After several years of receiving offers to join the American Association of Retired Persons (AARP), I decided to visit their web site. Approaching retirement and with three of my four children approaching marriage, two publications immediately caught my attention: Reimagining America: AARP's Blueprint for the Future and For My Grandchild: A Grandmother's Gift of Memory.
I clicked on Reimagining America first and found AARP’s plan for our aging society. The introduction discussed the challenges ahead as the first baby boomers begin receiving Social Security in 2008 and Medicare coverage in 2011. With all of the Social Security and Medicare problems covered by the media in recent months, I was concerned that I might not get my share of benefits. So I was thrilled find that AARP had come up with a solution. And since it turns out that 2008 is the very year in which I plan to retire, it was as if they did it just in time for me. Better yet, they solved these problems with intergenerational fairness.
That was great news. It meant I didn’t have to read the rest of the (49 page) article. AARP had found a way to ensure the viability of my soon-to-be needed entitlements and done so in a manner that would be fair to my soon-to-be born grandchildren.
I was just about to switch to the “For My Grandchild” book when an errant glance at “Redefining the Challenge,” the title of the next section, gave me skeptical pause. It evoked a flood of bad memories of my own attempts to solve problems by redefining them. Then I noticed a section entitled “The Problem Is Overstated.” As much as I wanted to learn about the “For My Grandchild” book, first I was going to have to read at least enough to find out why it took so many pages for AARP to solve a problem they got to redefine and that was overstated in the first place.
1. The Blueprint
The blueprint that emerged was a Utopian plan requiring broad and dramatic social change involving considerable participation from individuals, businesses and, most importantly, all levels of government - basically, a “it takes a village” approach for old people. In the reimagined America, it will be a collective responsibility to help citizens “make the most of their lives, from the earliest youth to the greatest old age.”
The AARP plan consists of the following nine components, dubbed challenges.
1. Spending Health Dollars Wisely
2. Improving the Quality of Health and Long-Term Care
3. Promoting Better Preventive Care
4. Creating a National System for Home- and Community-Based Care
5. Investing in Livable Communities
6. Keeping Social Security Solvent
7. Helping Americans Build More Retirement Assets
8. Helping Americans to Work Longer
9. Restoring the Federal Revenue Base
Creating A Geriatric Therapeutic State
On the surface, the first 5 Challenges sound good. Who could be against spending health dollars wisely? And what retiree would not want to live in world where everyone has health insurance, is healthier due to lifestyle changes, and receives both health and personal care at affordable prices in communities where housing and transportation are designed for the elderly?
Below the surface however, they range from wishful thinking to pandering and would likely require an enormous expansion of government at all levels. Furthermore, beyond a few anecdotal studies, AARP presents no evidence that this grandiose therapeutic state for the elderly is even achievable let alone better than the existing health care system it would replace. The deeper you dig, the shallower it gets.
The rosy picture begins with Challenge 1 and the idea that doing things such as reducing the number of uninsured and underinsured people and providing affordable prescription drugs is money well spent. AARP correctly points out that this will provide quality of life improvements, but at what cost. The Medicare Prescription Drug Improvement and Modernization Act of 2003 is an $800 billion program. Starting in 2006, more than 25% of all prescription drugs will be purchased through Medicare. By 2008, Medicare plus Medicaid purchases will exceed 50% of all prescription drugs. When cost-sharing and drug benefit subsidies are included, the government will directly influence almost 75% of the drug supply chain. 
It’s easy to see how such programs can get out of control. When the 45 million uninsured Americans suddenly find themselves insured, they can be expected to seek health care dramatically more so than when they were uninsured. Once people realize their prescription drugs are covered, they will want more drugs. This is almost certain to happen with drugs for diabetes, heart failure, hypertension, and high cholesterol when Medicare Part D kicks in. As evidence that these programs could grow even larger, AARP’s principal comment about the $800 billion drug benefit program was that it’s a step in the right direction.
