LTC Bullet: Venezuela, Yale and Long-Term Care

December 7, 2018


LTC Comment: What could those three diverse terms possibly have in common? Read on, after the ***news.***

*** REMEMBER PEARL HARBOR: This is a good day to recall what others have given so we can live free of foreign or domestic compulsion. ***

*** “IMAGINE THE POSSIBILITIES” is the theme of the 19th Annual ILTCI Conference, which will convene March 24-27, 2019 at the Sheraton Grand in Chicago, IL. Organizers report “You can rest assured that you’ll receive expert insight into only the most current tactics and information pertaining to long-term care. There will be opportunities to attend special workshops, network with both peers and industry leaders, and also engage with exhibitors and sponsors at their booths. This conference truly is centered around dramatically enhancing your understanding of the long-term care industry, so that you can easily and efficiently implement success strategies for your organization.” Register here. Apply to exhibit here. Sponsor here. ***

*** MOVIE UPDATES: “Big Sonia” is the poignant story of 91-year-old Sonia Warshawski– great-grandmother, businesswoman, and Holocaust survivor. We’ve pointed you to this wonderful film before. The latest news is that Big Sonia is now available for rent on Google Play and Amazon and can be purchased at those sites or Similarly Big Sonia is available to rent or buy on iTunes. Here is a link to Q & A after the showing at the Dole Institute: Finally, a core-standard curriculum guide for Big Sonia is now available for download here.

The other movie we’re following is LTC expert and Center-friend Ross Schriftman’s “My Million Dollar Mom,” based on a true story about caring for his mother diagnosed with Alzheimer's. Ross’s film has received seven nominations at the Tampa Bay Underground Film Festival to be held December 6th through December 9th. He says “Our film highlights the value of long term care insurance as the main character faces the challenges of his mom's failing health from Alzheimer's.” Check out the website for ways to view and/or buy the film. *** 



LTC Comment: In 1968, my late wife and I settled into Carmen de Cura, our tiny Peace Corps site in the Venezuelan llanos. Part of our job was to confer with visiting medical professionals and back them up in the community when they left and we remained. But even though Venezuela’s constitution guarantees medical care to every citizen, the government doctors and nurses rarely showed up in our town and never when scheduled. That was a bitter early lesson that despite what I’d been taught in college, entitlements do not ensure benefits.

Fifty years later everyone knows what happened to Venezuela. Yet our universities and eminent professors continue to teach that government entitlement programs financed by compulsory contributions enforced by the IRS are crucial to individual and social well-being. Let me give you an example published recently by a Yale professor emeritus who is also regarded as an opinion leader.

You can read Theodore R. Marmor’s “Social Insurance and American Health Care -- Principles and Paradoxes” for yourself in the Journal of Health Politics, Policy and Law, Vol. 43, No. 6, December 2018, here. I encourage you to do so, but first, let me give you the general idea and then comment on some illustrative quotes from his article.

Professor Marmor worries that we no longer understand and apply the true principles of social insurance. The original idea behind Social Security, and later Medicare, was that everyone would contribute to a fund that could later pay for their retirement income security and old age health care. This social insurance approach was not based on need, but rather on earned right. You paid in so you had a right to the program’s defined benefits. But somehow, according to Marmor, critics corrupted this grand idea by mixing social insurance programs up with means-tested welfare programs like Medicaid. They bunched these fundamentally different programs together, called them all safety net “entitlements,” and claimed they’ll bankrupt the country as they plunge into insolvency. But funds for senior entitlement programs can’t run out any more than funds for national defense can run out. Voters, especially the burgeoning elderly bloc, won’t allow that to happen. So, we should not worry about the survival of social insurance as long as we return to its purer principles.

That’s his argument in a nutshell. But don’t take it from me. What follows are direct quotes from the article followed by our comments.

