What passes for a center-right columnist at the New York Times, David Brooks, objects to the tax bill passed by the Senate early this morning — not on the grounds that it raises taxes too much, but on the grounds that it does not raise taxes enough. He writes that the bill "locks in low tax rates on families making less than around $450,000; it is simply impossible to avert catastrophe unless tax increases go below that line."
He goes on, "The average Medicare couple pays $109,000 into the program and gets $343,000 in benefits out, according to the Urban Institute. This is $234,000 in free money." That's a bit misleading. The Urban Institute's calculation includes a 2% real rate of return. If you think you can do better than that over the long term, use a higher number for what you pay in. A lot of the number has to do with the inflation calculator and the compounding effect, not the tax rate. And if you earn higher than the "average" wage, again, use a higher number for what you pay in.
Even the value of the benefits is not as neatly priced as Mr. Brooks suggests. That's what the government pays out, or what you'd have to put into an account to generate the money that the government pays out using the same assumption on a 2% real rate of return. It doesn't account for the possibility that the government is overpaying for the benefits compared to what they'd cost in a true market system. (Usually when I write this I get a comment from a physician or two complaining about how low the Medicare reimbursement rates are. Maybe so, but in some cases private insurance companies can negotiate the rates even lower than Medicare, which would mean the value of the benefits — not the sticker price representing what doctors and hospitals and drug companies would like to be paid, but the post-discount price representing what purchasers with group bargaining power are willing actually to pay—would be lower.) In any event, the value of the benefits to the patient is not the same as the amount of money the government pays to the health care provider who treats the patient. It could be more, or it could be less. It's hard to tell, because it's not a free market with consumers spending their own money that they control.
This may seem an obscure point, but it's an important one to get clear, particularly for people like Mr. Brooks who purport to support reforms to Medicare. When you frame it the way he does — $343,000 in benefits for $109,000 in taxes — Medicare sounds like an incredibly great deal, and it's no wonder that people don't want to change it. But if you frame it a different way — the government takes a lot of money from you and uses it to pay high prices to drug companies and hospitals for procedures instead of giving you the choice of spending the money on what you want, whether it's end-of-life health care or something else — you might get a different political dynamic.
Imagine, for example, if you let Medicare seniors go into the ObamaCare exchanges and buy health insurance through them, and let them keep any savings they generate relative to the traditional, old-fashioned Medicare system. Democrats would attack this as "vouchers" and "destroying Medicare," and Republicans wouldn't like it because it acknowledges the ObamaCare exchanges are going to be here to stay. But that approach would acknowledge the reality that we're not in a world in which people reach age 65 and "retire" onto Medicare, but we're in a world in which plenty of 60-year-olds aren't working full time and plenty of 70-year-olds are working full time.
There's some of this sort of thing going on already through Medicare Advantage-type plans offered by private insurance companies, and plenty of seniors have chosen to participate, in part because they view their health care not entirely in terms of the lifetime value of their benefits in terms of maximizing what the government will pay for them.