High Front End Costs, Back End Benefits

“The welfare of the people in particular has always been the alibi of tyrants, and it provides the further advantage of giving the servants of tyranny a good conscience.” Albert Camus.

While individual and private collective charity is noble and common, welfare payments  viewed as charity financed by taxes have never been particularly popular. This is the reason why social welfare programs like Social Security and Medicare, despite of the fact that they largely represent transfer payments with clear winners and losers, are depicted as social insurance not welfare. People are persuaded that they are participating in a large pension program, where they contribute now and receive benefits at retirement as if money were stored is some specific account for them. Moreover, at the start of these programs, there were few beneficiaries so the costs and pain were low. Long-term sustainability was not an issue.Correctly or incorrectly, there is a sense of underlying justice to the transaction. That is why seniors remain so defensive about these programs. They feel entitled on the basis of their previous payments, even if those payments are in no way actually related to the benefits. This is the political genius underpinning the social welfare state — and why Democrats may have overstepped on the current“health care reform.”

It is impossible to predict the final state of the health care bill once it leaves conference committee. However, in order to make the bill financially palatable, the goal was to have a program that is deficit neutral. One can argue about whether the economic assumptions provided the Congressional Budget Office for the forecasts were realistic. However,  here is no question that in order to maintain plan deficit neutrality over the first decade, the taxes start for the first few year before the benefits commence in earnest. The pain is front loaded while the benefits come along the back end, the exact opposite of traditional strategies for extending social welfare programs. In the longer term, no one seriously believes that the program is financially balanced.

The strategy of the Left should be to get as many people dependent upon the benefits, to feel a sense of entitlement, before the costs come tumbling in. There is a precedent for a social program that did not work out because the costs were too obvious and the benefits less so. In 1987, Congress passed a catastrophic health care program for seniors. The idea was to limit the out-of-pocket expenses for seniors will chronic long-term health expenses. The goal may have been laudable, but it was largely paid for by middle class seniors, many of whom had difficulty affording the additional premiums (really taxes).  Seniors largely did not feel that they were benefiting from the new social contract. Two years later, the program was ended as frustrated seniors marshaled their ample political power against Congress. We shall see whether the health care changes suffer the same fate.

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