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Monday, March 26, 2012

Social Security and Socialized Health Care

Social Security is a popular debate topic in recent times. To further explore the issues currently being raised about the government program, I read several articles in The Economist and chose to use two of them in my discussion: Pensions: The challenge of getting Americans to save more and America's safety net, part two: Taking Social Security and feeling you've earned it  (Throughout this blog post I will refer to the former as “Pensions” and the latter as “Safety Net”). There are several similarities between the two articles, as well as, the discussion we had in Economics of the Public Sector, regarding alternative approaches to a government-implemented retirement plan that would better suit the needs of retirees.

While both articles are incorrect in defining Social Security as an insurance program (understandable considering it is the definition the government has given Social Security) both also mention an alternative to Social Security that looks more like a government-required investment program; essentially, a pension plan. While I do not believe there is any source of market failure associated with any individual’s retirement savings—no externalities, no monopoly power, no public goods—and thus, no justification for government to have any type of Social Security program in the first place, if one is going to exist, it would be more constitutional to have a program in which each individual gets returned what he/she puts in, instead of the system of Social Security we currently have in place, which is basically an intergenerational exchange of debt—each generation pays for the preceding generation’s Social Security payout. The “Pensions” article lays out a more detailed description of the proposed pension plan: Every working citizen has 5% of his/her wages deducted and invested into one or more of their choice of pooled accounts, which contain both foreign and domestic assets. In addition, a subsidy would be provided for people earning too little income to contribute to the pension plan. Coupling this retirement plan with a progressive consumption tax would increase the incentive for individuals to save and, at least, significantly reduce (if not eliminate) the number of retirees living on welfare.

The “Safety Net” article also discusses Medicare and other medical insurance. The author argues in favor of a universal health care system. The argument is something that has torn me in the debate since ObamaCare was “introduced”. Not that I necessarily agree with the type of universal health care system this plan represents, but I do think there is a serious problem when the medical costs incurred by individuals who cannot afford them become the burden of the general population of tax payers. There is also the issue associated with how this debt can negatively affect major medical centers, which is something we have recently faced in Colorado Springs. Personally, I think if health insurance is going to be made mandatory, a two-tiered health care insurance system may be the best way to solve many of the problems we currently deal with. People who wish to remain purchasing their own private health insurance are free to do so and those who wish to participate in a socialized health care system pay higher income taxes to support the insurance “fund”.

There is also the argument that government simply does not have the right to force people to buy insurance. Again, I do not necessarily disagree, however, liability auto insurance is a requirement for every driver in the United States. The idea is simply to be able to cover damages an individual may cause to someone else and/or someone else’s property. The same argument can be said for requiring every person to have health care coverage—without it, the costs incurred for an individual’s medical treatment may become the burden of the general population.

Again, and this point cannot be stressed enough, neither a government-required pension plan or  mandatory health care represent situations that fit the definition of a circumstance that justifies government intervention. There are no externalities here. There is not a monopoly power at play. There are no public goods in either scenario. It is simply too easy to argue that government does not have the right to force people to participate in either a pension plan or health care insurance program. I do still wonder, however, if government mandating that each person purchase health insurance (using the two-tiered system discussed above) may alleviate the problems associated with providing medical care to people who cannot pay for it themselves. This idea goes completely against my capitalist nature, it just seems as if having the burden of debt from unpaid medical costs dispersed throughout a population is socialist in itself. There is, of course, always the alternative approach of simply not providing health care to those who cannot afford it, yet, this idea tends to be thought of as “morally wrong” among much of the population, even though it is the most logical way of providing services in a capitalist nation.

I would like to suggest that we should not think of government as having "the right" to do anything. Instead of asking if government has a right to impose a health insurance mandate, I think the proper way to put the question is something like the following: "Does the Constitution include the grant of POWER to Congress to impose a health insurance mandate?"
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