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Medicare Must Change

Medicare’s growing costs make it a major component of our country’s current debt crisis.  It must change quickly and maybe drastically to avoid certain economic ruin and preserve some form of a elder health care system for our children.  Two factors stand in the way of change despite widespread recognition of our financial situation.

The Simpson-Bowles Commission was the first serious call to address the Medicare problem.  The bi-partisan commission was established in 2010 by President Obama to solve our escalating debt problem: The recent annual budget deficits of over a trillion dollars have resulted in a national debt that is now larger than the entire U.S. economy, over $16 trillion.

The commission determined that federal health care spending was the greatest threat to the long term financial viability of the country and Medicare, the leading factor.  Its costs are escalating faster than any other element in our economy.  In fact, if nothing is done,  it will, in short order, account for 80% of our national debt.  Despite the commission’s  finding, nothing was done at that time or since to change the trajectory of Medicare spending.

Originally, Medicare, a health care program for the elderly, was designed to pay for itself.  Medicare Part A which covers hospital expenses, would be financed by a mandatory 2.9% payroll tax shared by all workers and their employers.  An optional Part B program covering doctor visits and other health care services would be paid for with premiums like any other health insurance plan.

Today, Medicare Part A is paying out more in health care benefits than is being collected in payroll taxes.  All the excess collected in previous years has been used up as well.  Meanwhile, the premiums collected for Medicare Part B cover just 25% of the benefits paid out.  According to the 2012 Medicare Trustees’ Report,  Medicare, in 2011, collected $267.4 billion in taxes and premiums but paid out $541.3 billion in benefits.  The $274 billion difference was financed with loans largely from foreign countries like China.  This year’s Medicare budget deficit will be considerably more; and by 2021, the Congressional Budget Office estimates the Medicare cash-flow disparity alone will be over a trillion dollars!  How did this happen?

One factor is the dramatic rise in the number of elderly citizens.  In 1970, there were just 20.4 million seniors, now there are 50 million who must be covered.  People over the age of 65 now comprise 20% of the population.  And their number is growing.  100,000 Americans join Medicare every month now; and altogether 20 million baby boomers will be added to the system in the next 10 years. With this, fewer workers are left to contribute to the system; and with a slowing national birthrate, that ratio can only get worse.  Medical breakthroughs and new technology and drugs have both raised health care costs and increased longevity, exacerbating the situation further.

This isn’t news.  The Medicare Trustees have been issuing warnings about Medicare’s shaky condition in their reports for the last 7 years.  Why hasn’t anything been done about it?  One reason is fear.  Lawmakers fear the wrath of seniors who make up 20% of the population and are more likely to vote than the general population.  A recent Kaiser health tracking poll shows people 55 and older want to keep Medicare as it is.  The elderly like Medicare and their fear is that something that really works for them will change.  However, it’s not just the seniors who feel that way.  Although most voters recognize that Medicare is in trouble,  58% want Medicare to remain the same.

Is fear the only thing keeping lawmakers as well as the public afraid of tackling the problem?  I don’t think so.  A greater factor, I believe, is the difficulty  in comprehending  the amounts we’re dealing with here.  Temple University mathematician John Allen Paulos, wrote Innumeracy, a book about this very subject. Our ancestors, he says, never had to deal with millions and trillions.  That’s not part of our inherited DNA.  As  proof of this, I offer the fact that people, including our well-educated leaders, lump individuals who earn $250,000, millionaires, and billionaires all together in one category.  Actually, there’s no comparison.

If you make a dollar every second, it will take you just less than 3 days to make $250,000, 12 days to make a million and 32 years to make a billion.   How about a trillion?  To make a trillion dollars, it would take 32,000 years!. Our annual budget deficits alone, are running over a trillion dollars; and today our national debt is over 16  trillion!!  Here’s another way to look at the enormity of a trillion:  You could spend $10 million every day and it still would take you 273 years to spend one trillion dollars.  The bottom line is we are failing to fully comprehend the enormity of the problem

Every year adds another trillion to our national debt. On top of that,  the historically low rate of interest we’re paying on that huge amount of debt will be rising soon.   To avoid the panic that today is Greece and Spain, we need to face our fears and take action.  The current way Medicare functions  has been identified as a major threat to our country’s future.  Our leaders need to get over their fears and get serious about attacking this problem.  Medicare must change.

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