Call my bluff, Eric

Last week, fundraising emails from the DNC trumpeted Obama's alleged warning to Cantor, "Eric, don't call my bluff" as evidence that "the president and Democrats are holding strong against [GOP] obstinacy."

Medicare funding in perspective

Keith Hennessey's Medicare primer* highlights a rather obvious funding fact recently brought into sharp focus by James Kwak. First, the basics of Medicare funding, courtesy of Hennessey:

There are three main sources of financing the program.

• There are three financing sources:  dedicated payroll taxes, beneficiary premiums, & general revenues (income taxes).
• payroll taxes:  2.9% of all wages.  ½ paid by employee, ½ by employer.
• premiums:  25% of “part B” costs ≈ $96-115 per month.  High income seniors (income > $85K/person) pay higher premiums.
• premiums:  a % of “Part D” drug costs.  (complex formula). High income seniors pay higher premiums.
• general revenues = total spending – (payroll taxes + premiums)

Then, an elegant solution to Medicare funding per se, courtesy of Kwak (my emphasis):

We have to recognize that there are two separate problems, and they are not equal. The primary problem is health care inflation. The secondary problem is the long-term Medicare deficit. That’s a secondary problem because it’s largely a result of the primary problem.


Of these two, the Medicare deficit is the easier problem to solve: index the payroll tax to actual health care costs. This should automatically solve the Medicare deficit because as Medicare’s costs go up, its funding will go up at the same rate.*