The Resistance to Changes in Medicare
Despite evidence that changes to Medicare are necessary to solve our debt crisis, most people are opposed to altering the program. How are we going to move forward in fixing our very serious financial situation if most people are against changing a key element of the problem? Let’s take a look at the situation and the thinking behind these opinions.
Last year the U.S. deficit, the amount that had to be borrowed to cover 2010 expenses, was a whopping $1.3 trillion. This year’s is close behind. The U.S. debt, all money we owe from previous years’ deficits, is $14.6 trillion. What’s scary is this amounts to more than our annual Gross Domestic Product (GDP) which is what our country produces, and that compares to the likes of bankrupt Greece, Spain, and Italy! So what does all this have to do with Medicare?
Last December, the President’s Debt Commission identified health care entitlements as our single biggest fiscal problem. Looking at current US expense totals, Medicare and Medicaid followed by Social Security and Defense are by far the largest expenditures. But it is Medicare that is growing the fastest, 7% per year, twice the growth of overall federal spending. Unless checked, it will double from $500 billion to $1 Trillion in 10 years, an unsustainable amount. This is why Medicare has become the focus of attention.
The fact that Medicare’s rapidly rising costs were not covered in July’s heated budget discussions was cited by Standard and Poors as one of the major reasons for the unprecedented down-grading of U.S. credit. Ben Bernanke, Federal Reserve Chairman, warned that unless we address this problem the world will no longer be willing to fund our debt.
Despite the earlier warning of the Debt Commission and, now the S&P downgrade, polls show people consistently oppose changes to Medicare. While a Kaiser Family Foundation poll revealed that 2/3 of Americans are ‘very concerned’ about the size of the federal budget, 57% of the same people want no reduction to Medicare. Only 30% of those polled support even minor reductions. Incredibly, of self-identified Tea Partiers, a group centered on reducing the debt, 7 of 10, in a Marist poll, opposed cuts to Medicare.
People were asked in a Wall Street Journal/NBC News survey if they thought cuts to Medicare were necessary to reduce the deficit. Only 18% said yes, while 54% said no. The rest “didn’t know.” There seems to be a denial that Medicare, if it continues as it is now, can bankrupt the country: The failure to recognize the central role Medicare plays in our budget predicament is making our long term debt picture bleak. Why aren’t people seeing the seriousness of the situation?
I think there is a variety of explanations to account for this. One is the alleged existence of a Medicare trust fund in which workers’ contributions have been amassed and which will cover Medicare expenses for decades to come. For years, various commentators have countered concerns about Medicare viability with this fallacy. There is a Medicare Hospital Insurance Trust Fund; but it is a fund in name only.
I remember talking with my late mother-in-law about this years ago. She was stunned when I explained that her contributions were not being saved up but shoveled into the government general fund and spent. “What will happen when there’s not enough?” she asked. What indeed! Now, as reported in the 2011 Trust Fund Actuarial report, money paid into the fund by today’s workers no longer covers the cost of ensuring the current enrollees. Not surprisingly, talk about the trust fund reserve has retreated in the media. In the meantime, however, many people believe their Medicare is safe; so why change?
Many other people feel, instead of cutting Medicare, taxes on the rich should be used to cover the budget gap. By a ratio of 2 to 1, people surveyed in a McClatchy/Marist poll believe higher taxes on those making $250,000 and up should be used to fill the budget gap. But this won’t solve the problem. In 2008, the entire taxable income of everyone earning over $100,000 was $1.582 trillion. A tax rate of 100% would barely cover just one year’s deficit. Even taxing millionaires by 50% while simultaneously eliminating all loopholes and deductions would reduce the deficit by only 8% and the debt by 1%.
For many, the most basic visceral reason Medicare changes should not be considered is a moral one: It doesn’t seem right to have frail old people without many resources fending for themselves in their sunset years. However, that picture may be flawed. It’s true that in 1959 35% of the population 65 and over lived below the poverty line; but today it’s 9.7%. Older people today, in fact, are more prosperous than any previous generation in history. One half the nation’s wealth is owned by people 55 and older.
Perhaps the root of the debt problem for all of us is that we can’t fully conceptualize just how big our debt problem is and, consequently, why more consequential measures are needed to fix it. This hit home to me this morning, reading a magazine commentary about the phrase, “millionaires and billionaires‘, being taxed. The point taken was not about whether they should be taxed or not but how inappropriate it was to lump them together. A person with a billion dollars is literally a thousand times richer than someone with a million. In scale, this is like comparing someone who has $10,000 in the bank with someone who has $10 million socked away. No comparison! It indicates to me that even our country’s leaders have no idea of how much money we’re talking about here. And if a billion is that enormous, how much more enormous is a trillion?
To explain a trillion, CNN interviewed John Allen Paulos and asked him to verify a recent statement heard in the media that if you’d have to spend a million dollars a day from the day Jesus was born to the present before you’d spend a trillion. The noted mathematician said that was incorrect: you’d only spend 3/4 of a trillion in that time frame!
No approach to reforming Medicare will be perfect or painless. Nevertheless, before open and honest discussions on the subject can take place, all these misconceptions must be addressed by anyone serious about solving the problem.