Townhall...
5 Reasons We Need To
Reform Medicare Right Now
By John Hawkins
Are we going to reform Medicare before 2012? No, unfortunately the
Democrats have decided that using Medicare as an election issue is more
important than actually doing the right thing for the country. So,
they’re going to lie and tell every senior in America that the GOP is
going to take their Medicare away. Then the mainstream media will echo
their charges without pointing out that the Ryan plan won’t affect
“anyone now 55 or older.”
Their strategy may even work and if so, Republicans will probably be
terrified to touch Medicare again until the program completely
collapses -- which incidentally, is exactly what we’re headed towards.
Let’s talk about that.
1) Medicare and Social Security cannot survive “as is” over the
long-term. Our country has 100 trillion dollars in Social Security and
Medicare liabilities. Put another way, as the programs are currently
structured, we will have to pay out 100 trillion dollars more money
than people are going to pay into the programs.
Just to give you some perspective, this year the government is going to
take in roughly 2.57 trillion dollars in tax revenue while our national
debt, like our gross domestic product, is a little over 14 trillion
dollars. There is a gulf as wide as the ocean between what we’re
promising retirees and what we can actually deliver.
2) We cannot make up the shortfall with taxes alone. The standard
response to every revenue shortfall these days is, “Tax the rich.”
However, that’s not going to work this time.
The total present value of payments expected under Social Security and
Medicare beyond what is expected to be collected under current tax laws
is about $100 trillion. One way to put that amount of money in context
is to note that it is about twice the amount of all the net private
assets that exist in America today....the best back-of-envelope
estimate is that meeting this unfunded portion of our Social Security
and Medicare commitments would require roughly an immediate 80 percent
increase in federal income taxes, sustained forever.
In other words, what people who don’t want to change the current system
are hoping for is that America will essentially be transformed into a
society of worker ants who slave away in poverty while the majority of
the money they earn goes to keep Social Security, Medicaid, and
Medicare humming along for the retirees. Of course, that’s not going to
happen. Either people would stop working, work off the books, move to a
different country or most likely, force Congress to dramatically
curtail benefits.
3) Medicare reform could keep America from going bankrupt. Many people
think that this country may EVENTUALLY have trouble paying our bills,
but it’s entirely possible that “eventually” will be VERY SOON. Last
week, Senator Jeff Sessions said Alan Simpson and Erskine Bowles of
Debt Commission fame estimated we could be Greece in as little as 1-2
years. Tom Coburn has said it could be as little as 4 years. Mike Pence
is a little more optimistic and pegs it at 10-15 years.
If it happens, the way it will likely happen is that investors will
lose confidence in America as a place to invest their money. That would
either be because they fear that we won’t pay their money back or more
likely, that we’ll print so much money to cover our debts that the
value of their investment would suffer. Next thing you know, we’d have
to pay out a much higher rate of return to borrow the money to service
our debt. That could add hundreds of billions of dollars to our yearly
deficit and it would create a rolling snowball effect. The larger our
deficit gets, the less confidence investors have, and the more it costs
to service our debt until we simply can’t afford to keep the whole
charade going any longer.
However, if we were to reform Medicare in such a way that it
dramatically reduces our future liabilities, that would shore up
confidence in our ability to pay our debts over the long term. It would
help us keep the rates at which we’re borrowing money as low as
possible and that would go a long way towards helping our country
prevent an economic crisis that’s absolutely inevitable unless we
change course.
4) The longer we wait, the less impact Medicare reform will have on our
long-term financial situation. There are a lot of people who already
depend on Medicare and nobody wants to pull the rug out from under
them. So, plans to reform Medicare almost always have some lag time
before they take effect. The Ryan plan, for example, wouldn’t impact
anyone who’s 55 or older.
The problem with this is that the Baby Boomers represent a population
bubble. Every year that we wait for reform means more Baby Boomers
getting locked into the current unsustainable system that pays out this
kind of money.
...The typical husband and wife who reach age 66 and qualify for Social
Security. Starting next year, this typical couple, receiving the
average benefit, will begin collecting a combination of cash and
health-care entitlement benefits that will total $1 million over their
remaining expected lifetime.
5) The longer we wait, the greater the chances are that current
retirees will be dramatically impacted. As a society, it’s much better
not to promise so much to people than to make promises that we simply
won’t be able to keep. If we don’t make changes to the program soon so
that more Baby Boomers are put into a new system -- and future working
class Americans prove unwilling to give up most of the money they earn
just to float senior retirees (which seems likely), then our only other
option will be to dramatically cut benefits for seniors who are already
relying on Medicare and Social Security.
This will likely not be something that anyone wants to do, but you
can’t get blood out of a turnip -- and if the country goes bankrupt,
something is going to have to give. Today Medicare, Medicaid, and
Social Security take up roughly half of all tax revenue and by 2052,
they’re on track to take up every dime of revenue. This is not
reassuring news.
2052 seems like a long time away — and so it is. But, don’t forget - we
have a 14 trillion dollar debt we need to pay off and the federal
government funds a lot of other things besides those entitlement
programs. That money is where defense, intelligence, border security,
government salaries, interest payments on the debt, welfare, and even
Harry Reid’s precious Cowboy Poetry comes from.
The only way we even have a chance to make sure that current recipients
of Social Security and Medicare don’t have their benefits eviscerated,
perhaps even in the next few years, is to reform the programs. Either
we make reforms or one day, we will be forced to dramatically cut
Medicare and Social Security payments, which means seniors who rely on
those programs will be left in the lurch.
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