Cut Medicare for the Richer, Not the Younger

Paul Ryan's advance previews of his budget ideas make a lot of sense. But they are missing one important piece.

Here's the Wisconsin Congressman, head of the House Budget Committee, speaking last weekend to Mike Huckabee on Fox News: "If you've already retired or you're about to retire and you've organized your lives around Medicare and Social Security, what we will do is preserve those benefits for you just like they are today and then reform them for future generations so that they can actually rely on them, because they are going bankrupt. If we do it now, we do it on our terms, meaning we don't change anything for people in and near retirement. But if we wait, if we keep delaying and kicking the can down the road, then it will look like Europe — bitter austerity. Cuts will happen to current seniors, and that's what we want to avoid."

Ryan here expresses two important good government ideas: Phasing in major changes gradually and with lots of notice and acting in advance of a crisis, not during a crisis.

But let's add a third essential element: Acting in ways that minimize the shock to the most vulnerable.

For the under-40s who will be exposed to the fullest impact of entitlement reform, the past half decade has been an economic disaster. Now we are about to load an additional burden on a generation already struggling with under-employment and (in many cases) heavy student debt. We also are about to ask them to simultaneously pay the taxes to support current retirees and save for their own retirement, while receiving less help from later generations than earlier generations will receive from them.

To put it a different way: Every previous wave of retirees has been supported by the young. Today's young are expected first to provide for today's old, then provide for themselves.

Some of today's under-40s will in time perhaps be able to do so. But many more will not. The United States has become a very unequal society, and the gap between the classes shows no sign of narrowing soon. We can all hope that the future is more prosperous for all. But it's wise to prepare for a future that looks like the recent past, in which prosperity is much less equally distributed than it was in the 1950s and 1960s.

That preparation should include greater means-testing of benefits. Ryan has for example proposed converting Medicare from an open-ended entitlement into a voucher for people currently in their 30s and 40s. At retirement, the voucher would cover some — but not all — Medicare costs. Retirees would be expected to use their own savings to cover any shortfall.

Good concept. But why should the voucher be the same for all, regardless of need?* How is someone who has gone through life earning less than $44,000 — and half of all Americans do earn less than $44,000 — supposed to accumulate the savings to pay for insurance against the medical costs of the 2050s? And how is it fair to ask them to do so while paying taxes to support unlimited Medicare for everyone currently in their 60s and 70s, including retirees who earned many multiples of $44,000 during their working lives?

Ryan is right that we have to act early and decisively. But we cannot omit the third element: we have to act fairly and we have to act realistically. Bad enough that the young must pay twice. Worse if the poor young must pay twice to support the elderly rich.

*UPDATE: Please note that this is not an accurate statement. A correction has been issued here.

Originally published in The Week.