Chris Pope – Actuarial News

Excerpt:

Before she exited the Republican primary race, Nikki Haley advocated gradually increasing the retirement age to match the growth in life expectancy. Her political rivals swiftly criticized her proposal, but it enjoys widespread support among those looking to rein in soaring entitlement costs. A new book by economist Teresa Ghilarducci, Work, Retire, Repeat, offers reasons to seek an alternative path to reform.

Pay-as-you-go retirement systems such as Social Security or Medicare use taxes on current workers to pay benefits to retirees. Even if individuals on average fully pay for what they later get, such an arrangement will not be sustainable if declining birth rates and rising life expectancy reduce the ratio of workers to retirees. In 1960, there were five workers for each retiree. By 2000, the ratio had fallen to three-to-one. By 2040, there will be only two workers for each retiree. Raising the retirement age would both reduce the cost of benefits and increase payroll tax revenues to pay for them.

But Ghilarducci’s book argues against pushing back retirement. She suggests that, whereas policymaking elites view retirement as boring, low-paid workers typically can’t wait for relief from “heavy lifting, crushing work schedules, arbitrary changes in work duties, and the fear of being laid off.”

Ghilarducci acknowledges that employment can be a valuable source of meaning, personal identity, achievement, social interaction, and structure in people’s lives. But she disputes the claim that the correlation of retirement with declining mental health proves that it is bad for people.

….

By allowing younger workers to opt for a lower payroll tax rate for the remainder of their careers, in return for a uniform safety-net benefit when they reach retirement, Social Security could be made more effective at preventing poverty while also being less of a burden on the young. Such a benefit structure would likely also motivate higher-earning workers to retire later than the poor—the arrangement for which Ghilarducci provides her strongest arguments.

Author(s): Chris Pope

Publication Date: 14 Mar 2020

Publication Site: City Journal

Can France Escape Its Pension Overhang?

March 29, 2023 Mary Pat Campbell

Link: https://www.city-journal.org/can-france-escape-its-pension-overhang

Excerpt:

In 2021, government spending accounted for 59 percent of GDP in France, compared with 45 percent in the United States. Spending on public pensions accounts for much of that gap: it’s 15 percent of GDP in France, but only 7 percent in the U.S. This greatly inflates associated payroll taxes, which alone took 28 percent of workers’ incomes in France, compared with just 11 percent in the U.S.

President Macron argues that the cost of financing pensions is dragging down the whole economy, and that reform is necessary to make France an attractive venue for investment and employment. Whereas workers’ incomes in 1975 were 46 percent higher than those of retirees, by 2016 they were 2 percent lower. Many economists see it as senseless to redistribute so much from the young to the elderly, who seldom have childrearing expenses and whose mortgages are often paid off.

Pension reform is seen as necessary by 61 percent of French voters, but only 32 percent support raising the retirement age. Macron argues that the only alternatives to his reforms would involve cutting benefit levels, hiking taxes, or cutting public spending on other items such as education, health care, or defense. France already has close to the highest taxes in the developed world.

Median incomes for French residents aged 65 and over ($20,116) are little different than those for Americans ($19,704). The main effects of France’s extra pension spending are to crowd out private savings for retirement (which amount to 12 percent of GDP versus 170 percent in the U.S), and to cause French citizens to retire much earlier (at an average age of 60.4, vs 64.9 in the states).

Author(s): Chris Pope

Publication Date: 28 Mar 2023

Publication Site: City Journal

Reforming Health Insurance: Competition Across State Lines

June 8, 2021June 8, 2021 Mary Pat Campbell

Link: https://www.manhattan-institute.org/reforming-health-insurance-across-states?utm_source=mailchimp&utm_medium=email

Graphic:

Excerpt:

State governments often operate with limited administrative and technical resources and are highly vulnerable to lobbying by interest groups. Medical providers—physicians and hospitals—are well represented in state capitols, and they frequently push legislatures to mandate that insurers pay for services that they provide, as a way to increase the sales (and prices) of these services.
The typical state had fewer than one benefit mandate in 1970; by 2017, the average was 37. James Bailey of Temple University has estimated that each benefit mandate enacted by states tends to increase health-insurance premiums by 0.4%–1.1% and that new mandates were responsible for 9%–23% of premium increases during 1996–2011. Benefit mandates may have added value to insurance coverage by preventing insurers from leaving gaps in coverage, in order to deter sicker individuals from enrolling.[9] Still, in a study of the period 1989–94, Frank Sloan and Christopher Conover of Duke University estimated that 20%–25% of Americans without health insurance were deterred from purchasing coverage because of the added costs resulting from benefit mandates.[10]
Lobbyists for hospitals and physicians have similarly pushed states to enact laws that increase their pricing power, by making it hard for insurers to exclude them from networks of covered providers. When HMOs began to squeeze hospital costs in the late 1990s, more than 1,000 bills were introduced in state legislatures. Most states enacted laws requiring insurers to reimburse “any willing provider” for treatment according to their standard payment arrangements. A study by Maxim Pinkovskiy of the Federal Reserve Bank of New York found that anti-HMO state laws drove up the incomes of medical providers, increased service use, slowed reduction in hospital lengths of stay, and caused U.S. health-care spending to increase by 2% of GDP—accounting for much of the growth in health-insurance costs in the early 2000s.[11]

Author(s): Chris Pope

Publication Date: 8 June 2021

Publication Site: Manhattan Institute