Replies to post #46582 on Biotech Values

[DewDiligence]

Where Will U.S. Healthcare Money Come From?
Numbers in the latest government report
are even worse than those in this chart.




http://online.wsj.com/article/SB120399640594392887.html

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Medicare Spending to Surge

By JANE ZHANG
February 26, 2008

WASHINGTON – Government spending on health care could nearly double by 2017 to more than $2 trillion, according to a new federal study, reflecting a surge that promises to complicate the campaign debate about health care.

Driven by the aging of the baby-boom generation and rising costs of new drugs and medical technology, Medicare, the big federal health program for the elderly, will take up 20.7% of national health spending by 2017, according to the report.

Overall, the report projects health-care spending in the U.S. will hit $4.3 trillion by 2017, nearly double the 2007 amount. That would equate to nearly 20% of gross domestic product. In 2007, health-care spending accounted for 16.3% of GDP, according to the study. But more of that cost is expected to shift to government agencies -- even as the federal government struggles to shrink huge deficits.

The Bush administration has proposed various steps to curb Medicare spending in its latest budget, but it isn't clear whether those cuts will win approval from Congress.

"The impact of the population aging is expected ... to have a substantial influence on the public share of spending growth, as the leading edge of the baby-boom generation becomes eligible for Medicare," wrote Sean Keehan and his co-authors of the study, economists at the federal agency that runs Medicare and Medicaid. The study expects aging baby boomers to account for a relatively small share of future health-care spending growth on a per enrollee basis.

The annual projections by the Centers for Medicare and Medicaid Services are being published today in the journal Health Affairs.

Health-care spending will grow on average 6.7% in the next decade, outpacing the general economy by 1.9 percentage points each year, the new federal study said. The growth will mainly be driven by medical prices and increased usage as well as smaller factors such as population growth and its changing mix. Private spending on health care is expected to grow at a slower pace, from 6.6% in 2009 to 5.9% in 2017, the authors said. That is partly because of the cost shift to the government.

Medicare spending is expected to grow to $844 billion in 2017, up from $427 billion in 2007. There also will be a shift toward the private arm of Medicare, which tends to cost the government more. By 2017, 27.5% of eligible Medicare enrollees are expected to enroll in managed-care plans, compared with 16.4% in 2006, the study said.
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[DewDiligence]

Medicare Elephantiasis

[Medicare could be brought back into actuarial balance by an immediate 122% increase in the payroll tax or an immediate 51% cut in benefits, or a combination of the two (#msg-27914007). This editorial is a companion piece to the one in #msg-19600197.]

http://online.barrons.com/article/SB120674483937873051.html

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By THOMAS G. DONLAN
March 29, 2008

Here's a quick test of your grasp on some crucial American fiscal and economic realities.

How big is the gap between expenditures on Medicare hospital insurance and the revenues available to pay for the program during the next 75 years? We'll go easy on you and suggest a number: In today's dollars, does it exceed last year's gross domestic product -- about $14 trillion?

Choose A for yes or B for no.

It's "A," with a vengeance. The value of the gap is currently quoted at $38.6 trillion, not counting future inflation. (Extreme bears and other pessimists say the current mortgage mess may generate losses of $1 trillion.)

The future obligations of Medicare are so big that liquidating all the houses in the country and selling them to foreign owners, could not cover it. Householders' real estate minus mortgage debt was $11.9 trillion at the end of 2007, according to the Federal Reserve Board.

Fortunately, America is not yet insolvent -- there's $45 trillion of household financial wealth that could be applied to the gap. But the gap is growing faster than our wealth.

The Medicare gap dwarfs every other fact in American finance. The present value of the Social Security gap is a mere $4.3 trillion.

In the coverage of the Medicare and Social Security trustees' reports last week, most stories focused on the fiscal status of the trust funds, and in particular on the date they will "go broke," which is estimated to be 2041 in the case of Social Security and 2019 in the case of Medicare hospital insurance.

As such things go, it may have been good news that these dates were not moved significantly from the previous year's report. But it's bad news that the catastrophic dates are one year closer, yet there has been no significant reform.

Nor should we expect any more action this year than in any other of the last 25 years that the trustees have been issuing warnings.

Most of Washington, in office, out of office or seeking office, was deafeningly silent on the trustees' reports. The rest threw blame across the aisle.

The Easy Cure

If we closed the Medicare gap on the installment plan, we could manage it with a simple tax increase or a benefit cut -- if we started this year.

Currently, we pay 2.9% of all wages to support Medicare. To make it appear to be solvent for 75 years, we would have to more than double the wage tax, to 6.44%, starting this year, or cut the scope and spending of the program by about half, starting this year.

Unlikely as such measures are, they still would not go far enough, because they only would increase the balance in the so-called Medicare trust fund. Just as with Social Security's so-called trust fund, the Medicare trust fund is invested by the government entirely in U.S. Treasury securities. That's another way of saying that the government spends the surplus money and makes a note on its books that it has spent it, promising with the full faith and credit of the United States to borrow from the public in the future when the money is needed.

This fiscal year, for example, the government will spend $204 billion from its trust funds on top of its regular deficit of $400 billion or so. Eventually, it will have to pay back or roll over the $204 billion, along with the $400 billion of overt borrowing.

Raising taxes or cutting current benefits will never solve anything for either Social Security or Medicare, unless the government actually saves the money and invests it beyond its own reach -- in private markets.

Unfortunately for all concerned, 2008 is a red-letter year for the Medicare program. It's the first year in which the revenues from the 2.9% wage tax do not cover Medicare hospital-insurance expenditures. From now on, the Treasury will be borrowing larger and larger sums every year from the public to make good on its obligations to Medicare. Social Security taxes are projected to cover benefits until 2017.

