THE $34 TRILLION PROBLEM : MEDICARE

ncpa.org ^ | March 17, 2008

[InvisibleChurch]

Ask Alan Greenspan what he considers the greatest threat to the U.S. economy, and he will answer immediately with a single word: Medicare. Sometime in the next President's first term, Medicare Part A will go cash-flow-negative, and it's all downhill from there, says Fortune magazine.

Medicare provides a wide range of services and subsidies to more than 40 million old and disabled Americans. As the country ages, Medicare and Medicaid (for those of any age with low incomes) will devour growing chunks of U.S. economic output. So will Social Security, but its cut of gross domestic product (GDP) should stop increasing around 2030, says Fortune:

The federal budget has averaged about 18 percent of gross domestic product (GDP) over the past several decades. If that average holds and if the rules of our social insurance programs don't change, then by 2070, when today's kids are retiring, Medicare, Medicaid, and Social Security will consume the entire federal budget, with Medicare taking by far the largest share. But wait -- the situation is actually much worse, says Fortune:

Those estimates, reported in the latest Financial Report of the U.S. Government, assume that Medicare payments to doctors will be slashed drastically, by some 41 percent over the next nine years, as required by current law. It won't happen, says Colvin. Every year for the past five years, Congress has overridden the mandatory cuts. As for future cuts, the Financial Report says, reductions of this magnitude are not feasible and are very unlikely to occur fully in practice. So in reality, Medicare will go into the hole even faster than official projections reflect. If Medicare had to be accounted for like a company pension fund, it would be underfunded by $34 trillion. Obviously those long-term scenarios won't happen, because they can't happen -- we won't be shutting down the Army, Navy and so on. But it's easy to see why the candidates don't want to discuss it, says Fortune.

Source: Geoff Colvin, "The $34 Trillion Problem," Fortune, March 4, 2008.

For text:

http://money.cnn.com/2008/03/03/news/economy/104239768.fortune/index.htm?postversion=2008030405

For more on Federal Spending & Budget Issues:

http://www.ncpa.org/sub/dpd/index.php?Article_Category=25

[Republic of Texas]

Probably. However it’s a global economy now, and there will be a cascade effect. It has to happen, because most of the developed world is socialist, including the US, and cannot afford their future commitments.

[quant5]

You are correct.

[misterrob]

When Gen X and Y see that they are going to have to pay even higher taxes and get even less for their money then there will be hell to pay. People just don’t see it yet. Politicians will have to take sides on the issue when they do though.

My savings plan assumes it will be busted when I am old enough to retire though.

[rhombus]

Either way, I do doubt such things are going to just happen “one fine day”. It will be more like boiling a frog. And as long as people are unwilling to face their slow and steady reality they will continue to vote for more entitlements like health care and continue to burden those who are best able to pay for those entitlements with foolishness like carbon credits and carbon caps.

[quant5]

You should take care of the family first. You got it right. Some of us will be taking care of our family when benefits are drastically reduced in a decade or two. Bummer three generations are in a race against time but it’s part of the human experience I guess. It could be worse and we lived in Africa or North Korea, Tibet, etc.

[Republic of Texas]

My tagline says it all. At some point, it will fail. It is not a sustainable system. Unless a vast majority of the people are willing to be slaves, which I doubt. I have to have more faith in humanity, or what is the point?

[rhombus]

When Gen X and Y see that they are going to have to pay even higher taxes and get even less for their money then there will be hell to pay. People just don’t see it yet. Politicians will have to take sides on the issue when they do though.

Funny, I don't see Gen X or Y as having any more will power than Baby Boomers who deep down inside know the system is a Ponzi scheme. In fact I see these generations as having even less will power as they line up to vote themselves health care entitlements and continue to dig huge holes for themselves for the sake of useless college degrees.

[who_would_fardels_bear]

"and finally, the suppliers ---slap that "medical" tag on it and it becomes a whole 'nother level of item....."

Popsicle stick ... 10c

Tongue Depressor ... $2

The ability to overcharge at will ... Priceless.

[DuncanWaring]

Can the Second Amendment and Social Security Coexist?

