Medicare is Broker Than We Thought - Cue Retiree Panic in 3... 2...

in #economics6 years ago

So the Social Security Administration (SSA) released its annual report:

https://www.ssa.gov/oact/TRSUM/index.html

And it's a doozy.

The super-short version is they are projecting Medicare to become unable to pay for its bills in 2026. That's in 8 years. Whoever is President after Trump will most likely have to deal with this.

Last year, the SSA said Medicare would go broke in 2029. That's a 3 year shorter window in only one year. What in the hell happened?

A Little Background

For those who don't know, Medicare is the old-age health insurance for people in the US. People who are currently working for earned income pay 2.9% of their income to fund Medicare. For the picky people out there, the employee pays half of the 2.9% and the employer pays the other half. But from the employer side it's all part of the cost of labor.

It's important to note that current workers pay for current retirees. There is no real savings plan built into the plan.

Over the years that Medicare has been in existence, there were a lot of surpluses on the books, but the Congress took that money and spent it. In turn, they gave the Medicare plan bonds to be paid back later.

Medicare has been a net negative for the past few years, and has been cashing in those bonds. So what this report says is that in 2026 it is projected that all those previous surplus bonds will have been cashed out AND the current workers at that time will not be able to pay for all the Medicare recipients' medical bills.

Why is Medicare Going Broke?

There are three factors hitting Medicare (and Social Security):

  • Demographics: While not as bad as most other developed countries, the proportion of the population that is senior citizens and receiving these benefits is going up and up. Also people are living longer and longer. And those older and older people use more and more medical resources as they age.
  • Shrinking Work Force: Even though "unemployment" is low, the proportion of the population not in the workforce is low.

    You have to go back to about 1980 before you find a similar labor participation rate, and that was in the middle of the shift from mothers staying at home to mothers working. So relatively fewer people are supporting relatively more people. The strain on the system increases.
  • Rising Medical Costs: Medicare is a super weird corporatist system. It pays for some things and not others. It forces rates on medical practitioners and pharmaceutical companies but it can't negotiate. And all of that is tied into the general environment of quickly rising medical costs in the US.

So What Does This Mean?

Basically, something has to give. Either taxes are going up, Medicare benefits are going down, government borrowing needs to rise significantly, or some combination of those. Given the political realities of senior citizens' voting power, my guess is that primarily taxes and government debt are going up. So if you are working for a wage, expect that take-home pay to go down. And if you are in fiat, expect the purchasing power to go down - or at least go down faster than it would have otherwise.

Yet another reason to make your home in crypto.

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