MediCare: America's $34 Trillion Dollar problem.

[LytSlpr]

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The $34 Trillion Dollar problem.
by Geoff Colvin, senior editor at large
Fortune Magazine

Medicare is poised to wreak havoc on the economy. And our presidential candidates are avoiding the issue.

Twice I have asked Alan Greenspan what he considers the greatest threat to the U.S. economy, and both times he has answered immediately with a single word: Medicare. He isn’t so worried about the trade deficit and the housing crash; he figures market forces will sort them out. But Medicare is something else - a multitrillion-dollar problem that’s about to get dramatically worse, and one that nobody wants to talk about. You’d think that the greatest threat to America’s economy would be Topic A for the presidential candidates. But it’s actually a topic they hate to touch.

Especially now. An analysis of their speeches shows that last year Senators Hillary Clinton, John McCain, and Barack Obama would occasionally mention the Medicare mess. But recently, with the economy slowing and voters feeling insecure, all three candidates have turned more populist: Their economic talking points are about feel-good reassurances, not about facing hard realities.

Unfortunately the day of reckoning is imminent. Sometime in the next President’s first term, Medicare Part A (hospital insurance) will go cash-flow-negative, and it’s all downhill from there. Medicare provides a wide range of services and subsidies to more than 40 million old and disabled Americans. As the country ages, Medicare and Medicaid (for those of any age with low incomes) will devour growing chunks of U.S. economic output. So will Social Security, but its cut of GDP should stop increasing around 2030. The federal budget has averaged about 18% of GDP over the past several decades. If that average holds and if the rules of our social insurance programs don’t change, then by 2070, when today’s kids are retiring, Medicare, Medicaid, and Social Security will consume the entire federal budget, with Medicare taking by far the largest share. No Army, no Navy, no Education Department - just those three programs.

But wait - the situation is actually much worse. Those estimates, reported in the latest Financial Report of the U.S. Government, assume that Medicare payments to doctors will be slashed drastically, by some 41% over the next nine years, as required by current law. It won’t happen. Every year for the past five years, Congress has overridden the mandatory cuts. As for future cuts, the Financial Report says drily, “Reductions of this magnitude are not feasible and are very unlikely to occur fully in practice.” So in reality, Medicare will go into the hole even faster than official projections reflect. And they show that if Medicare had to be accounted for like a company pension fund, it would be underfunded by $34 trillion.

Obviously those long-term scenarios won’t happen, because they can’t happen - we won’t be shutting down the Army, Navy, and so on. But it’s easy to see why the candidates don’t want to discuss it. As you listen to them, keep three points in mind:

Pain-free remedies won’t do the job. All three major candidates, on those rare occasions when they mention Medicare’s finances, stress how they’ll make the system more efficient, eliminate errors, and improve incentives. That’s all wonderful, but it won’t be nearly enough. Only John McCain has hinted at what else will be required, including means-testing and limits on benefits. Give him major points, but it’s unlikely we’ll hear much more on that theme.

Any mention of trust funds is bogus. They’re too complicated to explain here, but the bottom line is that no piles of money are socked away to cover future Medicare expenses. Any money the government needs to pay out this year, it needs to take in this year, and every year.

Tax and spending plans must Include Medicare. We’ll hear plenty of budget proposals over the next eight months. But without changes to Medicare, they’re meaningless. Medicare will eventually overwhelm everything else in the budget, except for the interest on the mushrooming debt to pay for it.

If this is the greatest threat to the U.S. economy and the candidates haven’t told us what they’d do about it, they haven’t told us a thing.

[emow]

^ i've already heard something about this in some business books.. US is really in a bad shape, although i feel that it will recover, but not totally in the baby boomers' remaining days on earth. US has been too proud, enjoying the good life, minding other people's problems rather than minding its own, and too complacent with its past prosperity.... too bad for US...

[LytSlpr]

^ i've already heard something about this in some business books.. US is really in a bad shape, although i feel that it will recover, but not totally in the baby boomers' remaining days on earth. US has been too proud, enjoying the good life, minding other people's problems rather than minding its own, and too complacent with its past prosperity.... too bad for US...

i couldn't agree more.

[vern]

The US should go back to it's isolationist policy pre-WWII. Everyone else can handle their problems, but probably not.

Medicare is nothing more than a badly managed government institution like any other nation has. No one US politician has the political will and conviction to change anything until the system goes down the shitter. Things have gone down the shitter before and the US was just fine.

[LytSlpr]

The US should go back to it's isolationist policy pre-WWII. Everyone else can handle their problems, but probably not.

Medicare is nothing more than a badly managed government institution like any other nation has. No one US politician has the political will and conviction to change anything until the system goes down the shitter. Things have gone down the shitter before and the US was just fine.

that might be true but according to the numbers or at least the so called reputable, analysts, financial institutions, media networks among others that the current financial crisis the US is experiencing is comparable to the great depression which i personally find as exaggerated but they insist that the numbers indicate, that it will. that's why the great majority of the economics and financial analyzing gurus in the US are against the bailout programs when the financial crisis hasn't rock-bottomed yet and with the rate the releasing of these "salvation funds" is going, the federal reserve might almost run out of "reserves"

in a nutshell, i used to think even in my previous post that the US experienced shitty times before but somehow always managed to stay "afloat" but when i read the papers and watch the news, i realized that it is even much more shittier than i thought. the scary part is these people know their shit because their numbers and analysis do really make sense regardless of that angle or perspective you look at the current financial situation.

[journeyman]

Ngiga sa? kana nga amount sa medicare lang? Wa ra man sa kumingking ang proposed 2009 budget sa Pilipinas.

[LytSlpr]

Ngiga sa? kana nga amount sa medicare lang? Wa ra man sa kumingking ang proposed 2009 budget sa Pilipinas.

you might be surprised that the revenues of the cocaine cartel in colombia is 3.5 times bigger than the annual federal budget of the United States and the consumer is the United States alone.

that's why the government is getting tough on these cartels because American money is being taken off shore.

[Dorothea]

This is so true, dako gyud ni nga problema ning Medicare. They've already begun slashing reimbursements btw, and now it takes a lot longer for healthcare providers to get reimbursed. Since the introduction of the convoluted new Medicare Part D system in 2006, thousands of drugstores (mostly independent) have gone under. I am all for saving money wherever we can, but it doesn't work when it hurts businesses within the healthcare industry. Bisan sa Medicaid, dako pud kaayo ning problemaha. Some drugstores and doctors have begun turning away Medicaid patients, just because Medicaid payments take so long, and the providers are reimbursed for way below acquisition costs and service fees. Kinsa man dili magdaut ang kalag ana, ang drugstore mobayad ug $5 for a drug from a supplier, unya $4 ra ang ibayad sa Medicaid (sometimes, also Medicare). No business can operate for long under those circumstances. There has to be a solution aning problemaha that can be a win-win scenario for everyone. What that solution is, who the heck knows. But healthcare in the US is a big, big problem...a volcano just waiting to erupt.

[Rance]

What about the Social Security budget? feds is milking funds from tax payers on this too and it should be allocated appropriately other than Medicare.

[Dorothea]

Has anyone read the newly appointed DHHS secretary's book? What are your thoughts?