Call it a “fiscal tsunami,” a “fiscal train wreck,” a “fiscal cancer,” a “frightful storm,” or just simply “a looming fiscal crisis.” What we call it matters far less than what we do about it. Projected spending on health care entitlements portends a crisis that without exaggeration has the potential to topple our republic.
- How Deep is the Hole? Twitter this: $104 TRILLION. In policy-speak, the net present value of unfunded liabilities for Medicare alone now equals $88.9 trillion*–more than six times the annual output of the entire U.S. economy in 2009 (and, coincidentally, nearly six times the equivalent tab for Social Security, i.e., $15.1T). This unfunded liability is the amount that Medicare will cost U.S. taxpayers over and above what current revenues would provide assuming no statutory changes in the program. Essentially, it is the net amount of money Medicare would need today to cover the gap between all projected spending on future promised benefits and all projected revenues that are dedicated to Medicare (i.e., payroll taxes, Part B and D premiums, and interest earnings on the Medicare Part A Trust Fund). This unfunded liability would either have to be financed through general revenues (mostly income taxes) or future borrowing. [Note to Medicare-for-all enthusiasts: perhaps handing responsibility for the entire health care system to the same folks who created this Medicare fiscal mess is not such a good idea after all? When you're in a hole, aren't you supposed to stop digging?]
- Why Taxpayers Should Care. To fully address this unfunded liability so that everyone (including all future generations) could be certain of receiving promised Medicare benefits in perpetuity would require each of us to pony up $290,000. Today! [Yes, Scarlett, you can think about this tomorrow, but then the tab will be even higher. Did I mention that with Social Security included, the total actually comes to $339,000? Oh, you wanted to pay off the national debt too? Add another $30,000: for you and Rhett together, that works out to about $738,000. I may be wrong, but I don't think Uncle Sam takes VISA (or Confederate dollars, now that I think about it). Please makes checks payable to U.S. Treasury (and it might be a good idea if you got a receipt)]. That would be a cool $2.2 million for my family of 6 [Admit it: it would be pretty cool if I had that amount of spare cash sitting around to contribute to the cause: it would be even cooler if I had $1.75 trillion just to pay off this year's deficit.], though “only” $956,000 for a typical U.S. household. I can only speak for myself: even leaving aside willingness-to-pay, that greatly exceeds our family’s ability to pay [Note to self: if you would stop making bad "investments" in the Yankees and Blue Devils at Tradesports.com, you probably could afford your share of this tab]. “We have a huge implicit mortgage on every household in America — except, unlike a real mortgage, it’s not backed up by a house,” says David Walker, former U.S. comptroller general, the government’s top auditor.
- Why Non-Taxpayers Should Care. With policymakers caught between a rock and a hard place, there’s a serious concern that they might opt to press the Easy button by monetizing our debts. The resultant price inflation will affect all Americans, not just the ranks of taxpayers. Inflation effectively is a tax (albeit hidden) that hits poor and elderly families particularly hard. Ironically, just the massive short-term deficits projected under the Obama administration budget (through 2019) are contributing to the perception that “government is now the most serious source of systemic risk.” Yet these additional deficits are a pittance compared to the entitlements deficits to come.
- Why Young People Especially Should Care. In more concrete terms, absent reform, by 2078, the average out-of-pocket health expenses of a typical 65-year-old Medicare beneficiary–including premiums for Parts B and D of Medicare and the deductibles and copayments–will absorb 97% of the average Social Security check. For the average 85-year-old, that fraction would be 117%. [Note to GenX, GenY and Millenials: save early and save often. I realize President Clinton's claim that "young people in their twenties think it's more likely that they will see UFOs than that they will ever collect Social Security" may have approximately the same truth value as his assertions about a former WH intern. But for the brightest and best among you, a word to the wise is sufficient.]
The magnitude of this entitlements crisis will make today’s financial meltdown look like a tempest in a teapot, a molehill in a mountain or any other apt metaphor that springs to mind. This “domestic” policy issue also poses threats to our national security to the extent that spending on health care gradually squeezes out our capacity defend ourselves, much less maintain the umbrella of protection that has benefited literally billions of people worldwide.
Heck, I’m parochial and shameless enough to call it a global health crisis, to the extent that spending on this country’s own bloated health care system crowds out our ability to keep bankrolling initiatives such as PEPFAR or the billions we spend annually through USAID. This is a problem that should concern all of us regardless of what policy domains usually preoccupy our attention.