Challenges 2 through 5 remind me of a book I read some years ago on how to raise cattle efficiently. They purport to design a new system for the elderly that will optimally manage health care, housing, transportation, insurance, etc. and, last but not least, the healthiness of their lifestyles. AARP could think such a system is acheivable only if they also think that we are all, well, cattle.
Driven by the belief that our Health Care System, not Medicare or Medicaid, is the main problem, they prescribe “a more efficient health and long-term care system—one that offers patients the right health care and support services at the right time in the right setting.” This system will be so much better than the existing system that we must make “the significant investments necessary to create an infrastructure to support improvements.” I hope this doesn’t mean we’ll need a Department of Health and Human Services Improvements.
When I first saw Challenge 3, I facetiously commented to myself that promoting better preventative care for the elderly meant that, with the new system, death itself would somehow become avertable. While preventing death was obviously not its goal, the scope of Challenge 3, nevertheless, comes close in ambition. Through an extensive system of primary and secondary prevention, we will be forced to lead full, productive lives. In the AARP world, prevention is a critical step. Unfortunately, it is also seen as a national obligation and one that requires large-scale behavior modification.
“Creating behavioral change is not just a matter of individuals being aware of the right thing to do; if it were, there wouldn’t be so many people driving without seatbelts, eating the wrong foods and/or excessive quantities of the right foods, not exercising, smoking in bed, not wearing lifejackets in boats, not securing guns in homes, and not receiving prenatal care. Despite this challenge, there is reason to be hopeful about achieving behavior change.”
Well, if individuals won’t voluntarily modify their behavior, guess who will? Obviously, it will be the government. And it won’t be through more annoying health warnings and public service announcements. It will more likely be through intrusive bureaucratic health-care regulations enforced by an army of intrusive health-care personnel.
In addition, AARP wants full availability of early detection clinical services that screen individuals on a timely basis. And given the prevalence of chronic diseases among the elderly, they propose “a chronic care model consisting of patient self-management, practice teams that include non-physician personnel, and decision support that includes evidence-based practice guidelines and clinical information systems” – whatever all that means.
Challenges 4 and 5 may be the two most innovative components. Challenge 4 will create a national system for allowing the elderly to receive the assistance they need in their homes and communities instead of nursing homes. Between what I have read about nursing homes and what I have heard from a few family members who endured their care, such a system seems like a good idea. However, under the AARP plan, assistance is to include personal care and an expanded network of local adult day care centers with transportation. In fact, according to AARP, “Most of the care people need as they age is personal care, not medical care—that is, help with various daily activities such as dressing, bathing, or preparing meals—which often is provided informally by family members.”
It’s not clear whether AARP has a problem with care provided by family members or that the care is provided informally. I suspect it’s both and a national system of formal care by healthcare professionals is preferred. It’s reminiscent of the “We need to Federalize to Professionalize” cries to improve airport security after 9/11.
Everyone will like Challenge 5 (we can’t have the elderly living in unlivable communities). It calls for the creation of communities with
“… appropriate and affordable housing, adequate options for mobility, and the various community features and services that can facilitate personal independence and the continued engagement in the community’s civic and social life.”
Transportation will be an integral part of these livable communities and will support drivers and nondrivers alike. For drivers, the system will provide features to improve drivers and vehicles as well as the driving environment. Nondrivers will be provided with “specialized transportation for individuals with varying functional capabilities” in addition to public transportation and walking and bicycling paths.
But unwilling to trust the private sector to fill the demand for such communities, the AARP plan requires government to do things ranging from public policy development to community planning and financing. Presumably, the government would play a major role in a universal house design. This design is viewed as “critical to aging with independence” and would meet new specifications that, oddly enough, were not specified. Nor did they specify whether or not universal design meant that everyone’s house would be exactly the same.
