Wednesday, October 24, 2018

Marginal Analysis of Medicare

We have blogged about over-consumption of medical care by seniors before, as it is a perfect illustration of the marginal analysis of Chapter 4:  if you reduce the MC of an activity, you get more of it.
  • How many times do we have to repeat this until someone listens?
    • taxes for every taxpayer would have to rise by roughly 81% to pay all of the benefits promised by these programs under current law over and above the payroll tax
  • Election update: fiscal wake-up questions for candidates
    • Medicare poses a much bigger challenge than Social Security. According to the 2007 trustees report, Medicare's projected costs over the next 75 years exceed its earmarked taxes and premiums by $34 trillion in present value. Measured as a share of the economy, Medicare will more than double by 2035.
  • Them Geezers is Bleeding us Dry
    • Sure enough, the number of enrollees increased somewhat, but expenditures per enrollee per year increased from ~$1,000 in 1980 to ~$10,000 in 2009. Folks, the automatic increases at this pace just aren't sustainable. I sure wish we could have an honest debate about it.
  • Happy New Year: start worrying now
    • ... an average-wage, two-earner couple together earning $89,000 a year. Upon retiring in 2011, they would have paid $114,000 in Medicare payroll taxes during their careers. But they can expect to receive medical services -- from prescriptions to hospital care -- worth $355,000, or about three times what they put in.
And every MBA student at Vanderbilt has had to watch Stossel's video, on GREEDY GEEZERS:


  1. The medicare subsidy program does not offer our country a viable solution to paying for health care, but instead offers a "smoke in mirrors" offering to our citizens, making them believe they are receiving health care at a reasonable price.

    However, the incentives of the government, do not influence the decision makers to implement a health care model that requries high quality and low cost care. The incentives of the patient lead them to overuse the system and the incentives of the government lead them to offer insurance companies the best deal they can.

    In order to turn this health care crisis around, consumers will have to take the demand and supply of health care into their own hands, if we have any hope of having rationally priced health care.

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