By Bob Lord
I’ve been meaning to write on this piece for a week now, and finally found the time:
Here, Zeke Emanuel outlines a proposal to reform Medicare and Social Security by basing the eligibility age on lifetime earnings. The more you earn during your life, the later your benefits would kick in. On the surface, the logic of the proposal is appealing, as it is based on the reality that life expectancy is related to affluence. The greater your income, the longer you’re likely to live. So, if Social Security and Medicare benefits kick in five years later for a rich guy than they do for a poor guy, that’s ok, because on average the rich guy will receive five additional years of benefits after the poor guy dies.
It’s a great proposal in theory, Zeke, but it won’t work in practice. The problem is that not all high income earners are alike. In my legal practice, I’ve worked with clients who were phenomenally successful, but suffered reversals relatively late in their careers. There are others who invest their higher earnings, as Emanuel suggests they should, but get hurt badly in the investment markets. The bottom line is that a high income in your 40’s does not mean you won’t need help when you’re 65. Within a decade of instituting this proposal, examples of it's unfairness would be running rampant.
But Emanuel is dead on when he proposes that the relationship between income and life expectancy be taken into account in allocating entitlement benefits. And there’s a straightforward way to take that relationship into account. Really, the term “tax” is a misnomer when applied to Social Security and Medicare trust fund contributions. Social Security and Medicare essentially are insurance policies, with the so-called “taxes” representing the premium payments. Essentially, Emanuel is saying the premiums paid by high income earners and the term of their benefits are out of whack, so we need to reduce the benefit term to high income earners such that it is equal to the benefit term for lower income earners.
Emanuel is right that the premiums paid by high income earners and the term of their benefits are out of whack, but his suggestion that we correct the problem by adjusting the term of the benefits is not practical. There is, however, an alternative approach: Adjust the premium payments. Instead of changing the eligibility age for high income earners, we should adjust increase their premium payments -- that is, the Social Security and Medicare taxes they pay -- to reflect the reality of their longer life expectancies. Or would that be considered class warfare?