2011 May 16 Monday
Medicare Running Out Of Cash 5 Years Sooner

Medicare will exhaust its trust fund 5 years sooner than projected last year. My advice: save money for your retirement medical costs.

Today, the Medicare trustees issued their annual assessment of the government insurance programís fiscal health. The prognosis: the trust fund (covering hospital stays) will be exhausted in 2024, as the WSJ reports. Thatís five years earlier than they predicted last year; the sluggish economy has led to lower payroll taxes, but health costs keep going up.

Think about that. Over the course of a single year the Medicare trustees pulled in the bankruptcy date for Medicare by 5 years. Imagine (as seems likely) economic growth does not return with vigor over the next 10 years. The system assumes and depends upon vigorous growth. The argument for running up huge deficits for Keynesian fiscal stimulus during the current downturn is that the spending would bring back growth and thereby pay for itself in the long run. But if that return to Business As Usual (BAU) fails to materialize then the debts taken on in recent years will crush our standards of living and sorely tempt the US government to inflate away federal debts.

Last year the Medicare trustees changed their projected bankruptcy date for Medicare by pushing it out 12 years into the future. They did this on the theory that the Obama medical insurance legislation would greatly slow the growth in Medicare spending. Well, that was never realistic. So now the are readjusting back toward reality Not a full adjustment so far. But in future years Medicare will come up with more revisions on who gets what and when.

Harvard economist Kenneth Rogoff says high levels of debt slow economic growth. That puts us in even worse shape.

Q: What's the risk in the U.S. having so much debt? Other countries, like Japan, have larger debt burdens.

A: It doesn't automatically cause a crisis, but it certainly weighs on the recovery. Very roughly speaking, when a country has public debt over 90 percent of income, growth is about 1 percent lower for a very long time.

Slower growth means less taxes collected and an even earlier bankruptcy of Medicare.

Crisis with approaching problems is the new normal. You can not expect efficacy from the US federal government as the crisis intensifies. Save more for your own retirement and expect higher taxes.

Share |      By Randall Parker at 2011 May 16 11:35 PM  Economics Sovereign Crises


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