Friday, August 28, 2009

Facing Fiscal Reality on Medicare


People (like Max Brantley)who use Medicare as an example of "a government single payer system that works" are ignoring one very important aspect of the system- it is going broke. It is going broke in such a titanic way that it threatens to take the entire government budget down with it. Medicare seems like a bargain only because the people getting it are not paying for most of it. In fact, none of us are paying for all of it yet- we are just borrowing to cover the shortfalls.
Medicare has three parts, only one of which is financed by Medicare deductions on your payroll taxes. That is Medicare Part A, which covers Hospital Inpatient Services.

Medicare part A is currently insolvent. By that I mean that amount of money spent on part A exceeds the amount collected in payroll taxes. A few years ago, before baby boomers started retiring, the amount collected exceeded the amount spent, so there was a "trust fund" accumulation called the Medicare HI trust fund.

There is no money in this fund, it was all spent for other stuff and the only "assets" in the fund is a bunch of IOU's from the Federal government. They now have to pay back those IOU's by borrowing from someone else, but even if all of the money was really there, the HI fund will be depleted in ten years. In 2019 the HI fund is projected to be exhausted and collections will only amount to 78% of expenditures. From there it gets worse.

That is part A, but what about parts B (doctor's visits) and D (prescription drug coverage)? Those are funded by a combination of premiums and general revenues. Did you realize that much of Medicare is funded by general revenues, or did you think that your payroll deduction covered it? Sorry Charlie, those payroll taxes are not even close to covering it. General revenues currently pay for about half of Medicare spending, and it is projected to get worse.

A few years ago, about one of every six Federal revenue dollars went to Medicare. In forty years, assuming federal taxes stay proportional, it will consume one of every two dollars! That does not even count Social Security, which is a model of stability by comparison.

The reason Medicare looks so good compared to private insurance is that private insurance is run by grown-ups who are responsible enough to make sure the services they provide are sustainable. The insurance companies may not be ethical, but they are honest. They exercise the brutal honesty that the laws of economics demand.

Medicare on the other hand, is run by egotistical politicians who have flattered and indulged people in order to betray them. They are neither ethical nor honest. They don't care about the bottom line, or the economic realities. They look only to the next election, not the next generation.

They see their job as redistribution of wealth, plundering group X to get the votes and cheers from group Y. And whose wealth is easier to plunder than that of the next generation? They are not around to complain or vote against the pillaging of their future income. The unborn are easy victims of our political class, hence the massive use of debt to pay for outlandish political promises.

Private insurance companies ration services right now, so they are the bad guy. At some point, when the Chinese communists tire of loaning our government money, government will start rationing all the health care it pays for. Unfortunately it is easier to change insurance companies than it is to change governments.

4 Comments:

Blogger Mark Moore (Moderator) said...

I wrote a column much like this last week, but as long as they keep using Medicare as a wonderful example of a single-payer system that "works" I feel the need to remind them that this lifestyle only "works" until the national credit card gets maxed-out.

7:24 AM, August 28, 2009  
Blogger Mark Moore (Moderator) said...

by the way, some of those other Western countries that have single payer are even closer than we are to maxing out, in terms of their debt to GDP. That was with us subsidizing their national defense budgets for the last 60 years.

7:26 AM, August 28, 2009  
Anonymous Cynic said...

I would argue that the national credit card has been maxed out for years, and we are now paying penalties for exceeding our limit. The real problem will come when our creditors decide to make our payments so high we won't be able to afford them - which will then lead to the inevitable result of bankruptcy and financial collapse.

To stop this madness, the people need to begin a revolution, just as with tea parties and town hall meetings of late, to require that our federal government balance the budget. Arkansas has done it for years with Revenue Stabilization (what a novel idea) and while there have been many desires by both the executive and legislative branches to violate it, no one has had the nerve or political chutzpah so far to actually do that. The fact is, when government tries to be everything to everyone (doctor, nurse, pharmacist, physical therapist, teacher, landlord, bus driver, grocer, shrink & more), demand always exceeds supply. Just as parents should do with their children, there must be reasonable limits imposed. Right now, the federal and many state governments are not imposing reasonable limits, and haven't for a long time. The demented mentality of Washington, D.C. is spend, spend, spend. Hopefully, next year's elections will throw many of the bums out, which will send a wake-up call to Washington that they'd better stop the fiscal recklessness.

1:44 PM, August 28, 2009  
Blogger Nisc said...

I suggest death panels for Baby Boomers.

10:06 AM, September 03, 2009  

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