Question

Saving a nation health insurance plan (ECON 365)

Alas, the stock market venture didn’t work out quite as well as you might have liked. You are truly desperate now, so you do the unthinkable. You allow 200 extra young workers to immigrate to your island and force them to pay the Medisure tax (thus making 300 young workers in total). To mitigate the political and fiscal impact, you force them to leave your island before they become old and start using health care. Will the Medisure trust fund ever go bankrupt how? If so, when? Assuming that you are starting over in 2020.

Answer 1

The hypothetical Medisure trust fund, with a structure similar to pay-as-you-go systems like Social Security and Medicare, faces potential bankruptcy due to demographic changes and the dependency ratio between workers and beneficiaries. Historical and current challenges in U.S. health policy suggest without reforms or alternative funding, such a fund's sustainability is precarious.

Step-by-step explanation:

The scenario posits a system in which young workers are taxed to support a health insurance fund, and are forced to leave before they become old and can claim benefits. This parallels the challenges faced by pay-as-you-go systems like Social Security and Medicare in the United States. As these programs rely on current workers to fund benefits for the retirees, the sustainability of such a scheme depends heavily on demographic factors and the ratio of workers to retirees. Currently, Social Security confronts a projected shortfall due to demographic shifts.

If the health insurance fund in question operates on a similar pay-as-you-go premise, its sustainability would be at risk if the number of beneficiaries grows relative to payers, which seems inevitable as the population ages. Health policy in the United States sees interventions like Medicare expansion and the Affordable Care Act to counterbalance such risks by expanding coverage and redistributing fiscal load. Even so, Medicare's trust fund is projected to see financial depletion by 2019, predating similar issues for Social Security. Medicare's struggles indicate that without a well-structured funding mechanism and continual adjustments to demographic changes, any health insurance fund, including the fictional Medisure, would likely eventually go bankrupt unless reformed or supported by alternative funding sources.

Proposals for preserving these funds include raising retirement ages, increasing payroll taxes, and reforming payouts. The hypothetical Medisure trust fund scenario would need to consider these factors to determine its longevity, but based on the current knowledge about pay-as-you-go systems, and without changes to the system or additional funding, it's likely that the Medisure trust fund would face eventual bankruptcy.