Means-Testing Medicare Would Do No Harm

In what other industries do we think customers are better off being forced to pay for a poorly run monopoly?

Letter to The WSJ. 

"In their Feb. 25 op-ed “DOGE Won’t Be Enough to Get Debt Under Control,” James Baker III and John Diamond are correct to focus on the need to cut old-age programs. Although it’s often viewed as political suicide in Washington, cutting Medicare the right way would greatly help, not hurt, all seniors.

Reducing Medicare eligibility is often viewed as eliminating healthcare for the elderly. The opposite is true. Means-testing Medicare would avoid higher-income seniors paying mandatory premiums—i.e., taxes—to lock themselves into a government-run monopoly plan. In what other industries do we think customers are better off being forced to pay for a poorly run monopoly?

The rich are currently paying for most of overall federal spending. Consider, for instance, that 85% of income-tax revenues are paid by the richest 20%. If excluded from Medicare benefits, they would still foot the bill for poorer recipients, but their tax burden when not paying for themselves would be greatly reduced. The tax cuts would allow for their money to be directed to competing private plans. This wouldn’t be a cut to healthcare for seniors—the rich would be better off, as would the poor, with benefits more focused on their particular needs. If Medicare is anything close to as inefficient as Medicaid, healthcare for all seniors would improve.

Improving the care for all seniors this way would greatly cut our federal spending and debt. Existing evidence suggests that Medicare spending is regressive, in that rich people both live longer and spend significantly more annually than the poor. The share of Medicare spending being cut would therefore be larger than the share of beneficiaries let free by means-testing. If the richest 20% were freed from government control, Medicare spending would be cut by more than 20%. A spending cut in the range of 30% would amount to $5.2 trillion less in Medicare spending over the next 10 years, according to Congressional Budget Office projections.

The status quo would keep Medicare universal and thus entail inescapable across-the-board benefit cuts in the future. Better to means-test and improve it now than court healthcare cuts later.

Tomas J. Philipson

University of Chicago

Mr. Philipson was a member of the White House Council of Economic Advisers, 2017-20, and its acting chairman, 2019-20."