Trading Healthcare For Cash

Retirement Wealth

Using the chart above, Josh Barro points outs that social security is “the most important retirement-saving vehicle” and argues that its benefits should be increased. He would be willing to cut Medicare to do so:

We are talking about the need to cut cash payments to seniors in order to finance ever more expensive health benefits for them, despite those health benefits’ dubious value. Why not give seniors less health care and more cash? With the U.S. devoting an extra six points of gross domestic product to health spending compared with our peer countries, there should be room for much deeper cuts in Medicare than what President Barack Obama has proposed. If a key purpose of those cuts was to expand Social Security, political opposition from seniors might not be as fierce.

McArdle sees a problem with this idea:

[W]hy not give people cash instead of an in-kind benefit? Well, there is a reason, with health care; in fact, there are a few of them, all of come back to the observation that health care is simply fundamentally unlike other in-kind goods that the government provides. Unlike the cost of food, or housing, or other in-kind benefits that we give to people, the value of health care varies wildly between individuals. Some people, even the majority, might be better off with cash. But the people who would be worse off would be really worse off.