Thursday, January 24, 2013

Risk, Insurance, and Greatness

Taking the guesswork out of political speeches

In his second inaugural address, President Obama spoke in great detail about a number of federal programs. But it was two lines that caught my eye:
The commitments we make to each other through Medicare and Medicaid and Social Security, these things do not sap our initiative, they strengthen us. (Applause.) They do not make us a nation of takers; they free us to take the risks that make this country great. (Applause.)
(BTW – the White House put the applause tags in its official transcript.)

The President suggests that Medicare, Medicaid, and Social Security are two-way commitments, that there is some shared responsibility for these on-going programs. There isn't. Medicare and Social Security are funded through the Federal Insurance Contributions Act (FICA) tax on current workers and their employers. While there is a Trust Fund, Social Security is not a pension system where worker contributions are saved, invested, and grown. Likewise, while Medicare beneficiaries make premium and deductible payments, three-quarters of Medicare's costs are paid by current workers and employers. As for Medicaid, it's a federal program to which the states must contribute.

Is the President suggesting that these commitments are more akin to social insurance where contributors (i.e., taxpayers) fund the programs with the promise that they'll benefit should they need help in the future? OK, I'll buy that: an affluent society has the means to help those who have contributed and fallen on hard times as well as those – through no fault of their own – didn't share in that affluence. But Social Security and Medicare pay benefits to the affluent.

Along the same lines, the President says these programs "free us to take the risks that make this country great." Is he suggesting that we didn't take risk before these programs began?  Is he suggesting that the programs indemnify us so that we take socially beneficial personal and business risk that we wouldn't take without the programs? If so, might the programs also encourage risk(s) we wouldn't otherwise take or that may be detrimental to society?

Those of you who have read this blog or Gibson4congress2012 know that I tend to think from an economic point of view.  My hope is that readers think through the challenges we face, never accepting anything at face value.

I believe that a safety net provided by social insurance is important, but it needs to be only that: a safety for those who have fallen. Social Security is not a retirement plan. Medicare should not insure all seniors. Medicaid should help those that are on their way to a brighter self-sufficient future, acknowledging that some may never get there.

I don't know a lot of people who like paying taxes or insurance premiums, nor many who trust insurance companies or the efficiency of large government programs. The best way to manage our dislikes and expectations is to speak plainly about social insurance's scope, costs, contributors, and beneficiaries. That way we don't have to guess what our leaders intend or write six paragraphs based on two sentences.