Social Security Trustees: We're Going Broke

April 27, 2012

Here's some bad news: The latest report of the Social Security and Medicare trustees shows an unfunded liability for both programs of $63 trillion.  That is equal to about 4.5 times the entire U.S. gross domestic product (GDP), says John C. Goodman, president of the National Center for Policy Analysis.

Now -- some really bad news.

  • The actual liability is almost twice what the government is reporting.
  • In 2009, the trustees calculated the two programs' unfunded liability at about 6.5 times the size of the U.S. economy.
  • But the next year the unfunded liability was cut in half.
  • The reason: "ObamaCare." The minute President Barack Obama signed his health reform bill, he cut Medicare's unfunded liability by more than $50 trillion.

You would think this accomplishment would be an occasion for great joy, but the Obama administration isn't talking about it.  Here is what's going on:

  • ObamaCare uses cuts in Medicare to pay for more than half the cost of expanding health insurance for young people.
  • So even if the Medicare cuts take place, they won't reduce the government's overall obligations -- they just replace entitlements for seniors with entitlements for young people.

So the only realistic way to make cuts in Medicare spending is a mechanism that will pay less and less to doctors and hospitals over time.  The Center for Medicare & Medicaid Services' Office of the Actuaries has predicted what this can mean for seniors.  

  • By the end of this decade, the fees that Medicare pays to doctors will be lower than what Medicaid pays.
  • Also by the end of the decade, one in seven hospitals will be forced out of business.

To address these defects, Medicare must be truly reformed.  That means shifting from the current "pay as you go" system to one in which workers pay their own way.

  • Goodman and his colleagues have calculated that workers (and their employers) must save and invest 4 percent of payroll.
  • Eventually, we will reach the point where each generation of retirees will pay for the bulk of its own post-retirement medical care -- with a payroll tax no higher than the one we have today.

Source: John C. Goodman, "Social Security Trustees: We're Going Broke," Politico, April 25, 2012.

For text:

http://www.politico.com/news/stories/0412/75603.html

 

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