Sunday, August 07, 2011

Sunday August 7, 2011...Entitlements vs Insurance

Let's not confuse entitlements, paid for by the government, with Social Security and Medicare which are federal insurance programs paid for by the participants.

An entitlement is a guarantee of access to benefits based on established rights or by legislation. A "right" is itself an entitlement associated with a moral or social principle, such that an "entitlement" is a provision made in accordance with legal framework of a society. Typically, entitlements are laws based on concepts of principle ("rights") which are themselves based in concepts of social equality or enfranchisement.

Social security is primarily a social insurance program providing social protection or protection against socially recognized conditions, including poverty, old age, disability, unemployment and others.
Actuaries define social insurance as a government-sponsored insurance program that is defined by statute, serves a defined population, and is funded through premiums or taxes paid by or on behalf of participants. Participation is either compulsory or the program is subsidized heavily enough that most eligible individuals choose to participate.
In the U.S., programs that meet this definition include Social Security, Medicare, the PBGC program, the railroad retirement program, and state-sponsored unemployment insurance programs.

Medicare is a social insurance program administered by the United States government, providing health insurance coverage to people who are aged 65 and over; to those who are under 65 and are permanently physically disabled or who have a congenital physical disability; or to those who meet other special criteria. Medicare in the United States somewhat resembles a single-payer health care system, but is not. "Original Medicare" plans (when Medicare Advantage has not been elected) cover 80% of the Medicare-approved amount of any given medical cost; the remaining 20% of cost must be paid by out-of-pocket via the patient's own personal funds (check, money order, cash, etc.). Medicare Advantage plans are not Medicare Supplements, but take the place of "Original Medicare". In return for a premium, these plans share costs and cap out of pocket expenses.
The Medicare program also funds residency training programs for the vast majority of physicians in the United States.

So when pundits start talking about getting entitlement costs under control, they mistakenly include Social Security and Medicare (which are not entitlements) in their discussions. These insurance programs are paid for by the participants over the years and are a contract between the citizens of the United States and their government.

The Federal government has been taking in our payments for these programs for years and years, just as any insurance company would, but instead of investing that money wisely and having it grow and grow into a large reservoir of money from which to pay the premiums they have bought treasury bills and spent the money on other things. Now we have a stack of treasury bills from which to pay the premiums. And now the politicians are starting to complain that they don't have enough money to pay off the treasury bills. They just need to get some of the tax money back from the people who received large tax reductions over the last 30 years.  They need to honor their contract!

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