Marmor: “Social insurance, like commercial insurance, is about protection against financial risk. In the United States, Medicare and the Social Security Administration’s programs for retirement, disability, worker’s compensation, and worker’s life insurance have become dominant features of American public policy, amounting to more than 41 percent of the federal budget.” (Abstract, p. 1013)

LTC Comment: 41 percent? Maybe, if you leave out Medicaid and the escalating cost of interest on the national debt. Add those and other social entitlement costs back in and you’re looking at two-thirds (67 percent) of the federal budget already and growing rapidly. That’s one very good reason to consider the whole entitlement picture and not just focus on social insurance alone.

Marmor: “This essay seeks to clarify the crucial differences between social and commercial insurance and elaborates on the conceptual justifications and distinctive operational features of America’s social insurance programs.” (Abstract, p. 1013)

LTC Comment: Wait. The proper counterpart for “social” insurance is not “commercial,” but rather “private” insurance. Private, voluntary, nonprofit “insurance” funds created by philanthropic organizations were commonplace in the United States before compulsory government programs crowded them out. Using the term “commercial” is just this author’s way of sneering at the profit motive as if it were a good thing to operate at a loss as social insurance programs routinely do.

Marmor: “There are two issues that involve serious misunderstandings: the difference between social insurance and commercial insurance, and the difference between programs for which benefits are earned through contributions and programs with means-tested, often called ‘welfare,’ benefits.” (p. 1016)

LTC Comment: True, but unfortunately Marmor does not grasp the importance of the distinctions as our comments on later quotes will clarify.

Marmor: “It is ‘insurance’ in the sense that people contribute to a fund to protect themselves against unpredictable financial risks.” (p. 1016)

LTC Comment: That’s a poor definition of insurance because it leaves out half of the term’s legitimate meaning. Both social and private insurance spread risk and charge a fee, but only private insurance prices risk to determine a variable premium amount. By charging everyone the same and giving everyone identical benefits regardless of the risk level each person brings into the insurance pool, social insurance creates a fatal moral hazard. It punishes responsible, healthy behavior and rewards the opposite. The implicit message is “Go ahead and smoke, binge drink, use drugs, take welfare instead of working, no problem. The rest of us will pay for your irresponsibility.” The dignity of private insurance comes from underwriting, which treats everyone justly, charging each a premium commensurate with the risk they’re asking others to share on their behalf. I developed these points more fully in an article titled “The Inherent Individualism of Insurance.”

Marmor: “In commercial insurance, price must reflect risk. Social insurance, by contrast, operates on the premise that contributions are calculated according to one’s income and benefits are related to one’s needs.” (p. 1016)

LTC Comment: There, he’s made it explicit. Social insurance operates on the premise: “From each according to his ability, to each according to his needs.” That is the credo of Marxism, the essence of communism, the fatal flaw that dooms every socialist enterprise. That’s the crumbling foundation on which our social insurance programs are based and the main reason they face eventual collapse. You don’t grant a pickpocket the right to your wallet based on need. Why would you give the same power to the government?

Marmor: “The social insurance contract, once created, cannot be voluntary and survive long.” (p. 1016)

LTC Comment: So, social insurance is wonderful, but it cannot survive without the threat of government force to compel citizens to participate. Loss of freedom and independence are inevitable outcomes of involuntarily taxing ability to fund need. You always get less of what you tax (ability) and more of what you subsidize (need). Over time such policies sap individual initiative, handicap economic productivity, and make increasing dependency on government inevitable. Eighty years of expanding social insurance and welfare programs have set us on that course, the inevitable tragic outcome of which is already in sight.

Marmor: “In recent years, much linguistic muddle has been created through the use of entitlements as the term of choice for discussing both social insurance and means-tested programs.” (p. 1017)

LTC Comment: Social Security and Medicare were originally set up as social insurance programs. You paid in; you took out; no means test. They had the dignity of private insurance in that respect. Medicaid and Supplemental Security Income (SSI), on the other hand, required no contribution and were based on need. They were welfare, not insurance, and shared that stigma. But all that has changed radically. Social Security and Medicare have been substantially welfarized by tying their benefit levels to beneficiaries’ wealth. Medicaid and SSI have gone the opposite direction becoming readily available to able bodied adults and affluent elders in need of long-term care. Social insurance and welfare programs are gradually merging into indistinguishable, fiscally unlimited entitlements that require contributions based on ability to pay, but distribute benefits based on financial need.

