The criteral point in this discussion is the reserve peak. We currently have a "pay-as-you-go" system, meaning that dedicated payroll taxes go directly to fund current retiree benefits, with any leftover funds add to the reserve fund. After we reach the peak (most likely, a consequence of a larger number of beneficiaries resulted from relevant trends, e.g., longer lifespans and escalating baby boomer enrollments), existing inflows will be insufficient, and hence the government will need to start withdrawing from the reserve to make up the difference. The next relevant date is when the reserves are exhausted. This does not mean that there won't be benefits--because workers will still be paying into the system--but it will only cover a fraction of the benefits (say, 75%) and may continue to deteriorate. At the point that the reserves are exhausted, we have politically unpalatable options: cut benefits; raise taxes; or supplement the difference from general revenues, either by finding the money elsewhere in the federal budget or borrowing it.
The more critical problem is with Medicare, in part reflecting both recession-lowered payments and inflationary health care costs, with the reserve peak now expected to be reached over the coming year, and the projected reserve exhaustion date moving up two years, from 2019 to 2017. The social security reserve peak moves up to 2016 with reserve exhaustion now expected to occur in 2037 (up from 2041).
A couple of relevant political notes: President Bush attempted to reform social security at the beginning of his second term, by allowing younger workers to have control over a portion of their contributions to alternate investments (with corresponding long-term reductions in social security checks). This was mostly a timing issue, because a loan was necessary to replace the "pay-as-you-go" funds being used for the privitized portion. The Democrats demagogued the issue, equating investment with gambling (although the vehicles being considered for privitization were diversified mutual funds). If I chose to invest in blue-chip, dividend-paying stocks, that is considered "gambling", but paper IOU's with T-bill returns, which have historically underperformed over time, are not (and I question bond prices given the dubious strength of the US dollar under Obama's unprecedented deficits)....
Second, Obama is claiming that Medicare reform is part and parcel of his health care reform. Again, I have problems with this. Either his reform with add new patients and related services or it won't. If we treat patients as widgets, and widgets cost money, adding widgets with the same facilities, doctors and other staffing, if anything, exacerbate inflationary pressures, not resolve them. I am skeptical of some of Obama's claims regarding potential cost savings that, in fact, the private sector have not considered (e.g., computerized records). I do not think Obama can be trusted with micromanaging the health care industry any more than I trust him to micromanage the auto industry. Government is part of the problem, not the solution. In fact, the government requires too much busy work for below-market, delayed reimbursements; the government doesn't apply the same types of standards as the private sector (e.g., anti-fraud and physician qualification).
Here are a few things where I can see the federal government assuming a more constructive, useful role with respect to the health care sector: (1) streamline paperwork and provide fairer, more timely compensation for physicians and patients; (2) facilitate uniform access for private health care providers in order to compete across states on the basis of standard basic health services, including waivers of nonstandard benefit mandates and actuarially unsound regulatory conditions (e.g., same-day enrollment); (3) provide or guarantee a certain means-tested household maximum of out-of-pocket annual health care expenses; (4) subsidize the health management of people with high-cost medical conditions (e.g., diabetes, organ disease, cancer, etc.); (5) provide incentives that motivate patients to control costs; and (6) improve accessibility of health care information and supplies (e.g., prescription/generic drugs), including availability, comparative costs and performance measures of physicians and hospitals.
The title of this post is meant to reflect on the shameful, short-term political calculus of our national legislators and Presidents; the day of reckoning is fast-approaching because of the current recession, but it results directly from a lack of bipartisanship. The politicians can continue their hypocritical criticism of American companies obsessing over quarterly results, when in fact they themselves punt critical long-term issues beyond their next reelection campaign. It's all too easy and politically popular to cut taxes and increase spending. It takes political courage to do what's right for the country and for future generations, to say the buck stops with me and my vote, and if I do what's right for this country, and it costs me an election, then I will thank my constituents for having given me the privilege to serve and wish my successor well.
What I would like to see happen, to resolve the chronic financial condition of our entitlement programs, is to see a nonpartisan blue-ribbon commission (including actuaries, industry veterans and pragmatic, experienced public servants) come up with a series of recommendations that the Congress votes either up or down, just like we currently do to avoid political gamesmanship over military base closings. I am not confident this will happen because I think Speaker Pelosi and Majority Leader Reid view entitlements as a defining partisan political weapon, one that the Democrats have been using every 2 years for decades to scare senior citizens into voting for them by falsely claiming that the Republicans want to kill entitlements.
