Medicare is running out of money–faster than anyone predicted. For the first time ever this year, the fund that pays seniors’ hospital bills will pay out more than it takes in from payroll taxes. The entire Medicare system is likely to go broke in 2019–seven years earlier than previous estimates–according to the Medicare trustees who administer the federal health care program for seniors.
Those estimates don’t include Social Security trust funds, which are expected to have a negative outflow of cash by 2018–and to become completely insolvent in 2042.
That sounds like a long time away, but if you’re a 27-year-old in the work force today, and have some vague impression that you’re going to retire at age 65–in 2042–don’t count on having any money except what you’ve saved.
And it will be increasingly harder to save for your own retirement, because you’re going to be taxed more heavily every year to pay for your parents’ Social Security–along with a whole bunch of strangers who will depend on your taxes.
[I’ve raised a great son, and he might take care of me if I need it. But I doubt that he’ll be willing to take care of you–especially when he learns that half of his taxes will go toward Medicare, not toward national defense or rebuilding the roads and bridges that will surely be crumbling in 2042.]
Didn’t anyone see this coming? Yes, lots of people. But all the wrong people. Politicians–the only people capable of reforming the system–considered any discussion of changing Social Security or Medicare to be the untouchable “third rail”–a topic that would destroy their political careers.
Even today there is broad denial. Just as the trustees report hit the wire services, an organization called “Medicare Rights Center” sent out this e-mail bulletin–a study in denial:
“Medicare is no closer to insolvency than the Department of Defense. Since its origin Medicare has been funded from the same tax revenue as the Army, Navy and Marines. Added to those funds has always been dedicated revenue from every worker’s payroll tax. The only thing to fear is the President or Congress breaking faith with our 40-year commitment to ensuring health care for older Americans.”
The Savage Truth is that if we continue to fund Medicare out of taxes, there will be very little money left for the defense of our nation. Medicare will quickly consume more and more of all the income taxes collected. According to the trustees of the Medicare program, by 2019, 24 percent of all income tax revenues will be needed for the Medicare program. By 2042, 51 percent of all income tax revenues will have to go to Medicare.
The facts are simple and obvious. When Lyndon B. Johnson introduced Medicare in 1965, it was predicted to pay for itself out of an increase in the payroll tax. But things have changed. We’re living longer. We have new and expensive medical procedures and technology. Health care costs continue to soar even while the general level of consumer prices reflects little inflation.
But the real crisis is coming quickly. We will now face the retirement years of the baby boom generation–those born between 1946 and 1964. In 2000 there were 40 million Americans in the Medicare program. By 2030 it’s estimated that number will nearly double–to 79 million Americans receiving Medicare benefits.
And we keep digging ourselves a bigger hole by adding to those benefits. In a report timed to coincide with the Medicare trustees forecast, The Heritage Foundation is forecasting that the recently approved drug benefit could add $16.6 trillion to the long-term unfunded liabilities of the Medicare program.
Politicians’ promises and programs win votes–but at what cost to ourselves and our children?
There are two inescapable conclusions:
- We’re setting ourselves up for generation warfare. Today’s 20-somethings will rebel at paying huge tax increases to cover the parents of strangers. We’ll need to placate them with unlimited, tax-deductible private retirement savings accounts.
- If you’re in the baby boom generation, you’re going to need more money than you ever considered–not to retire and play golf, but to cover the health care costs that Medicare simply won’t be able to provide.
Yes, it’s scary stuff–enough to make you open an IRA. And this message is aimed not just at those who are approaching retirement, but at you 20- and 30-year-olds. It’s a reality check. You certainly won’t realize anything from these government programs you’re paying into unless there are radical changes. Better start saving now. That’s The Savage Truth.
Terry Savage is a syndicated columnist with the Chicago Sun-Times. Her email address is [email protected]. Distributed by Creators Syndicate.