From a joint statement by the Social Security and Medicare Boards of Trustees, March 2009
The drawdown of Social Security and HI Trust Fund reserves and the general revenue transfers into SMI will result in mounting pressure on the Federal budget. In fact, pressure is already evident. For the third consecutive year, a “Medicare funding warning” is being triggered, signaling that non-dedicated sources of revenues—primarily general revenues—will soon account for more than 45 percent of Medicare’s outlays. A Presidential proposal will be needed in response to the latest warning.
The financial challenges facing Social Security and especially Medicare need to be addressed soon. If action is taken sooner rather than later, more options will be available, with more time to phase in changes and for those affected to plan for changes.
Translation from the phony government bookkeeping language
- Cash flow for the Hospital Insurance (HI) Trust Fund went negative in 2004 (it was negative during much of the 1990’s, but was fixed by eliminating the cap on wages).
- Cash flow for social security is estimated to turn negative in 2016. It’s already near zero (see this table from the 2009 SS report; compare income and costs).
For decades the taxes for Medicare and social security exceeded expenditures on those programs. The government spent this money.
Now the boomers are aging. Expenditures for our social retirement programs has become an inexorable rise. Their cash flows are no longer funding the rest of the government, but turning into drains. This is the end of an era. For more on this see “The biggest bailout yet“, Fortune, 17 August 2009).
The size of the age wave is too great for any feasible tax increases to cover it.
What does this mean?
The doomsters predict bankruptcy. They are probably wrong (they are always probably wrong). Benefits must be cut. Benefits must be cut. Doing so will be one of the greatest challenges in US history, like nothing seen since the early 19th century battles over slavery.
Speculating, that’s the patter we are most likely to see. A series of crises, each met by a “great compromise” solution. Each proving inadequate, until eventually a durable solution evolves. The sooner we reach that point, the less pain and damage to the Republic.
Indications and Implications
This will test the structure of our political regime. It’s not in good shape, and fixing it should be one of our top priorities. Hillbilly logic might prove lethal — as in “can’t fix the roof when it’s raining; don’t need fixing when it’s not.”
Unfortunately the current political debate suggests that this will be a long, slow, difficult process of adjustment for the American people. Neither party shows much interest in grappling with the problem — because the American people refuse to look at the facts. For decades the Democrats won elections by demonizing Republican attempts to reform our social retirement systems before it was too late. Now Republicans return the favor.
This dynamic already dominates the political debate. One of Obama’s key advisers wrote about the looming problem of heath care costs (Dr. Ezekial Emanuel, brother of Chief of Staff Rahm Emanuel), and discussed possible solutions. Which Republicans, like ex-Gov Palin, demonize as “death panels.” Our politicos cannot be wiser than us, the voters.
“Principles for allocation of scarce medical interventions“, Govind Persad, Alan Wertheimer, and Ezekiel J Emanuel, The Lancet, 31 January 2009 — Abstract:
Allocation of very scarce medical interventions such as organs and vaccines is a persistent ethical challenge. We evaluate 8 simple allocation principles that can be classified into 4 categories:
- treating people equally,
- favouring the worst-off,
- maximising total benefits, and
- promoting and rewarding social usefulness.
No single principle is sufficient to incorporate all morally relevant considerations and therefore individual principles must be combined into multiprinciple allocation systems. We evaluate 3 systems:
- the United Network for Organ Sharing points systems,
- quality-adjusted life-years, and
- disability-adjusted life-years.
We recommend an alternative system—the complete lives system—which prioritises younger people who have not yet lived a complete life, and also incorporates prognosis, save the most lives, lottery, and instrumental value principles.
This is a start at grappling with a serious problem, that about one-quarter of Medicare outlays are during the last year of life — and much of this neither substantially increases the patient’s life nor improves their quality of life. (From the US Department of Health and Human Services). As the boomers age we will no longer be able to afford such expenditures.
The Republicans, like ex-Gov Palin, demonize this research as advocating “death panels.”
Our politicos cannot be wiser than us, the voters.
Originally published at Fabius Maximus and reproduced here with the author’s permission.