2013 January 21 Monday
Leading CEOs: Raise Retirement Age
People are living longer. To pay for it all people are going to have to work longer. The sooner we start raising retirement eligibility ages the less painful it'll be. If we don't do it sooner retirement ages will be raised in a hurry when US sovereign debt goes so high that it causes a financial panic.
A group of the country’s leading CEOs from the Business Roundtable has put out an entitlement reform plan that proposes to raise the eligibility age for both Social Security and Medicare to 70.
The Medicare change will be especially hard on people in their late 60s because most people in America get their medical insurance through their job. For those can't manage to stay employed in their late 60s, let alone in a job that provides medical insurance, the price of medical insurance will be too much for many. That pushes lots of people into Medicaid. So what to do? We need to make medical insurance with high deductibles combined with savings accounts the preferred way to save toward medical costs in old age. The medical savings accounts could bridge the gap for those in their 60s who need money to pay for medical care.
The medical savings accounts do not go far enough. What's also needed: the ability to buy medical insurance years in advance of when the policy would first be usable. In your 40s and 50s be able to pay toward a medical insurance policy that won't kick in till your 60s.
At the other end of the working age range we could also increase the number of people working. See my post Accelerate Education To Increase Tax Revenue, Reduce Costs.
Update: If we did not spend so much money on Medicare we could take a very small fraction of what goes into Medicare and double spending on medical research. Instead medical research spending has been cut. Getting expensive treatments for incurable diseases does less for us than medical research. Yet we spend very little on medical research as compared to medical care.
By Randall Parker at 2013 January 21 08:23 PM
"Living longer" is a strong phrase. People aren't living healthier per se, just not dying as much they used to. This is doesn't necessarily mean that the average worker is in better working shape (or for that matter, even wants to keep working).
If the health of the average retiree was significantly improving, that'd be a different matter.
"Getting expensive treatments for incurable diseases does less for us than medical research. Yet we spend very little on medical research as compared to medical care."
In your 40s and 50s be able to pay toward a medical insurance policy that won't kick in till your 60s.
Presumably this would be pre-payment of average medical expenses. As an actuary, how would you project expenses and investment returns in order to properly set the premiums? The trends in medical costs are relentlessly upward, but not predictable. The markets could go to hell in any number of ways.
This looks like it would be too attractive to an "insurer" operating on the Ponzi model: funnel money into bogus investments overseas and run off with it decades before any payouts are due, and spend your own declining years on the beach in the Solomon Islands. Maybe arrange for your bogus insurer to be passed through a couple of changes of ownership in front organizations while you draw consulting fees. By the time anyone realized there was any trouble, you'd be long gone or dead.
Sort of like being a Congressman.
Another factor is immigration. How do you tell people they need to work to age 70, when many are forced out of their careers by immigrants in their 50's and 40's?
Any increase in the retirement age needs to come with an immigration moratorium.
See Life Expectancy by Age, 1850–2004. From 1990 to 2004 (14 years) the 60 year old males went from 18.7 to 20.9 years. 2.2 years gained in 14 years. An impressive accomplishment. A big increase in costs too.
My advice to anyone who will listen: raise your skill levels across a range of skills, work hard, and jump on opportunities. Speaking as someone who moved a couple of years ago in order to make a longer lasting and higher paying career and who now works longer hours I'm taking my own advice. It is tough out there.
Immigration moratorium: I do not expect the US government to act in our interest.
I doubt that I can raise my game in enough different areas fast enough to beat the foreign technical schools and the domestic immigration lobbies which import their graduates by the bulk-cargo shipful. One wrong move and you no longer have the income to spend time on personal development.
The Republicans are soliciting opinions on their positions on a new website. When I get time I'm going to tell them that they need to follow the Sailer strategy, more or less. That's how they lost the White vote: refusing to take a position in their favor on any concrete matter.
Also, the foreign technical schools would lose business if they couldn't offer their grads the prospect of jobs in the USA. Meanwhile, US citizens would take a second look at those careers.
"The medical savings accounts do not go far enough. What's also needed: the ability to buy medical insurance years in advance of when the policy would first be usable. In your 40s and 50s be able to pay toward a medical insurance policy that won't kick in till your 60s."
