THE REVOLUTION WILL NOT BE TELEPROMPTED:

Entitlement Reform Revolution: Newt Gingrich has proposed the most cutting-edge solution to our fiscal crisis. (Peter Ferrara, 11.30.11, American Spectator)

Gingrich proposes reforms that would empower workers with the freedom to choose to save and invest what they and their employers would otherwise pay into Social Security in personal savings, investment, and insurance accounts. My own studies with various colleagues over the years show that at standard, long-term, market investment returns, for an average income, two-earner couple over a career, the accounts would accumulate to close to a million dollars or more, depending on how big the account option is. Even lower income workers could regularly accumulate half a million over their careers.

Those accumulated funds would pay all workers of all income levels much higher benefits than Social Security even promises let alone what it could pay. That includes one earner couples with stay at home moms caring for the children. Retirees would each be free to choose to leave any portion of these funds to their children at death.

In retirement, benefits payable from the personal accounts would substitute for a portion of Social Security benefits based on the degree to which workers exercised the account option over their careers. This is where the spending savings come in. The personal accounts don't just reduce the growth of government spending. They shift vast swaths of such spending from the public sector altogether, to the private sector.

Gingrich proposes to start the accounts focused on younger workers first. But over time the accounts would be expanded to take over financing for all of the benefits financed by the payroll tax today. That would ultimately amount to the greatest reduction in government spending in world history.

Moreover, eventually replacing the payroll tax entirely with personal savings and investment directly owned by each worker and his family would provide the greatest reduction in taxes in world history.

In 1981, the South American nation of Chile, then with a Social Security system just like ours, with the same problems, adopted such a personal account option, with astounding success. Virtually all workers chose the accounts within 18 months, and for 30 years now they have paid half the taxes of the old system, in return for at least twice the benefits, while their economy boomed with all the increased savings and investment. Those reforms included a safety net guarantee of former Social Security benefits, which has never suffered a loss or cost due to failure of a personal account to beat the old system. That is also included in the Gingrich plan.

In America itself, such a system was tried in 1981 as well, for local government workers in Galveston, Texas, who still enjoyed an option under the law then to choose an alternative to the current system. Just as in Chile, for 30 years now they have paid much less into their personal account savings and investment system than required by Social Security, but receive much more in benefits. The similar Thrift Savings Plan retirement system for federal employees has similarly worked spectacularly well now for nearly 30 years.

Model legislation providing for such accounts was introduced in 2004 and 2005 by Rep. Paul Ryan (R-WI), now Chairman of the House Budget Committee. I worked closely with Ryan in developing that legislation. A similar proposal is now included in the Ryan Roadmap. On September 12 of this year, Rep. Thaddeus McCotter (R-MI) introduced another model bill on which I worked closely as well.

Both bills were officially scored by the Chief Actuary of Social Security as eliminating all future Social Security deficits through the operation of the personal accounts alone, without benefit cuts or tax increases. [...]

Gingrich's proposed entitlement reforms include as well repealing and replacing Obamacare with Patient Power, as long advanced by John Goodman of the National Center for Policy Analysis.

The classic example of such policy is Health Savings Accounts (HSAs), which were also first recognized in federal law when Gingrich was Speaker. The concept behind HSAs is to start with an insurance policy with a high annual deductible, which reduces the cost of the insurance substantially. The savings are then kept in the HSA to pay expenses below the deductible. Generally, after one healthy year with little or no medical expenses, the patient by the second year would have more than enough in the account to cover all expenses below the deductible.

This transforms the incentives of third party payment. For all but catastrophic health expenses, the patient is essentially using his own money for health care. Whatever he doesn't spend he can keep. So the patient will try to avoid unnecessary care, and look for less expensive care and alternatives for what he does need.

In turn, since patients would now be concerned about costs, doctors, hospitals and other providers would now compete to control costs, as well as maximize quality, as in all normal markets. This competition would become more intense and effective the more widespread HSAs and similar incentives become. These incentives would flow all the way through to the developers of new technologies. Since both patients and health providers are now concerned with costs, technology innovators would now have incentives to develop technologies that reduce costs, as well as improve quality.

Gingrich proposes to control health costs by expanding HSAs throughout the health care system. Workers would be empowered with the freedom to choose them in place of employer provided coverage, the poor would be empowered to choose them for their Medicaid coverage, seniors would be empowered to choose them for Medicare.

Add personal unemployment accounts, O'Neill accounts for newborns...

The Third Way is coming, it's just a matter of which party gets credit for it.

Posted by oj at December 1, 2011 5:34 AM
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