Posts Tagged ‘Medicare Insolvency’

Raising Medicare eligibility age is a bad idea

October 28, 2013

medicareinsolvency

Raising the Medicare eligibility age is a proposed solution for a nonexistent problem.

Medicare trustees in 1990 forecast that the Medicare program would become insolvent in 13 years.  It was still solvent 21 years later, and they still were making the same prediction.  The 2013 projection of the Congressional Research Office, not shown above, pushes back the insolvency date to 2026—still 13 years in the future, still as far away as ever.

Insolvency would mean that there would be no reserves in the Medicare trust fund to pay benefits.  When those reserves are exhausted, the CBO estimates that Medicare would still be able to pay 87 percent of authorized hospital benefits out of income; if nothing changed.  Payments of hospital benefits would decline in the next 20 years to 71 percent of benefits.  Physician, outpatient and prescription drug benefits have their own revenue streams, and wouldn’t be affected.

Why does the insolvency of Medicare continually recede into the future?  It is partly because of the growth of the economy.   The key to keeping Medicare, and also Social Security, solvent is not by chipping away at benefits.  It is by promoting a full-employment, high-wage economy.

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The other reason that increasing the Medicare eligibility age is a bad idea is that, according to the Kaiser Family Foundation, it would result in a net increase in costs to the public as a whole. Individuals and their employers would have to spend more, and more people would be eligible for Medicaid and for subsidies under the Affordable Care Act.

The above chart is based on analysis in 2011.  The Congressional Budget Office recently the net federal savings in raising the Medicare eligibility age would be much less than shown on the chart.  The saving would about $1.9 billion a year, not $5.7 billion.

While $1.9 billion is a lot of money, the United States is a nation of more than 300 million people, which means the saving comes to less than $65 per person.  I agree that would be an amount worth saving, if not for the fact that it is offset by increased costs and hardship to the American public as a whole.

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Social Security fund insolvent? running dry?

April 24, 2012

SOCIAL SECURITY CLOSER TO INSOLVENCY: Government says trust funds will run dry in 2033.

That was the headline over the lede [1] story this morning in my local newspaper, the Democrat and Chronicle.  Stephen Ohlemacher, the Associated Press reporter, began as follows:

Social Security is rushing even faster toward insolvency, driven by retiring baby boomers, a weak economy and politicians’ reluctance to take painful action to fix the huge retirement and disability program.

The trust funds that support Social Security will run dry in 2033—three years earlier than previously projected—the government said Monday.

There was no change in the year that Medicare’s hospital insurance fund is projected to run out of money.  It’s still 2024. … …

But then when you get to paragraph six, you learn what “running dry” means.

If the Social Security and Medicare funds ever become exhausted, the nation’s two biggest benefit programs would only collect enough money in payroll taxes to pay partial benefits.  Social Security could only cover about 75 percent of benefits, the trustees said in their annual report.  Medicare’s giant hospital fund could pay 87 percent of costs.

In other words, Social Security and Medicare will not have run out of money when the funds “run dry”.  The two programs will have used up the surplus in the Social Security and Medicare trust funds that were created by increasing payroll taxes during the Reagan administration, in anticipation of the retirement of the Baby Boom generation.  There are different ways this could be handled, including a moderate increase in the ceiling for payroll taxes.  But Social Security and Medicare will not be broke.

The estimated date that Social Security and Medicare will exhaust their surpluses fluctuates a great deal from year to year, depending on changes in the current state of the economic and forecasts for the future.  By some past estimates, these funds should already have been exhausted.

There is a larger issue than the amount of Treasury bonds in the Social Security trust fund.   Financial assets are not wealth, whether they be Treasury bonds, corporate stocks or bank savings certificates.  They are claims on wealth.  The real wealth is the amount of goods and services that are produced in any given year.  If the working-age population is not producing enough to support themselves and us retirees as well, that is a problem, no matter what we have in our retirement accounts or the Social Security administration has in its trust fund.

The answer is to somehow get back to a high-wage, full-employment economy, where somebody in their 50s who loses their job is not unemployable.  We need both better productivity and a more widely-shared prosperity. If a quarter of the nation’s increase in wealth is flowing to the upper 1 percent of the population, as it is now, there is not much left over for 85-year-old widows who depend on Social Security.  And if productivity increases are not keeping up with the increase in the aging population, then there is less to go around.   Of course we can improve the demographic balance by increasing the number of working-age immigrants.

Click on Robert Greenstein for a sober statement on the Social Security trustees’ report by the founder and President of the Center on Budget and Policy Priorities.

Click on Paul Van de Water for a sober statement on the Medicare trustees’ report by a senior fellow for the Center on Budget and Policy Priorities.

Click on Let’s beef up Social Security benefits instead of cutting them for a column by economics writer Michael Hiltzik in the Los Angeles Times. [Added 4/25/12]

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