Who bears the risk? That is a fundamental question of our political system. In the United States, we are a mixed economy where there is a mixture of private risk bearing and public risk bearing. All industrialized nations have a mixed economy where there is public and private risk bearing. The difference is the split between public and private risk bearing and how much exposure the private individual has to bear if things truly get bad. In the United States, we have traditionally had a comparatively small proportion of public/governmental risk bearing.
Our retirement system has counted on either private sector funded defined benefit plans or private sector funded defined contribution plans. Defined benefits, if they were funded well enough, collectivized the risk of an individual outliving their average savings. Social Security is a minimal insurance against outliving savings and destitution. It is not a particularly rich benefit compared to other national public pension plans.
Medicare is insurance against the catastrophe that is old age. Getting old means getting unhealthy and needing expensive care. Very few people can self-insure against the care that they need to have a long and full life.
Both Medicaid block grants and Medicare prem suppt have same effect – shifting the risk of health inflation from fed govt to someone else.
— julie rovner (@jrovner) November 21, 2016
That is the fundamental question that animates our politics. How much do we self-insure and allow for tail risk to smash individuals who have no ability to self-insure and how much do we collectively insure while using the ability of the federal government to operate with a nearly infinite shadow of the future and much looser budgetary constraints than any individual. It is not a fight about voucherization of Medicare as the right design could produce vouchers that perform the same insurance function at the same cost to the individual. It is not about Social Security privatization. It is about how much idiosyncratic risk do we expect people to bear.