[ThisLittleLightofMine]

There’s an easy solution. Get rid of Medicare all together. If the elderly and disabled can’t afford health care let nature take its course.
_______________________________________________

Ouch! Medicare is a scam and the only one getting wealthy are hospitals, doctors and pharmaceuticals.

[Illuminatas]

Hmm, time to move to Wyoming and Colorado. I only hope that Taggart keeps the trains moving.

[DuncanWaring]

Ping.

[spacewarp]

What we should do is a top-down evaluation of the government. Review and eliminate overlap. Currently, without the medical side of things, we have over 265 departments, organizations and units of the government that handle some form of welfare disbursement. I beleieve the last count the medical side was some 87 or 88 groups.

We reduce it to 5. 1) Housing. 2) Food. 3) Job training. 4) Medical. 5) Misc.

Take the top 10% of workers from each of the other departments. We can save billions, and trillions in overpayments, medical fraud, waste, management, overhead, facilities, etc.

Medicare could be tighter and be a properly run insurance organization. Not paying the doctors or other providers directly, but pay the insurance company premiums for folks. It greatly reduces the overhead, and gives a LOT of people back their lives.

Welfare would no longer have $.12 of every dollar getting back to the recepients.

Paul

[businessprofessor]

It is difficult to see the end game for unsustainable entitlements. You have essentially asked if means testing will be deployed. The rats have always been against direct means testing because they are afraid that support will be lost for the programs. The rats are clearly in favor of indirect means testing through taxation. The rats now tax social security benefits but these taxes will not be nearly enough.

The most promising target for the rats is lifting the earnings cap. Even though this would be terrible policy, most people would support it. Lifting the earnings cap will suck a huge amount of money from the private sector to the public sector. The rats will be gleeful to use this additional taxation (plus higher marginal rates, dividend rates, and capital gains rates) to fund a wide array of new entitlements. The new entitlements will then take all new tax revenues, leaving the funding of the older entitlements essentially unchanged.

[45Auto]

I think you have the only plan worth a darn. I am near retirement age and my company recently "revised" my retirement health care benefit with a mandatory life-time cap. Before that I was promised unlimited coverage in retirement. Although it was always a supplement to Medicare, there was something comforting (and perhaps only a fantasy) about having coverage independent of the government. I suspect that when Medicare goes belly up only those with a fair amount of wealth will be able to obtain any level of health care. When that happens the corporations will not be able to afford employee health care at the current levels nor any for retirees.

[rhombus]

At some point, it will fail. It is not a sustainable system. Unless a vast majority of the people are willing to be slaves, which I doubt. I have to have more faith in humanity, or what is the point?

I try to work toward educated evolution. However, the lack of resolve over voluntary privatizing of a small part of social security discouraging me. Perhaps a more forceful President with leadership in the House and Senate might have sold the case better but should-a, would-a, could-a... When will an opportunity like that come again? More entitlements in the forecast.

[Tai_Chung]

Pyramid Schemes

In the classic "pyramid" scheme, participants attempt to make money solely by recruiting new participants into the program. The hallmark of these schemes is the promise of sky-high returns in a short period of time for doing nothing other than handing over your money and getting others to do the same.

The fraudsters behind a pyramid scheme may go to great lengths to make the program look like a legitimate multi-level marketing program. But despite their claims to have legitimate products or services to sell, these fraudsters simply use money coming in from new recruits to pay off early stage investors. But eventually the pyramid will collapse. At some point the schemes get too big, the promoter cannot raise enough money from new investors to pay earlier investors, and many people lose their money. The chart below shows how pyramid schemes can become impossible to sustain:

[quant5]

I am not 60. I am 37. The country changed so much in 10 years I also barely recognize it. We don’t need candles though, we have solar wind-up radios and flashlights. Here’s the reality. We as Americans innovate and give the global consumer what it wants and we desperately need and that is energy. Do or die. I have a feeling we will do but believe me, I will have some of the back up plans you suggest during the frenzy of getting there. Someone has to be around to help the less responsible whom will come to their senses through pain.

[quant5]

It will indeed come to that. In the meantime, don’t expect those whom have amassed massive fortunes to go quietly into the night.

[mo]

“I think the Medicare system is the victim of fraud...”

Basically anybody who could jump on the back of the sick
has done so ...including the government.