This the health-care model used in Germany. You're on your parents' or university's medical plan until you get your first job. You are then mandated to join a medical insurer (called a Krankenkasse). The employer is obligated to cover 50% of premiums up to a certain amount. You cover the rest.
The premiums start out low and slowly increase until you transition over to Germany's version of Medicare at the age if 65. By law a Krankenkasse can only increase premiums a certain percentage per annum. The sooner you join a Krankenkasse, the lower the premium will be, the less the absolute premium will be towards the end of your working life.
You decide who your Krankenkasse will be. My guess is that there are at least 100 in Germany. The public Krankenkassen (gesetztliche Krankenkassen) are more expensive, provide lousy benefits and poor service. The caveat is that they are obligated to cover family members and anybody with pre-existing conditions. For instance, you join the public insurance provider Barmer. Premiums are €500 per month (premiums are based on a % of your salary). The employer picks up half. Is it a good deal? Well, if you've got a wife and three kids, all who would be covered under your plan, then yes.
The private ones offer really cheap plans or Cadillac plans. Service is great for German standards. However, you have to undergo a rigorous examination process before the private insurer will approve you. Any pre-existing conditions, e.g., allergies, jack the premium. You don't like it? Then go to a public Krankenkasse. Family members are separately insured under the plan.
If you change employers, you take your plan with you. Don't like your current insurance provider? You can switch at anytime, but then the new insurer will underwrite your policy based on your salary (public) or future health costs (private). Switching Krankenkassen when you're young won't make a big difference in terms of premiums. Over 50? Forget it. But at least you locked in the premiums when you were young and thus aren't paying too much.
I'm not a socialist, but I found this model to work really well. I could imagine the US transitioning to this model.
Has anyone ever bothered to notice that "healthcare" is the only area of public activity where the Democrats actually care about costs? You never hear Democrats bean-counting any other social welfare program, yet now Dems are so concerned about healthcare.
You don't need to raise your game in many different areas. You can do it in a small number of areas. Some areas of engineering aren't in as much demand any more. If you are in one of them then start developing expertise outside of your area of training.
As for the foreign competition: I personally can keep up with them. I'm learning in a few areas I've never learned much in before and this is helping.
Even if the competition is going to intensify by learning more valuable skills you can slow the rate at which your competitive position drops and save more money toward retirement than you would have otherwise.
What happens in Germany if you are, say, 55 years old and your Krankenkasse goes bankrupt?
Randall - RE your post on accelerating education to raise revenue, I have to ask how you propose to "encourage" education?
As you're aware, our government states that it wants to encourage productivity and reduce unemployment, yet through its system of taxes and subsidies, it punishes productivity and rewards sloth.
Simply running kids through our current "education" system will ensure more folks with credentials, but it won't necessarily lead to an increase in our nation's productivity - graduation does not equal education.
At the root of the problem is that we need to align incentives with goals. If we want more productivity, we need to reward it and certainly not punish it. Simultaneously, we also need to stop subsidizing those who chose to become non-productive. Indeed, when we stop subsidizing this cohort, the government will need to extract fewer tax dollars from the producers, thus giving them more incentive to produce. Unfortunately, while this would make sense to most people who study it, many of our politicians hare naturally self interested and have as their chief goal, election (or re-election). In other words, their own goal is re-election (the incentive being all the perks that go with being a congressman) rather than improving US GDP. We need to re-align their goals with ours. Until this occurs, we will have more rhetoric than results.
Encourage education: Give a teenage kid sitting at home easy and very cheap access to online college courses by which college credits can be earned. The courses should be mostly in STEM subjects.
The key to making this work is to come up with a testing system that is like the ETS AP tests for college credits but with the ability to take practice tests on the web and then go to testing centers to get tested in a way that is proctored to verify identification of the person taking the tests.
My understanding is that the federal government underwrites reinsurance for the Krankenkassen. There have been instances where a Krankenkasse is underwater and is taken over by the government. Generally the old erclients are taken over by another medical insurer. However, I believe there's some risk for the insured, just like with the FDIC. I could look into for you. As I said, I think this system makes much more sense than our employer-subsidized system.
Question for you: how do I set up my comments so that I'm notified if there's a response to my comment? I don't see this option like with a Wordpress blog. Hence my tardy reply to your query.