Medicare Facts vs. The Burly Man

When you see that macho ‘burly-man’ senior on the AARP commercials threatening the Super Committee from discussing any reductions to SS/Medicare, show him this chart:

Chart C—Medicare Cost and Non-Interest Income by Source as a Percentage of GDP

You know the ad I’m talking about. The one where the burly-looking senior looks in the camera like John Wayne and intones something to this effect:

‘You mess with our Social Security and Medicare benefits…and we are gonna kick your butt!’

How is that for ‘thoughtful, rational civil discourse’ in America today, huh?

See it for yourself here: ‘Burly-Man Senior Threatens Congress!’

I wouldn’t want to face that guy in a showdown death match on the golf course or the shuffleboard court.

But here is the problem, ladies and gentlemen of the jury. Medicare never has and never will be 100% ‘paid for’ completely individually by any senior citizen for his/her coverage. Not during his or her working career. And most assuredly not from the monthly premiums they pay for the right to have Medicare Part B physician services.

Take a magnifying glass out and take a good long solid look at the chart above. In it, you will notice that, lo and behold!, in 1970, a mere 5 years after Medicare was passed, the program cost was virtually all covered by payroll taxes on then-working Americans (not the retirees themselves) and premiums imposed on the retirees themselves.

So far, so good as of 1970, right? Almost all paid for by the smaller payroll taxes on workers back then plus premiums paid for by the seniors who were on Medicare at the time.

But look at what happened to those two trend lines over the past 41 years since then. The payroll taxes on current workers, (again, not the retirees because they have already ‘retired’) has grown to account for about 1.25% of GDP. That is ‘GDP’ as in ‘the size of our national economy’. Not percentage of overall health care costs or something ‘small’ like that.

Premiums on retired seniors have also grown, to an astounding 0.5%+ of GDP as well.

Since inception, Congress has added on taxation of retirement entitlement benefits on more wealthy seniors plus added certain state transfer funds and associated drug fees.

Add up all of those fees coming from payroll taxes paid by workers and premiums paid by seniors and they account for around 1.75% of GDP.

In a national economy that is still over $14 trillion despite this ridiculously long, lingering ‘Second Contraction’ as Harvard Professor Kenneth Rogoff calls it, 1.75% of GDP is a lot of money. $245 billion per year right now to be more exact.

Wouldn’t you think that would be more than enough to pay for the medical needs of our less able and unhealthy senior citizens of America?

Not by a long shot. You, the American taxpayer, plus the still-willing (for some reason) lenders from China and other sovereign nations such as Saudi Arabia, foot the bill for over 50% of the cost of Medicare each year. The taxpayer subsidy part of Medicare is almost 1.5% of GDP today or another $210 billion per year.

Those are simply astounding numbers, aren’t they?

And guess what? The Medicare Part A Hospital Insurance (HI) program is fundamentally broke today (that is what the {HI Deficit} brackets mean at the top of the chart)

This means that payroll taxes imposed on current workers are not even covering the cost of taking care of the elderly who need hospital care today much less setting aside anything for when the Boomers start to retire in full force this year and next.

And that all means that absent any substantive reform in Medicare this year beginning with the Super Committee’s recommendations in November, your payroll taxes plus those of your children now entering the workforce are probably going to go way up to cover the shortfall.

Can you afford it? Can your sons or daughters readily find work in this troubled economy and then be able to pay a much higher payroll tax to support this already crumbling system?

My suggestion to the ‘Burly Man’ in the AARP commercial is to send someone from the AARP with some diplomatic skills and appreciation for the dire straits our nation is now in financially to Congress and sit down with both sides and admit the following:

1. The system is broke.
2. We can’t afford this system any more.
3. Fundamental reform must take place now.
4. Change Medicare so that it is 100% available for those seniors who can not afford health care at all on their own.
5. Scale down any subsidy from the taxpayer to wealthier seniors as you go up the income scale.
6. Warren Buffett and his mega-billionaire friends do not need Medicare and probably don’t use it anyway since it limits their choice of finding the very best doctors and surgeons in the world to treat them when they fall ill.  So cut them off of the entitlement rolls.  We can’t afford to subsidize poor people AND the super wealthy any more.
7. Start a transition period whereby over the next 20 years, Medicare will become an income-support program based on income and household wealth when seniors will be able to use taxpayer subsidized funds to buy their own health insurance.

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