Medicare Epitomizes Our Entitlement Problem

May 16, 2008 – 4:03 pm

***This post is being submitted to the Facing Up Blog Carnival on Medicare.***

It is no secret that our economy is the middle of a recession, as evidenced by massive layoffs in the financial services market, exploding energy prices and the increase in jobless claims. One reason why we can expect our economy to continue on this shaky path is the overwhelming percentage of our gross domestic product that is targeted for entitlements. A combination of twin liberal economic packages (the New Deal and the Great Society), entitlements such as Social Security and Medicare accounted for 53% of total federal outlays in 2007, with net interest payments accounting for an additional 8.6%. With the retirement of the Baby Boomers, we can all expect these numbers to continue to increase at a fiscally dangerous rate.

For all the talk about fixing Social Security a couple years back (eventually, nothing was done as expected), it is Medicare that is really in trouble.

Medicare faces continuing financial issues. In its 2006 annual report to Congress, the Medicare Board of Trustees reported that the program’s hospital insurance trust fund could run out of money by 2018. The trustees have made such projections in the past, but this one was bleaker than the outlook reported in 2005.

The fundamental problem is that the ratio of workers paying Medicare taxes to retirees drawing benefits is shrinking at the same time that the price of health care services per person is increasing. Currently there are 3.9 workers paying taxes into Medicare for every older American receiving services. By 2030, as the baby boom generation retires, that is projected to drop to 2.4 workers for each beneficiary. Medicare spending is expected to grow by about 7 percent per year for the next 10 years. As a result, the financing of the program is out of actuarial balance, presenting serious challenges in both the short-term and long-term.

With deficits on the horizon for as far as the eye can see and a federal debt inching closer to $10 trillion, we as Americans may have to rethink the way we approach government programs that have been part of the fabric of the middle class for decades. While it may sound ideal for wealthier Americans to be subsidizing the 47 million of us without health insurance under Medicare, the unfortunate reality is that no major overhauls will be made for the forseeable future. It is much easier for our spineless politicians to put their fingers in the dam than to fundamentally rebuild the program from scratch, which is really what is needed to accomplish Medicare’s ultimate goal - providing financial assistance for health care to those in need.

So expect to see a raise in taxes (for the middle class only of course) here and a reduction in benefits there, all the while keeping our fingers crossed that the economy has already bottomed out and things won’t get much worse. But, politicians love to tell us that we can have our cake and eat it too because after all, that’s what we want to hear, isn’t it? In the midst of the Great Depression, FDR told us that happy days are here again. In 1984, Ronald Reagan told us that it was morning in America. Social Security may get all of the attention, but Medicare needs serious solutions from serious people. Unfortunately, the politics of stupidity trumps the need for common sense and reason.