WHY WAIT?:

HIRAs Are The Future (DIANA FURCHTGOTT-ROTH, June 25, 2008, NY Sun)

Economists at Texas A&M University, Andrew Rettenmaier and Thomas Saving, were in Washington, D.C. last week to present their answer to Congress: Health Insurance Retirement Accounts, or HIRAs.

Here's how HIRAs would function: Workers would deposit 4% of their paychecks into their HIRAs, while current Medicare payroll taxes deducted from their paychecks would be used to pay for current and future Medicare expenditures.

When workers retire, the HIRA would be used to purchase a lifetime annuity. Annual income from that annuity would be available each year to pay medical costs above an initial deductible of $2,500.

If there were money left over in the account at the end of a year, retirees could keep it and spend it on whatever they wanted. If, on the other hand, medical expenses exceeded the annuity amount and the base deductible, the difference would be paid by Medicare.

Since low-income workers would have smaller HIRAs, the federal government might make a supplemental contribution, from tax revenues, and perhaps lower the $2,500 deductible. Workers of all income levels would shop around for medical services, a process that would help stem the increase in medical costs.

Current retirees now on Medicare would continue to pay Medicare premiums under the present arrangement.

HIRAs have major advantages for future generations of Americans:

* They prepay retirement health spending, taking advantage of the miracle of compound interest. That gives workers a nest egg from which to pay medical bills.
* They encourage shopping around for medical care. If people know they get to keep the unspent balance of their annual medical allowances, they would be more cost conscious. Just as prices for Lasik and cosmetic surgery have fallen, so would other medical costs. Doctors would compete against each other by posting lists of services and fees.
* They are fair. Because the size of the annuity is determined by past wages, those with higher incomes pay a larger fraction of their medical care with their larger annuities before dipping into the common Medicare pot.

Workers? If you wait until people are working you've squandered 20 of the healthiest years of their lives when the post could really be building. Start them at birth and fund them for the poor.

Posted by Orrin Judd at June 25, 2008 10:42 AM