Tag Archives: unfunded liability
For This We Added an Unfunded Liability Greater than Social Security’s?
Between 2003 and 2007, elderly beneficiaries dually eligible for Medicare and Medicaid experienced a two-fold increase in unmet prescription drug needs. In 2003, 10.8% reported difficulty affording prescription drugs, which grew to 21.3% in 2007.
The new Medicare drug benefit did little to close large prescription drug access gaps between elderly white and African-American beneficiaries and healthier and sicker beneficiaries. For example, three times as many elderly African-American beneficiaries (17.6%) went without a prescribed medication in 2007 as white beneficiaries (6.2%).
Read It and Weep
Social Security/Medicare Trustees Reports 2009: Change from 2008
(Ignores existence of Social Security and Medicare Trust funds)
The unfunded liability shown in the table above is the difference between the benefits that have been promised to retirees and what will be collected in dedicated taxes and Medicare premiums. Compared to 2008, this debt has risen by more than $5 trillion. While the Trustees' Report includes the Social Security and Medicare trust fund, making the unfunded liabilities appear less than above, this trust fund has been spent on other programs. The NCPA chart above reflects the true unfunded obligations.
Entitlement Madness, Part II
At nearly $86 trillion, Medicare's unfunded liability is almost six times the size of Social Security's. Unfortunately, there's no easy way out. If we were to end Medicare tomorrow, collecting no more payroll taxes and allowing no more benefit accruals, we would still need $32 trillion in the bank right now to pay for the benefits people have already earned!
In the meantime, the cash flow deficits in Medicare and Social Security are on a course to crowd out every other federal program. As I explained at the National Journal Health blog, we cannot pay benefits with Trust fund IOUs that the government has written to itself. So to cover these deficits, we will need one in ten income tax dollars in 2012, one in four by 2020 and one in two by 2030.
Ah, but here's even more depressing news. Awful as all these numbers are, the reality is even worse. The reason? To estimate future Medicare spending the Social Security/Medicare Trustees and the Congressional Budget Office (CBO) must forecast health care spending as a whole. And neither agency is forecasting the actual path we are on.
httpv://www.youtube.com/watch?v=FkZLgJKQ46w
Let Me Help
Entitlement Madness, Part I
In the near future, the Social Security/Medicare Trustees will produce their annual report. Gloomy as the report will no doubt be, it will likely be a whitewash of the underlying reality. If the past is a guide to the future, the release of the report will focus everyone's attention on the trust funds (which scholars understand have no economic importance whatsoever) and ignore the huge unfunded liabilities we keep piling up and the severe cash flow problems elderly entitlement programs are already creating.
These obligations are especially important in light of the enormous increase in unfunded liability and cash flow deficits that are about to be added. Currently, about 100 million people depend on Medicare and Medicaid for their health care. Under President Obama's new health reform plan, an additional 100 million or so could be enrolled in public and quasi-public plans with the entitlement guarantee that their premiums will not exceed 10% of family income.
httpv://www.youtube.com/watch?v=PMJlIFo3XG4
Ground Control to Major Tom
Medicare
We have previously reported on Medicare’s unfunded liability and ways to reform Medicare. This is from J.D. Foster’s Medicare backgrounder for Heritage:
- The program has an unfunded liability of $85.6 trillion.
- The drug benefit alone (Part D) has an unfunded liability of $17.2 trillion – greater than that of Social Security.
- The average beneficiary receives a benefit of $10,460 a year, but pays premiums of only $1,212.
- The cash flow deficit in Medicare is being covered by general revenues, thus crowding out other spending programs: currently at $4,053 per beneficiary, the general revenue subsidy will grow to $6,067 by 2020.
Memories
At the National Journal Health Blog, Marilyn Serafini asked, "How much does health reform really cost, what elements are worth it, and what are the best and worst options for paying for it?" She invites bloggers to compare the current situation with the passage of Medicare and Medicaid in 1965. [link] Here is part of my response:
Here are five lessons from the Medicare and Medicaid experience:
- The cost of Medicare and Medicaid was way beyond what anyone predicted. The reason: failure to realize that when any good or service becomes free, people will consume more of it.
- Once started, these programs are extremely hard to curtail. If we ended Medicare today – collecting no more taxes and allowing no more accrual of benefits – we would still owe $33 trillion in benefits already earned! (Results of new NCPA study.)
- Looking indefinitely into the future, the Trustees have calculated there is an unfunded liability (promises made over and above expected premiums and dedicated taxes) of $85 trillion – almost six times the size of the entire economy.
- According to Amy Finkelstein, although Medicare was financially important to the elderly, it created no discernable health benefits in terms of reduced mortality. [link]
- Despite no measurable health benefits, the explosion of spending on these two programs forced up prices for everyone else. In fact, HHS' own internal estimates suggest that every $1 of additional spending buys 57¢ of higher prices.
httpv://www.youtube.com/watch?v=1MWN_duZfIs
"Memories Are Made of This"
Thinking About Tomorrow
If the federal government stopped the Medicare and Social Security programs today – collecting no more payroll taxes and allowing no more accrual of benefits – it would still owe up to $52 trillion to those who have already earned these benefits, according to a new study by the National Center for Policy Analysis (NCPA).
Of that amount, $33 trillion is owed in Medicare benefits. To put the numbers in perspective, the size of the entire U.S. economy is $14 trillion.
No one thinks we are going to end these programs. Yet these are the right numbers if we account for federal obligations the way private pensions and state and local governments are required to.
httpv://www.youtube.com/watch?v=WBKkwxCV5ls
"Don't Stop Thinking About Tomorrow"