Much more unfortunately, Medicare hospital insurance, also known as Part A, is not the biggest part of the long-term fiscal gap. Part B coverage for physicians' services and medical equipment and Part D for prescription drugs are both growing faster than Part A, and they have no dedicated wage tax to support them. About three-quarters of their revenues come from the general government side of the budget -- income taxes and borrowing.

Parts B and D are more intensively used by younger retirees, which means that they will be paying large benefits as soon as the members of Baby Boom generation hit age 65. The Medicare actuary expects Part A spending to rise from about $200 billion in 2007 to about $400 billion in 2016. Part B spending is projected to rise from about $175 billion last year to about $370 billion in 2016. Part D is likely to go from $50 billion to about $140 billion.

Making Changes

Even big problems have solutions. The first consideration is to cut the programs down to size. Federal taxpayers cannot afford to pay Medicare and Social Security benefits for people who don't need them. The ages of eligibility should be stretched out years beyond 65 for Medicare and 66 (for full benefits) from Social Security. Then, benefits should be reduced for those with higher income and wealth -- offset in part by better tax deductions to thank them for saving for their own retirement income and medical care.

To push the political system toward making the right changes, Congress should force itself to put Medicare and Social Security financing on a pay-as-you-go basis. Wage-tax revenues should match the size of the programs automatically.

Instead of making spending an entitlement, make every wage earner fully aware of the cost.

Congress should retake responsibility for its welfare enactments. Rather than declaring Medicare and Social Security to be unchanging entitlements, the lawmakers should force themselves to revisit the programs every few years and retrofit them to the nation's current circumstances.
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[DewDiligence]

$700 billion? You Ain't Seen Nothin'



[For related articles, please see (in reverse chronological order): #msg-28031264, #msg-27114485, #msg-22076180, #msg-19600197, #msg-19589981, #msg-18495262, and #msg-17238159.]

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/09/27/IN9U134E3A.DTL

›by Brian M. Riedl
September 28, 2008

Think $700 billion to bail out Wall Street is expensive? Just wait. The mortgage meltdown is cheap compared with the coming fiscal firestorm fanned by unfunded Social Security and Medicare costs.

Together, these programs hold unfunded obligations totaling $41 trillion - 60 times larger than the proposed Wall Street bailout. And even this understates the difference, because $41 trillion is the current net value of the unfunded obligations over 75 years. The actual cumulative yearly deficits these programs face over the next 75 years are several magnitudes larger than $41 trillion.

Imagine a taxpayer bailout even larger than what's proposed for Wall Street. Now imagine it recurring every year in perpetuity. That's our fiscal future unless we fundamentally reform these unsustainable entitlement programs.

Certainly, there are some differences between the two situations. Unlike entitlement spending, the Wall Street bailout would actually give the government assets it could later sell to recoup much of the costs. On the other hand, by issuing federal debt, the Wall Street bailout would add to the government's explicit obligations - unlike Social Security and Medicare's implicit obligations that, legally, could be cut anytime by Congress.

The entitlement problem is simple to understand. In the 1960s, five workers paid the taxes for each retiree's Social Security and Medicare benefits. Today that ratio is just 3-to-1. The coming retirement of 77 million Baby Boomers will drive that ratio down to 2-to-1 by 2030. That means every two children born this year and who marry in 2030 will have to support themselves, their children - and the Social Security and Medicare benefits of their very own retiree. The cost will be staggering.

While both programs face rising costs due to demographics, the added problem of steeply rising health care costs puts Medicare in even worse shape than Social Security.

Absent reform, paying all promised retiree benefits would require either: A) doubling all tax rates; B) eliminating every other federal program, including defense and education; or C) running massive budget deficits that would eventually collapse the economy. And every year of delay raises the final cost of reform by trillions of dollars.

Yet delay is all we get from Congress. Lawmakers know these program costs are completely unsustainable, but they see reform as expensive and politically risky. And so, they kick the can down the road, putting the future stability of our entire economy at risk.

The impending retirement of 77 million Baby Boomers is not theoretical. It can't be dismissed or wished away. And when the inevitable Social Security and Medicare costs come, taxpayers will demand to know why lawmakers ignored the warnings.

They will discover that in January 2008, Moody's warned that the United States' triple-A credit rating would be reduced within a decade unless Congress reformed these programs.

And Congress just shrugged.

Shortly thereafter, the Medicare trustees warned that payroll taxes and user premiums will soon cover barely half of the program's cost, forcing a record 45 percent of its budget to be subsidized out of general tax revenues. Even though the warning triggered a law requiring an examination of Medicare reforms, Congress again just shrugged.

Next, the Congressional Budget Office projected a 2008 federal budget deficit of $407 billion, driven mostly by escalating Social Security, Medicare and Medicaid costs. The data showed that these three programs - comprising nearly half of federal spending - are set to push the deficit to nearly $1 trillion over the next decade, and higher thereafter.

Again, Congress just shrugged. And when a bipartisan group of lawmakers in the House and Senate offered legislation to create a commission to fix these programs before they bankrupt the nation, congressional leadership refused to allow a vote on it.

Every day that Congress wastes naming post offices and allocating pork projects is a day that the Baby Boomers move closer to retirement, and the eventual costs of an entitlement bailout increase further.

Reform will take time, but lawmakers can begin by publicly disclosing the unfunded obligations of Social Security and Medicare in the federal budget. They can also take these programs off autopilot and place them on a long-term budget.

Today we are grappling with a very real financial crisis. While we cannot go back in time and fix it, we can start acting now to prevent the next, clearly visible crisis. It promises to be 60 times bigger than the Wall Street debacle. Is Congress paying attention?‹