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DewDiligence

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DewDiligence

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Re: DewDiligence post# 44342

Saturday, 05/12/2007 2:32:06 PM

Saturday, May 12, 2007 2:32:06 PM

Post# of 252807
Medicare Meltdown

[To be read in conjunction with the article in #msg-18495262 and the chart in #msg-16968419.]

http://online.wsj.com/article/SB117867132495096646.html

>>
By THOMAS R. SAVING
May 9, 2007

What's going to happen when the money runs out for Medicare? A recently released report by the program's trustees found that within seven years Medicare taxes will fall short of Medicare expenses by more than 45%. What's more, Medicare and Social Security combined are on track to eat up the entire federal budget.

…Until a few years ago, Social Security and Medicare were taking in more than they spent, on the whole. Thus they provided revenue for other federal programs. That situation is now reversed, and last year the combined deficits in the two programs claimed 5.3% of federal income tax revenues. In 15 years. these two programs will require more than a fourth of income tax revenues: In other words, in just 15 years the federal government will have to stop spending one out of every four non-entitlement dollars in order to balance the budget and keep its promises to the elderly.

As more and more baby boomers reach retirement, the financial picture will deteriorate rapidly. By 2030, about the midpoint of the baby boomer retirement years, these two programs will require almost one out of every two federal income tax dollars. By 2040, they will require nearly two out of every three federal income tax dollars. Eventually, the deficits in these two programs will absorb the entire federal budget.

Could we force the elderly to pay for future deficits with higher Medicare premiums? Monthly premiums in constant dollars would more than quadruple by 2020, and be almost 30 times their current level by 2080. At that point, the required monthly premiums would consume more than the entire Social Security benefit (from which they are automatically deducted) for average-wage earners.

Using taxation to fund the projected Medicare shortfalls is equally unpalatable. We would need a 10% increase in all nonpayroll taxes by 2020 and a 50% increase by 2080, the close of the trustees' 75-year projection period.

So what else can be done? In general, no reform should be taken very seriously unless it is specifically designed to slow the rate of growth of health-care spending. On the demand side, someone must choose between health care and other uses of money. That is, someone must decide that the next MRI scan or the next knee replacement, for example, is not worth the cost. Such decisions could be made by seniors themselves, by the government (as it is in other countries), or by private insurers operating under government rationing rules. On the supply side, the way health care is produced must fundamentally be changed, replacing cost-increasing innovations with cost-reducing ones.

…If nothing is done, Social Security and Medicare deficits will engulf the entire federal budget. If our policy makers wait to address the growing deficits until they are out of control, the solutions will be drastic and painful. Let us hope that the current wake-up call is not ignored.

[Mr. Saving is a public trustee of the Social Security and Medicare system, director of the Private Enterprise Research Center at Texas A&M University, and a senior fellow at the National Center for Policy Analysis.]
<<

“The efficient-market hypothesis may be
the foremost piece of B.S. ever promulgated
in any area of human knowledge!”

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