Because above all, it is a moral crisis: the “greatest generation” spawned a generation of Baby Boomers whose legacy in the worst case might be setting into motion the chain of events that led to toppling the greatest nation on earth. At minimum, i.e., even in the “best case” (should we lack the political will to address this), my generation is now on the road of engineering the greatest intergenerational transfer ever seen in the history of the world. “Leaving our children and grandchildren with a burden they cannot possibly manage” is unconscionable. Likewise, making promises to them that the government has no realistic hope of being able to fulfill is outrageous.
Is this what our Founding Fathers risked their lives, their souls, their fortunes and sacred honor to achieve? Would Lincoln think this was worthy of his efforts to save the Union and achieve “a just and lasting peace, among ourselves and with all nations”? We can do better. Way better. If we can’t, we are in deep doo-doo.**
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* Lest I be accused of cherry-picking the evidence, let me stipulate that yes, yes, the $88.9 trillion figure is over an infinite time horizon. Over a 75-year time horizon, the Medicare hit is “only” $38.2 trillion (2009). ["I knew it!" some of you will shriek. "Figures lie and liars figure." While Mark Twain certainly said liars figure, he actually said figures don't lie, but that's a minor quibble].
Here’s why the infinite horizon figures are the most “fair and balanced” assessment of our plight. If we entirely paid off the $38.2 unfunded liability in Medicare through 2083, we would indeed get through that year without having had to raise payroll taxes or Parts B & D premiums above current statutory levels. The problem is that we will have used the lifetime payroll tax contributions of new retirees in 2083 to help cover all Medicare expenses up to that point. So looking forward to the next 75 years, we would face another mountain of unfunded liabilities representing the mis-match between projected spending and revenues for this new group.
So the only practical way to address this “bear went over the mountain” feature of Medicare (and Social Security) funding is to bite the bullet and pay the $290,000 per person that would eliminate the mismatch between revenue and costs forever, not just 75 years. [Note to Bernie Madoff: your only mistake was trying to do what you did as a private citizen. We should have had the good sense to exploit your unique Ponzi scheme skills by appointing you Social Security director (a win-win situation for all concerned and arguably less of a drain on taxpayers than your jail term is likely to be).]
**Watch the 30-minute video IOUSA for a history of how we got into this mess. Watch this shorter video of just how quickly we are speeding towards fiscal insolvency.
Nerd Alert: Mind-Glazing Health Policy Wonkery Ahead
For those wishing to do their own calculations (or completely skeptical about whether a self-professed health policy skeptic could or should be trusted not to bend the truth):
- U.S. Population and Households. For simplicity I project the U.S. resident population for July 1, 2009 at 306.9 million based on Bureau of Census monthly estimates from July 1, 2008-April 1, 2009. In the 2000 Census there were 2.59 persons per household, so I used this to calculate debt burdens for the average household.
- Unfunded Liabilities, Infinite Horizon. The infinite time horizon estimates of unfunded liabilities for Medicare all are reported in the latest Trustees Report. Medicare Hospital Insurance, i.e., Part A=$36.4T (Table III.B10); Medicare Supplemental Medical Insurance (SMI), i.e., Part B=$37.0T (Table III.C16); Medicare Prescription Drug, i.e., Part D=$15.5T (Table III.C23). Total=$88.9T [check my math]. The parallel figure for Social Security is in a different Trustees Report ($15.1T).
- Unfunded Liabilities, 75-Year Horizon. The estimates of unfunded liabilities over a 75-year horizon can be derived from the same tables cited above (Part A=$13.4T; Part B=$17.2T; Medicare Prescription Drug=Part D=$7.2T), for a grand total of $37.8T. For the morbidly curious, the 2007 figure was $34.1T according to the Peter G. Peterson Foundation (the $3.7T increase amplifies why waiting to fix this problem is not a good idea). The figure for Social Security is $5.3T.
- U.S. GDP. As of March 2009, the Congressional Budget Office estimates 2009 GDP at $14.0T.
- U.S. Net Worth. The Federal Reserve Bank releases these statistics quarterly. At the end of 2008, the net worth of U.S. households and non-profit organizations was $51.5T (Table B.100), nonfarm, nonfinancial corporate business was $15.4T (Table B.102) and nonfarm, noncorporate business was $5.5T (Table B.103).
- Current U.S. Debt. The U.S. Treasury conveniently reports The Debt to the Penny and Who Owns It. I used their figure of $11.3T for the U.S. debt as of May 11, 2009. But this figure only includes total liabilities of the federal government and fails to account for its assets. According to the U.S. Treasury Department, these assets amounted to $1,974.7B at (p. 39) , so I used a net figure of $9.3T.
Posted by Chris Conover 
Posted by Chris Conover 
Posted by Chris Conover 
