You bring up a good point: If we’re not going to let old people starve to death, or let people die in the streets for lack of basic health care, then making it completely voluntary create a free-rider problem. Some people won’t save for retirement or health care, comfortable in the knowledge that in the end, other people will look after them anyway.
Hard-core libertarians need to realize that as a society we simply will not tolerate the complete lack of a social safety net. So instead of focusing on a pie-in-the-sky world absent of government, they need to look at how to best marry libertarian principles with the values of our society.
There are several ways to do that. One is to show that when government retreats, other mechanisms come into play. Before there was a mandatory government retirement program, old people generally didn’t starve. They didn’t starve because society was structured differently. People had more children, and the culture expected children to take part in the care of their elderly parents. It was common for Grandma and Grandpa to move in with the children when they got to the age where they couldn’t care for themselves or if they were no longer capable of generating an income. There were mutual aid societies, private soup kitchens and boarding houses, etc. It wasn’t necessarily pleasant, but it wasn’t starvation either.
The problem is that those structures no longer exist. When government takes over the role, the private sector recedes. The structure of society itself changes based on the new incentives. It’s entirely possible that we can never get back there, or that we’d even want to if we could.
So what else can we do? In my opinion, what we can do is work towards a hybrid system that offloads much of the current entitlements from government, while retaining a basic safety net.
As an example, the Social Security retirement age could be raised to 70. A private supplemental retirement plan could be put into place that would allow a person to retire at 65 by paying extra into a private, locked savings account. If people don’t pay it, it’s not the end of the world to keep working. If they can’t work for physical reasons, then they can go on welfare or disability.
In addition, Social Security and Medicare could be means-tested and turned welfare programs rather than being universal entitlements. Make the SS payment low enough that living on nothing but Social Security would be very unpleasant but do-able. De-list as many services from Medicare as possible consistent with basic quality care. Then give tax incentives for more private retirement savings. Make it clear that living on Social Security is not really what you want to be doing.
Of course, something like this would have to be phased in over a long enough period that people have time to plan for it - people within a few years of retirement need to get the benefits they planned for. But benefits could slowly be scaled back a bit at a time for people more than 10, 15, 20, 25, and 30 years from retirement, and the tax breaks and witholdings adjusted accordingly.
For health care, I’m a fan of catastrophic insurance. The government won’t let you be bankrupted by a chronic condition, but you should fully expect to pay your own way for routine medical care. Index the catastrophic cap to income to make it progressive - if you earn $25,000 per year, you pay the first $2000 of your health care per year. If you earn 250,000 per year, you might have to pay the first $100,000. The rich should be paying for the vast bulk of their health care out of their own pocket, but everyone should be paying enough that market forces start to work. We need to get off the 3rd party payment system, whether it’s the government or an insurance company acting as the 3rd party.
I’m sure gap insurance would become available for those who don’t want to risk even the $2000 bill. It would be much cheaper and less paperwork intensive because insurance companies would have their top-end liability capped. That’s the way it works with dentistry in Canada - if you have your jaw smashed or have oral cancer, the government will pay for it. But if you need a routine filling, or your kid needs braces, you’re gong to pony up for it. But dental insurance is so cheap that most people have some form of it. It’s cheap because the maximum coverage is capped.
To transition to that kind of system, you can set up tax-free health savings accounts. Maybe even set the default such that employers have to register their employees in one, and it’s up to the employee to take steps to opt out if they don’t want it (that would be Cass Sunnstein’s ‘nudge’ idea).
We need to gradually transition away from a system of government entitlements to one of self-reliance and personal responsibility, while still maintaining a minimal safety net. That has to be done slowly over time, to allow private institutions and market forces to pick up the slack. But we’ll never get to a purely private system.