer entitlement reform is delayed the worse entitlement reform will be. Indeed, delay increases the risk of no substantial reform and much higher taxes for supporting Social Security and Medicare.  As time passes and more baby boomers retire, the amount of money paid out for age-tested entitlements will grow, making the programs even less solvent. Even more importantly,  the larger number of recipients and those close to eligibility will form a voting block against decreasing benefits. People fight very hard, sometimes even irrationally, to hold what is theirs. I am getting closer to eligibility myself and while I am ideologically committed to reform, I sometimes feel the tug of my own interests in policy analysis.

And the elderly form a particularly powerful voting block.  It is costly to vote and thus the elderly vote in larger numbers than the young.  They have less exciting things to do than the young and more time on their hands.

But most of the best reforms to Social Security and Medicare would affect those already collecting these entitlements or those within hailing distance of retirement.

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The Unconstitutionality of Social Security and Medicare

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Government social insurance creates some of the most serious problems in western style democracies.  At best, these government insurance programs place tremendous strain on the economy and reduce work incentives.  At worst, they may result in the bankrupting of the society.  In the United States, Social Security pensions and Medicare are the worst culprits.

There are, moreover, alternative arrangements that would avoid these problems.  Some people may favor a fully voluntary system.  Others may favor more government involvement, such as a compulsory private system in which individuals are required to save certain amounts for their retirement or are required to purchase health insurance on some kind.  (For a discussion in the context of unemployment insurance, see here.  For a book comparing private and government insurance more generally, see here.)

While there are arguments for each of these systems, the important point is that they would not involve redistributions.  In particular, they would not require the massive redistributions that these existing systems make from one generation to another – redistributions that are unfair, inefficient, and cause serious political problems. 

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Three Reasons to Reform Old Age Entitlements Now

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In my last post, I showed that the younger generation is likely to live longer in a wealthier nation. If the younger generation is likely to be better off, why shouldn’t we transfer resources to the old and forget about reform to Social Security and Medicare? There are three reasons.

First, because of human nature each generation wants the next generation to be better off. It is distinctly odd to redistribute against the preferences of the beneficiaries. Most people have children and others have nieces and nephews. They are committed to these youngsters’ welfare even at the expense of their own. This is clear not only from polling, but from actions. People of any means almost invariably try to leave their children an inheritance rather than party down into old age.

One might ask why nevertheless old people often vote against reform of entitlements. First, most people are rationally ignorant of politics. Polls regularly show that many people do not recognize the amount of money spent on entitlements, thinking instead that foreign aid makes up a greater portion of the budget.

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Are We a Nation of Takers?

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EntitlementSpendingChart.If nothing else, media coverage of the “fiscal cliff” debates have made most Americans aware that federal spending is outpacing federal revenue, thereby fueling a massive—and growing—federal budget deficit.   It is also likely that most people have heard that Social Security and Medicare, the two largest “entitlement” programs, are major contributors to this budget crisis.

Most Americans probably do not know how many entitlement programs there are, how much is spent on them, and how they have grown in the past fifty years or so, all of which are well-documented in this compact book by Nicholas Eberstadt entitled A Nation of Takers.  Moreover, it is unlikely that most persons who receive benefits from the largest of these programs see themselves as “takers,” in the sense used by Eberstadt. 

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A Nation of Takers: A Discussion with Nicholas Eberstadt

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Nicholas Eberstadt comes to Liberty Law Talk this month to discuss his significant new book, A Nation of Takers: America's Entitlement Epidemic. Our conversation focuses on the staggering data of our transfer payment state and how it is inevitably strangling the federal government's operations (by 2010 entitlement spending counted for almost 2/3 of federal spending). We also discuss how we arrived at dependency, the consequences for limited government if it isn't rectified, and some possible ways of redress. Eberstadt's book is a sobering account of our fiscal situation and should be read carefully by all. Related items: David Armor reviews A…

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Mediscare, Mediscaid, and Block Grants

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AEI’s  J.D. Kleinke has a long, eye-opening Forbes piece on the latest fads and foibles in the health care market. Aetna and Wellpoint have been buying up health (managed) care providers that principally service Medicaid populations. The valuations are rich: Wellpoint paid a 50 percent market price premium and about 18.4 forward PE for Amerigroup.

Behind this “Fools’ Gold Rush” is, of course, the Affordable Care Act, which (if implemented) will unleash mass migrations on a scale last seen when the frontier was still open—for example, from private and state plans into “exchanges” or Medicaid. Among the migrants are an estimated 9 million “dual covered” folks who are currently covered under Medi-care and –caid and will eventually be moved entirely into  Medicaid. With something like $300 billion in revenues on the table, the betting is that there’s money to be made in that market. But how?

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