E-Newsletter No. 9
September 2014
If not us, who?_______If not now, when?
As we discuss on our website in the conversation piece on Universal Health Care, Medicare (like Social Security) should be viewed as being an “intergenerational social contract” – – it is not a conventional health insurance program, because the “premiums” paid by senior citizens for their coverage are not a market-based premium. In fact, the primary reason Medicare was established in 1965 is that many senior citizens were no longer able to acquire a health insurance policy at any cost. However, nothing is free, so this cost must be borne by somebody (more on that later).
Similar to Social Security, Medicare’s “trust fund assets” (i.e., employees’ Medicare payroll tax withholdings, along with their employers’ contributions) have already been paid out for past benefits, or have been “loaned” (spent) for other federal government purposes.
Medicare and Medicaid were signed into law on July 30, 1965 by President Lyndon B. Johnson, as part of LBJ’s “Great Society” domestic social programs. Medicaid is a welfare program, as there are no cash inflows into the Treasury for Medicaid, other than general tax receipts.
Information on the annual cost of the federal government’s healthcare programs can be found in President Obama’s proposed budget for fiscal 2015 (the link is in our May newsletter). For the current fiscal year ending this month of September, it is projected that the difference between the cash outflows for Medicare and Medicaid ($513 billion + $308 billion = $821 billion) will exceed the $219 billion collected via Medicare payroll taxes, for a difference (deficit) of $602 billion. Medicare/Medicaid account for nearly all of the $628 billion deficit projected for fiscal 2014.
Unless changes are made to Medicare/Medicaid, this annual deficit amount will grow over the next ten years to $1.135 trillion by 2024 – – the outflow of $947 billion in 2024 for Medicare, plus $556 billion for Medicaid equals $1.5 trillion, versus the projected Medicare payroll tax receipts of $368 billion.
Similar to the Social Security Trustees’ report, the Medicare report also includes an estimate of the present value of the “off book” debt amount for Medicare (which is for Medicare only, excluding Medicaid). Please keep in mind that the current cumulative “on-book” US debt amount for our past deficit spending is $17.6 trillion. As we reported in last month’s newsletter, the present value of the “off book” debt for the Social Security benefits that have been promised is $11.1 trillion. The “off book” debt for the present value of Medicare benefits that have been promised is $28.5 trillion.
It is safe to say that unless our elected officials begin to make fundamental changes to our country’s finances to eliminate deficit spending, this debt (and more) will fall to our children and grandchildren. Our elected officials need to change their focus towards fiscal responsibility, rather than their own personal re-election concerns. Our federal government’s first step needs to be the elimination of deficit spending, and once that is accomplished, we then need to begin re-paying the “on book” debt.
US Debt Clock (the “on book” debt) – – August 1st – $55,273 per citizen / September 1st – $55,528