Marmor: “We see the power of [calling both social insurance and welfare “entitlements”] by default: few if any critics of Social Security or Medicare explicitly criticize their appropriateness. Instead, they concentrate on claims that the programs are unaffordable.” (p. 1018)

LTC Comment: Do critics walk gingerly around “third-rail” entitlement programs? Well sure. No one wants to be called uncaring, much less have to fend off attacks by Antifa thugs demanding more “free” benefits. But plenty of thoughtful economists have demonstrated that by sopping up private savings and diverting capital away from productive investment, the huge and growing entitlement programs have set the American economy on a dangerous downward course. Borrowing to support spending beyond our means has been going on for decades as indicated by the huge federal deficits and debt. The consequences of such irresponsibility can be disguised and delayed for a long time. “There’s a great deal of ruin in a nation,” Adam Smith acknowledged. But sooner or later the piper must be paid. Sooner is looking more likely than later now as the entitlement trifecta approaches. The first boomers turn 85 in 2031, the same decade in which the empty Social Security and Medicare trust funds use up their economy-debilitating claims on general federal revenue. This crescendo of collapse will give the final lie to the false promise of social insurance.

Marmor: “The idea of a trust fund, then, was to emphasize the special status of a program whose benefits would be paid decades after a contributor’s payments. It was language meant to highlight reliability, to suggest a governmental appreciation of an especially protected program. The sad and second paradox is that this language has been turned upside down, bringing needless fear that the funds will ‘run out.’” (pps. 1018-19)

LTC Comment: Oh well, then, never mind. No worries. The trust funds were never meant to have any real assets in them, just to convey a sense of responsibility by the government in order to sustain the public’s confidence in the social insurance schemes. What a relief!

Marmor: “Anyone who asked whether the Defense Department will ‘be there’ in 2040 would be considered at the very least odd. … As a speaker I face questions about dire predictions of ‘insolvency’ regularly. I urge such questioners to dwell for a moment on how a growing proportion of senior citizens can be politically compatible with large reductions in future Social Security benefits.” (p. 1019)

LTC Comment: Right, we don’t have to worry about entitlements’ insolvency, much less funding national defense, because a lot of old people can vote themselves anything they want. But revenue to fund social benefits and national defense does not come from votes. It comes from taxes. The more important demographic number is not how many old people can vote, but how many young people, a declining bloc, can or will pay taxes to support benefits and services they don’t believe they will ever receive themselves.

Marmor: “The regulatory innovations of Obamacare represent earnest efforts to regulate commercial health insurance to become more like social insurance. Requiring insurers to guarantee issue at a fixed price regardless of preexisting conditions would reduce risk selection that social insurance eliminates directly.” (p. 1021)

LTC Comment: The more government tries to convert private insurance into social insurance, the more likely both forms will collapse. As described above, the distinguishing feature of private insurance is that it prices risk through underwriting. It neither punishes ability nor rewards need. To ignore pre-existing conditions and eliminate underwriting leads inevitably to insolvency, whether in the social or private insurance models. The proper solution for pre-existing conditions is charity, preferably private charity, but means-tested public assistance as a last, not first, resort.

Closing LTC Comment: OK, that covers Venezuela and Yale, but where does long-term care come in? The most popular reform proposals for long-term care financing advance the same ideas and arguments as Marmor’s article. They insist we need mandatory, government-enforced participation in a social insurance scheme to pay for long-term care. They seek to eliminate the necessity for people to take personal responsibility for this risk and cost. They propose to add just a little bit more to the camel’s back of public financing. In other words, they guide us toward the same dark path of ruin that Professor Marmor illumines.