On To The Easy Problems
After reading the Problem Is Overstated section, I was surprised AARP even bothered with the rest of the Challenges. I suppose, that in a perfunctory salute to fiscal responsibility, they had to include Keeping Social Security Solvent (Challenge 6) and Restoring the Federal Revenue Base (Challenge 9).
According to AARP, the solvency of Social Security can be achieved with only minor adjustments; this apparently follows from their presumption the problem is overstated. As could be expected, the adjustments they propose generally involve tax increases (e.g., subject 90% of earnings to the payroll tax) and benefit reductions (e.g., increase the retirement age and index). However, one of the recommendations struck me as brilliant. It called for investing 15% of Social Security fund assets in equities at an assumed 6.5% inflation-adjusted return from 2006 to 2020. I’m no financial wizard, but given that the inflation-adjusted rate of return on Social Security assets has historically been well below 2%, if you could get 6.5%, then why not invest the entire wad? And don’t stop at the end of 2020. Reimagine the solvency that would be achieved.
Restoring the Federal revenue base must be one of the most overstated problems. Indeed, Challenge 9 is hardly a challenge. In AARP’s view, taxes are too low and Americans are eager to pay more:
“The burden on American taxpayers is the lowest that it has been in nearly half a century. Moreover, the public is willing to pay more for certain purposes. It has consistently deemed tax cuts as less important than reducing the federal budget deficit. A Kaiser-National Public Radio-Harvard University poll found that when asked whether it was more important to maintain spending on domestic programs such as health care and Social Security, 80 percent favored maintaining spending rather than cutting taxes.”
I saved the two I liked best for last – the helping challenges. They want to help Americans work longer (Challenge 8) and build more retirement assets (Challenge 7). The problem is that “help” translates into large doses of coercive paternalism. For Challenge 7, AARP proposes a mandatory national 401(k) plan. In describing such forced savings concepts, they note:
“… Long experience shows that people find it very difficult to save without the carrot of an employer plan or a matching employer contribution, or the stick of a mandatory payroll deduction such as Social Security. One ambitious possibility would be to create a government-subsidized “universal 401(k)” plan for all workers, which could require employers to make available to each worker the option of a 401(k)-type retirement account with a narrow range of investment options that could not be accessed until retirement. Further, the plan would afford the great advantage of automatic payroll deduction by the employer. …”
It’s bad enough they think this is a good idea. But they incredibly go on to tacitly assume it would be implemented in the same manner as the Social Security System – a system that tens of millions of Americans believe will be insolvent by the time they retire. The heart of the Social Security problem is that future retirees may receive little or nothing in return for the social security taxes deducted from their paychecks over their 45+ year working lives. Does AARP seriously believe Americans will allow their 401(k) savings to be exposed to the same level of risk? I don’t think so. And I don’t think AARP could sell it, even in the Utopian world they have reimagined.
Americans will not take the chance that when they plan to begin withdrawing money from their 401(k) funds, the government will say that such withdrawals will have to be postponed. But wait a minute, that’s why they have Challenge 8. Instead of saying “We lied and/or mismanaged your Social Security money so you can’t get your checks for a few more years” they will say, “We are going to help you work longer.” The government can simply invoke Challenge 8 for our 401(k) money too. It’s brilliant. They can use the same excuse for two different programs.
Back To Reality
AARP claims that American health care faces a major crisis caused by poor quality, decreasing coverage and rising costs. The implementation of Challenges 1 through 5 will replace our existing health care system with a new health care state designed to solve these problems. In contrast, they see no crisis facing entitlement programs. Thus, the implementation of Challenges 6 through 9 will only involve minor adjustments to put these programs back on track.
In reality, the opposite is true. As AARP points out:
“The life expectancy of a child born in 2000 is about 30 years longer than that of one born a century ago. … Today, the average person in the United States who reaches age 65 can expect to live for an additional 18 years, or six years longer than people age 65 in 1940.”
