The financial troubles daunting the Medicare system have deepened during the past year, according to a government forecast that says the federal fund that pays for hospital care for older Americans will become unable to cover all its bills a dozen years from now.
The annual report, issued yesterday by the trustees who monitor the fiscal health of the Medicare and Social Security programs, said the trust fund for the health insurance system for the elderly will run out of money in 2018 -- two years sooner than predicted a year ago and 12 years sooner than had been anticipated when President Bush first took office.
That is one very fast deterioration. Bush and Congress helped that deterioration along a great deal by passing the Medicare drug benefit.
The article cites rapid increases in hospitalization costs as the major reason for the most recent two year shift toward an even earlier bankruptcy.
Medicare and Social Security will require growing amounts of federal income tax revenue. Today, 6.9 percent of federal income taxes go towards the two programs. Dr. Thomas Saving of Texas A & M University, a public trustee of the Medicare and Social Security trust funds, estimates that, in 2020, 26.6 percent of all federal income taxes will go to paying for Medicare and Social Security. By 2030, that number will increase to 49.7 percent.
The United States will not be able to afford much of a military, let alone foreign adventures.
The drug benefit added $8.7 trillion to the unfunded Medicare liability. So why do the Democrats think that Bush is a conservative?
Medicare’s Financial Crisis
Of the two programs, Medicare presents the greatest challenge to Congress and taxpayers. The Hospital Insurance Trust fund is projected to be exhausted by 2018, a change from the previous date of 2020, and the cost of the Supplemental Medical Insurance program (SMI) is increasing faster than Medicare trustees had projected. According to the trustees, Medicare’s long-term debt, based on a 75-year actuarial projection, is now estimated to be $32.4 trillion. Of that amount $8 trillion is directly attributable to the Medicare prescription drug entitlement. The trustees did revise the size of the Medicare portion of the debt, which was estimated at $8.7 trillion in 2005, because the drug costs have risen more slowly than projected, as have the rates of enrollment. What is unknown is the extent to which employers, who now get federal subsidies for maintaining approved drug coverage for retirees, will continue to maintain that coverage or drop it with the passage of time. Accordingly, the cost of Medicare’s drug entitlement remains a huge uncertainty.
We need to raise the retirement age and make more old age benefits need-based.
Medicare accounts for about three quarters of the federal taxes that will go to the combination of Medicare and Social Security
Current and future taxpayers will be faced with enormous burdens in trying to sustain the Medicare program as it is today. According to Dr. Saving, without any change in the program, Medicare will consume a larger share of federal income taxes, rising to 23.1 percent of all federal income taxes by 2020 and 37.5 percent of all federal income taxes by 2030.
We will feel a big financial pinch long before Social Security or Medicare run out of money because the Social Security surpluses used to fund deficits in the regular budget won't be there anymore.
What most reports will miss is that Congress will have to start to deal with reduced surplus Social Security tax collections much faster than it or the public expect. Starting in 2009, the roughly $100 billion annual Social Security surpluses that Congress has been borrowing and spending on other programs will begin to shrink. From that point on, Congress will have to find other sources to replace the money that it annually borrows from Social Security or reduce spending. The surpluses will end completely in 2017, the year when Social Security begins to spend more than it takes.
In a little more than 15 years, today’s $100 billion annual Social Security surplus will turn into a $100 billion annual deficit—a $200 billion change. From 2017 on, Social Security will require large and growing amounts of general revenue money in order to pay all of its promised benefits. Even though this money will technically come from cashing in the special issue bonds in the trust fund, the money to repay them will come from other tax collections or borrowing. Moreover, the billions that go to Social Security each year will make it harder to find money for other government programs such as Medicare.
The pressure to cut spending in other areas will become intense. Want a manned space program to Mars? Fuggedaboutit.
The worsening finances of the US federal government is going to become the biggest cause of political battles in the United States in the next decade. The conflict will sharpen conflicts along racial, class, and generational lines. The younger generation of Hispanics won't rise to white levels of income. So they won't be providing the tax revenue needed. At the same time, they will be making bigger demands on entitlements programs due to their lower levels of income, higher rates of illegitimate births, lower rates of medical insurance coverage, and other problems. As the older whites retire the average level of productive capability of American workers will decline and the retirees will go from net taxpayers to net benefits receivers.
Forget about our elected "leaders" trying to get ahead of this problem. They'll continue in their reactive mode and respond only when they can't avoid responding any longer.
We need to deport all the illegal aliens and adopt a restrictive immigration policy that allows in only highly productive people who will earn high incomes and pay far more in taxes than they receive in benefits. We also need to accelerate the development of rejuvenating medical treatments that will slow and reverse aging so that people can work many more years. Treatments to enhance cognitive function would also help boost economic growth and make the unfunded old age entitlements liabilities more affordable.
Taxes will not go up enough to pay for all the promised benefits. The existing entitlements programs will see benefits reductions. The working age taxpayers will oppose tax rises large enough to pay for the promised benefits. But taxes will go up some. It is not clear to me how high taxes will go. Expect to see a big push for value added taxes as a way to fund the old age entitlements. My advice is to vigorously oppose the VAT since it will not replace income taxes but rather will function to increase the total percentage of output diverted into government treasuries.
|Share |||By Randall Parker at 2006 May 01 09:29 PM Economics Demographic|