insurance adviser | by claude thau

A Prescription for a Healthy Future

In the first Presidential candidate debate, Al Gore kept saying that George Bush would give prescription drugs to only 5% of seniors. It was striking that Bush made little attempt to turn Gore's comment and program against Gore.

The lack of criticism for providing a large subsidy to all senior citizens underscores that our political process overlook the interests of young people because they do not vote.

The media, politicians and organizations such as AARP teach seniors to feel entitled to such programs. Like other people, most seniors do not aggressively question messages that serve their interests. Hence, most seniors support senior entitlements. Politicians cater to seniors because: seniors are an increasingly high percentage of registered voters; a very high percentage of seniors vote; and seniors are perceived to vote their self-interest.

Social security, Medicare and Medicaid have contributed greatly to existing debt. Deficits and debts have been understated by ignoring significant future costs. Interest on the debt is a huge subsidy foisted on future generations. If true surpluses develop, politicians likely will re-direct money to purposes other than debt reduction.

Seniors' prescription drug needs could be funded by:

A) Making them fend for themselves with no cost-sharing mechanism (current practice).

B) An entitlement program funded by an inter-generational transfer.

C) A private insurance program spreading costs among people with comparable risk.

D) A public insurance program spreading costs among people with comparable risk.

Alternatively, people of means could address their prescription drug needs via methods a), c), or d), while poor seniors benefit from a subsidy from tax-payers. Creating an entitlement program for wealthy seniors is, in my opinion, unjustified, unsound and unfair.

Seniors are the wealthiest segment of our population. Arguments may justify prescription drug programs for poor seniors, but why subsidize seniors who can pay for prescription drugs themselves?

Although Medicare and Social Security are frequently described as insurance programs, they are transfer programs, NOT insurance. Taxes paid by seniors for these programs have been insufficient to pay promised benefits. Additional benefits increase the subsidy. As the worker-to-retiree ratio continues to shrink (from 40:1 in 1935 to less than 2:1 in 2020), the per capita burden on our children increases rapidly.

So, who pays for this subsidy? Primarily the working poor. Current taxes would pay for seniors' prescription drugs. Seniors would clearly gain much more in benefits than they contribute via premium or taxes.

The children of the wealthy would pay taxes and not get direct benefits, however the proposed entitlement program would inflate their parents' estates, resulting in larger windfall inheritances. So the children of the wealthy would also benefit.

Thus the burdensome cost of seniors' prescription drugs will fall on the working poor. We pontificate that we favor having an at-home parent to raise children, but we expand senior entitlements that levy a heavy tax burden on young families.

Three basic general principles should rule government programs:

• They should not pay if people can pay themselves. We must encourage personal responsibility.

• If many people who can afford a particular service choose NOT to purchase it, we should not provide that service to the poor. That is, if people would not purchase a service for themselves, they should not be required to purchase it for others.

• Users of government resources should repay the government if possible... For example, Medicaid reimbursements from estate recovery should bestrengthened and artificial impoverishment to avoid such reimbursements should be thwarted.

If we create entitlements or if we allow people to impoverish themselves artificially to qualify for benefits, we discourage savings. Let's stop mortgaging our future and hurting our youth. Let's establish true insurance programs instead of inter-generational entitlements!

Claude Thau is a nationally-known LTCI expert, doing LTCI wholesaling (through Target Insurance Services) and LTCI consulting. Phone: 913.384.6300 or e-Mail: cthau@targetins.com.