Sharing the Load

Richard Quinn

I’M IN THE PROCESS of moving into a 55-plus condo community—in my case, way plus. The property taxes on my new condo will be $12,200 a year, the bulk of which goes toward the local school system. But here’s the thing: No one in the community has children in school and hasn’t for decades. That got me to thinking. Why can’t we just buy the services we need from the town?

Years ago, I felt quite differently. When my children were growing up, I used to think the seniors in town had some nerve voting against the school budget. Today, I better understand that, for some of those seniors, higher taxes meant less for other necessary spending.

It’s a thorny issue. If you’re part of a community—large or small—there needs to be a fair formula for sharing common expenses, even expenses that may never directly benefit you. For example, many Americans are upset with the cost of health insurance. Why should they pay for coverage, especially if they’re young and healthy? The reason: Insurance doesn’t work unless the risk can be spread among nonusers, moderate users and high users.

In the case of health insurance, costs are concentrated among relatively few individuals. About 15% of the U.S. civilian non-institutionalized population had no health care expenditures in 2014, while 5% accounted for over half of health care spending.

Imagine what your premiums would be if only the users of health care carried insurance or people were free to enroll in coverage the day before they entered the hospital. That’s called adverse selection. It’s why employer group medical plans generally require new employees and newly eligible dependents to enroll within 30 days. They need them to pay premiums and share the risk. Similarly, if you don’t enroll in Medicare Part B when you’re initially eligible, you are permanently charged an extra 10% for each 12 months you delay. A penalty also applies under a unique formula for Part D.

We can apply similar logic to Social Security. In just eight years, I have collected in benefits a sum equal to all the payroll taxes paid by me and my employers since I started working in 1955. As time goes by, I’ll be further and further ahead. With all social programs, there are winners and losers, givers and takers. Some Americans collect little or nothing from Social Security, while others collect for decades. Folks can marry just before retiring and collect the same spousal benefit as if they had passed their golden anniversary. What’s fair to one person may seem unfair to another.

While you should usually be free to buy or not buy the things you desire, that doesn’t work with common government services and all forms of insurance, including Social Security, Medicare and private insurance. You are always part of a risk pool and can’t buy only the coverage you expect to use. You’re purchasing yourself a safety net for events that may never happen, such as an unusually long retirement or major medical bills. What if such events do occur? Often, without that safety net, it would be a financial catastrophe.

Richard Quinn blogs at Before retiring in 2010, Dick was a compensation and benefits executive. His previous articles include Family Resemblance, Late Start, Ten Commandments and Running on Empty. Follow Dick on Twitter @QuinnsComments.

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