Dan

Calabrese

Read Dan's bio and previous columns here

April 9, 2009

How to Prevent the Coming Medicare/Medicaid Disaster

You think it would be horrible if we went to a single-payer health care system? I’ve got news for you. We already have one. And it’s a hell of a problem.

Forty-four years ago, the government of the United States passed a law promising to cover the health care costs of senior citizens and assorted others. Medicare is socialized medicine – covering everyone 65 and older. Medicaid is an even more complicated jumble. Funded by the federal government but administered by each of the 50 states, it serves to cover health care costs for various eligible constituencies.

But if you focus on Medicare alone, you quickly get the sense of the fiscal disaster awaiting the country. All you have to do is apply the laws of supply and demand:

• By relieving the consumer of the need to pay for services, the government creates unlimited demand. And you can’t have more than unlimited demand, can you? Wait. You can.
• The elder population is living much longer than it did in 1965, when Lyndon Johnson signed Medicare into law. So unlimited demand becomes even more unlimited, plus . . .
• As they get older, people consume more health care services. One of the biggest chunks of Medicare spending is for nursing home services – a need that explodes as more people live well into their 80s and even into their 90s.
• If you wanted to keep costs under control, it seems the last thing you would do is add prescription drugs to the things you cover, but that’s exactly what the federal government did in 2006.

How big a problem is it? Today, we spend 4 percent of the entire economy on Medicare and Medicaid, which in 2008 meant spending $682 billion on these two programs alone. On the two programs’ current spending trajectory, we will spend 12 percent of the GDP to fund them by 2050, and 19 percent of GDP by 2082. Typically, we have spent only 18 percent of GDP to fund the entire federal government.

If we don’t fix this, the federal government will go broke and the U.S. economy will collapse. (And we’re not even dealing here with Social Security, which is growing on the same trajectory as Medicare, and which Democrats insisted in 2005 doesn’t need to be fixed – because President Bush wanted to fix it.)

So what to do?

Not that you would use General Motors and the United Auto Workers as a model for anything, but when the cost of retiree health care started rearing its head as an unmanageable long-term problem, GM and the UAW negotiated a deal whereby GM would provide the UAW with a one-time payment of $24.1 billion, then GM would get out of the retiree health care business – mostly. (GM was still on the hook for a series of smaller payments for the next 20 years.) The UAW was to be responsible for investing the money so it would provide for retiree health care over the long term.

Aside from the fact that GM never came up with the $24.1 billion, and surely won’t do so now, could the country try this approach on a larger scale? Could we set aside a one-time pool of money from which the growth would fund Medicare and Medicaid over the long term?

Nope. The Congressional Budget Office projects that the amount of money you would need to set aside today to cover Medicare and Medicaid over the next 75 years would be $34 trillion – such that principal and interest could cover the anticipated costs. There isn’t that much money in the entire country – not even close to it. The entire annual economy of the United States is only worth $13 trillion.

There is simply no way to fund Medicare and Medicaid. But there is a way to fix it.

It is politically unfeasible and morally untenable to deny benefits today to those who have been promised them, but when you project out to 2082, you’re talking about covering the health care of people who haven’t even been born yet. Let’s say we announced tomorrow that every American under 43 would have to save for their own retirement health care, because everyone who turns 65 in 2031 or later will be ineligible for Medicare. (I was going to say 40, but since I’m 42, you know, what’s good for the goose . . .)

While we’re at it, this same group would certainly be getting sufficient fair warning that it could get by, starting in 2028, with no more than half the Social Security benefits current recipients are getting. Most people working today aren’t counting on Social Security anyway, and since the nation needs to start saving more, what better way to encourage it?

This plan would result in some wailing and gnashing of teeth from activist groups, but the under-43 population itself would surely understand the situation and start making the necessary adjustments. Isn’t it better that the federal government treats us like the grown-ups we are, rather than continue promising us something it can’t possibly deliver?

The problem really isn’t that difficult to solve if we simply face reality and ask people to be responsible for themselves.

© 2009 North Star Writers Group. May not be republished without permission.

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