Such statistics do not characterize a Health Care System gone awry. No doubt the present system needs improvement, but it’s more likely that most of the health-care issues identified by AARP are exaggerated, if not imaginary, and fixing them will not require the major overhaul concomitant with Challenges 1 through 5.
Entitlement programs (Social Security, Medicare and Medicaid) can be viewed as unbroken only if one totally ignores future costs. The AARP report stated that these costs should not be underestimated, but then went on to underestimate them. In particular, it cited warnings (by Federal Reserve Board Chairman Alan Greenspan, Comptroller General of the Government Accountability Office (GAO) David M. Walker and other experts) of the growing and unsupportable fiscal gap, but dismissed them by saying that such costs are difficult to project and to interpret.
Indeed, to understand and appreciate Reimagining America, one has to disregard cost. It’s the only way it makes sense. AARP made no attempt to estimate (or even discuss) the potential costs of their geriatric state. While this cost is bound to be enormous, AARP apparently believes that people will want their solution regardless of its cost.
But ignoring cost is cheating. I could come up with a plan to eliminate poverty if I didn’t have to worry about cost. And cost estimates are critically important for understanding the actuarially untenable nature of the problem at hand – the cost to current taxpayers of social security which pays a rapidly growing number of people until they die and the cost of Medicare and Medicaid which extends their lives. These programs, together with the debt payments they engender, put us on a spending path of uncontrollable growth. Things are bad enough today with the tax burden at around 17% of GDP. Current spending is somewhat sustainable. However, as is illustrated in the figure  below, things begin to become bleak and get rapidly bleaker after 2015. Note the contribution of the “big three” entitlement programs. And given the magnitude of the Net Interest contribution, it’s a good thing that the AARP vision wasn’t encumbered by having to worry about things like balancing the budget. Note also that these projections don’t even include the costs of Challenges 1 - 5.
AARP’s solution for supporting the spending spree is to raise taxes (Challenge 9). But they don’t call it that. They call it restoring the Federal revenue base. And they don’t say by how much – probably because they didn’t look beyond 2015.
2. The Grandchildren Problem
At present, the annual tax burden on the average household is $17,000. Obviously, to pay for this spending growth, our taxes will have to be increased. And at some point, we have to balance the budget or at least bring it into some semblance of balance. We can’t run up the debt indefinitely. Right? In any case, the figure below  shows the resulting tax increases as a function of time under a balanced budget assumption.
It shows, for example, that by 2015, the tax burden will be about $2800 more than it is now - a 15% increase. By 2025, we will be paying 30% more than today. Luckily, “we” is not me. I’ll be retired, consuming large quantities of entitlement benefits and paying almost no taxes.
But wait. My first grandchild will be turning 21 right around that time, hopefully graduating from college and ready to enter the taxpaying workforce.
So now I’m depressed. My grandchildren will be paying a tax bill at least 30% higher than my current tax bill to support me in retirement. That doesn’t seem like intergenerational fairness. But confiscatory taxes and a huge, coercive therapeutic bureaucracy was all the plan had to offer them.
Finally, I moved on to the “For My Grandchild” book, hoping to find a better gift for my grandchildren. It turns out that the gift in the AARP book is one of memories. In it, grandmothers enter information about their rich and rewarding experiences. They can also include things such as inspiring quotes, gems of wisdom, photographs, and even recipes.
I plan to get a copy for my wife. She has a much better memory than I and would do a much better job filling it out, especially if I remember to tell her to leave out the part where our generation selfishly and myopically let deficit and entitlement spending get out of control. I can almost feel their joy when it’s time to share the completed book with them. I hope it offsets the sorrow they feel when they receive the increased tax burden we also give them.
 Kevin B Piper, Big Pharma and the Medicare Drug Benefit: Faustian Bargain?, PiperReport, 10/29/2005
 Stuart M. Butler, Ph.D., How Uncurbed Entitlements Will Force Large Tax Increases, The Heritage Foundation, 7/9/2004