Many politicians talk a good game on huge entitlements. They offer soothing words, saying they would “never touch” the benefits of massive programs such as Medicare or Social Security.
But those who think that entitlements need never be reformed recently got a painful reminder why that just isn’t true.
Economists at the Urban Institute think tank pointed out what some Americans already know: that the Medicare numbers just don’t add up, and the program is going to go broke as vast numbers of baby boomers retire and join the program.
The Associated Press explained the findings of the study, which are broadly accepted as fact even in Washington:
“[W]hat people paid into the system doesn’t come close to covering the full value of the medical care they can expect to receive as retirees. Consider an average-wage, two-earner couple together earning $89,000 a year. Upon retiring in 2011, they would have paid $114,000 in Medicare payroll taxes during their careers. But they can expect to receive medical services — from prescriptions to hospital care — worth $355,000, or about three times what they put in.”
That’s a disaster in the making! If your auto insurer paid out three times in benefits what it takes in from premiums, it would go broke. Why do we think a program run by the federal government can avoid such consequences by doing the same?
And it’s even worse, because many people don’t realize how the government is taking them for a ride with the money they pay into Medicare: “Many workers may believe their Medicare payroll taxes are going for their own insurance after they retire, but the money actually is used to pay the bills of seniors currently on the program,” the AP noted.
In other words, the money you think you’re “putting away” for your medical care in retirement is, instead, being spent as fast as the federal government gets it on people who already retired.
That’s not a health care plan; it’s a recipe for bankruptcy.
That scheme can seem to work so long as there are enough taxpayers following behind the current retirees to pay into the system. But the ratio of workers to Medicare recipients will drop dramatically with the retirement of so many baby boomers. It is only a matter of time before the rising tide of retirees exhausts what is in the system and what the diminishing taxpayer base is able to pay into it.
That will set up an alarming clash over whether to cut benefits drastically or to impose devastating tax increases — or both.
Huge tax hikes might briefly help shore up Medicare, but they will ultimately leave the program in worse shape as they destroy economic activity that produces the very tax revenue needed for the program. Meanwhile, nobody likes the prospect of severe benefit cuts.
That leaves one alternative, but there seems to be little enthusiasm for it in Congress. That option is to begin reforming Medicare now — today — while it can be done in a way that doesn’t require draconian cuts in benefits nor devastating tax increases.
And yet liberal defenders of the status quo howl in protest at any such suggestion. They claim that anyone who even talks about reforming Medicare (or Social Security) wants to harm senior citizens.
To the contrary, senior citizens face a far greater prospect of harm in the near future if nothing is done to fix Medicare. It remains to be seen, though, whether Washington has the courage to face that fact, or if it will wait until the program is on the edge of bankruptcy later this decade, and only dreadful options remain.
Stay tuned.