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Life Health > Long-Term Care Planning

LTCI Watch: Future money

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Maybe we should think about providing acute medical care and long-term care (LTC) for aging Americans more in terms of coming up with the housing,  home care services, nursing home beds, doctors, food and energy needed to keep old old members of the Silent Generation and later generations happy and healthy, and not focus so narrowly on monetary goals.

That thought hit me today as I was watching a video produced by Face the Facts USA that shows that — zoiks! — Medicare payroll taxes cover only 40% of Medicare program costs, and that the Medicare trust fund could be exhausted as early as 2024.

One consideration that may be a problem or may be a virtue, depending on your point of view, is that we hold down potential Medicare investment returns by insisting that Medicare invest only in government securities. If Medicare could take a little private-sector investment risk, it might do poorly during periods like the one we’re in now, but, in the long run, it could probably generate more than enough investment income (and private-sector productivity growth) to pay far more out in benefits than it collected in the form of payroll taxes.

But another huge problem is that program designers have tied Medicare benefits to a number they can’t control at all — medical inflation. If program managers had decided that Medicare would get a fixed amount of per-capita U.S. gross domestic product (GDP), some people might get less care, or worse care, but medical care wouldn’t be taking the economy over the way it is today. If you went into a small town, you might see something other than a bank, a gas station, a few restaurants and 20 medical offices.

Another problem may be that we trust our monetary system so much.

The United States, for example, has had dollars that look and feel pretty like the current dollar for so long that no one but economics majors, history majors and gold investors who are a lot more serious than I am know how those dollars came to be.

We know that the Bretton Woods system put us on the twentieth century international gold standard system in 1945, and that Nixon took us off the gold standard in the 1971. We know that the shift away from the gold standard is somehow involved in the conspiracy that has culminated in the federal government’s effort to build a system of super tunnels under the United States in an effort to fight the space aliens.

But, even if we support a return to a gold standard (I’m more into diversified baskets of commodities myself), we assume we can project how products and programs will do 10, 20 or even 75 years down the road.

That’s probably a reasonable thing to do. What other choice do we have? But I think it would be good if we tried to verify the predictions we get with financial math by doing the same sorts of analyses using estimates of how much relevant stuff, and what quantity of the relevant services, we could reasonably expect to product over the same period.

The Soviet Union had an economic figure called “net material product” (NMP). NMP was supposed to be a measure of how much the country’s “stuff” and productive capacity had grown during the previous year.

The Soviet system did not well, and the Soviet Union proved, definitively, that central planning is, at best, an endeavor with a high likelihood of failure. But the nice thing about  calculating and thinking about NMP is that NMP could be a way of doing a reality check on GDP.

If we got a trusted government agency, private think tank or consulting firm to produce a Net Health Material Product figure, maybe we could peg growth in Medicare benefits and public and private LTC benefits to changes in GDP and to changes in NHMP, rather than to overall medical inflation.

It would be nice to pay for all care that people need forever, but, in reality, if the price of care is rising through the roof, that’s not possible.

If we tied any increases in medical care and LTC spending to growth in GDP, rather than what care costs, then at least it would seem that the government should have the tax base to pay for those increases in spending. Or, if private insurers are paying the benefits, then linking their promises to GDP growth should help increase the likelihood that their investment returns will be high enough for them to fulfill their obligations. 

If we compared changes in per-capita GDP with changes in per-capita NHMP, then we could see very clearly if the increased spending would cover more health care or less care.

If the amount of care seniors were about to get was falling, retiree medical care and LTCI programs with GDP-linked inflation mechanisms could find ways to make changes and get care back up to acceptable levels.

But at least we’d be making decisions based on the actual amount of money in our purses and the actual amount of health care resources in our country, not separating ourselves from reality with curtains of monetary abstractions.

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