Medicare Is Already Broke

Last week we noted that the Social Security system is going broke. Medicare, though, which provides for the health of America’s seniors is already broke.

With 77 million baby boomers retiring, and a $716 billion reduction in future funding of Medicare thanks to the Affordable Care Act (Obamacare), Medicare may be in an even more precarious financial condition than the Social Security system.

Trustees for the Social Security system are also trustees for Medicare and wrote in their recently released annual report that Medicare Part A, which helps pay for hospital care, home-health services following hospital stays, skilled nursing and hospice care for the aged and disabled “fails the test of short-range financial adequacy, as its trust fund ratio is already below 100% of annual costs, and is expected to stay about unchanged to 2021 before declining in a continuous fashion until reserve depletion in 2029.”

Medicare Part B, which pays for physician, outpatient hospital, home health and other services, and Part D, which subsidizes drug coverage, are financed from premiums and general revenues, so they are currently adequately funded, but their costs are expected to rise steadily. So higher taxes and higher premiums will be needed to support them.

The federal government spent $595 billion on Medicare, in the 2016 fiscal year, but adding on the cost of premiums and other funds collected brings the total cost to $699 billion.

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Wages Will Increase When Productivity Does

There are three things we can say about income with a degree of certainty:

  1. You’re earning less than you did before the financial crisis.
  2. You are overdue for a raise.
  3. You are unlikely to get a raise anytime soon.

If these three statements fit your personal circumstances, you can take some consolation in knowing that you are not alone and that there is likely not much you can do about it.  Using the financial crisis that began in 2007 as a baseline, the Economic Policy Institute found that wages have dropped by an average of up to 5.9%, depending on the category of worker to which you belong. Employees with advanced degrees are the only group that didn’t see its income drop, but that group didn’t see its income rise, either. declining-wages

While the rate of inflation has been low throughout that period, it is still eroding your purchasing power and affecting your standard of living.

Why is income lower today than it was in 2007?

Lower Profits.  A major reason you’re earning less—and why you’re unlikely to get a raise anytime soon—is that your employer is earning less.

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AP Poll: Americans Want Less Economic Growth

Well, here’s a shocker.  A new AP poll shows that a majority of Americans want a higher minimum wage.  They also want paid sick leave and parental leave, free community college and more gender equality laws.  And, of course, they want wealthy taxpayers to pay for all of it.

Who wouldn’t?  The poll doesn’t ask about the resulting economic impact of these feel-good policies.

Polls are supposed to be objective.  They rarely are.  Asking Americans if they support a higher minimum wage isn’t too far removed from asking, “Do you want to help poor people?” Transfer Payments

Pollsters will never ask questions such as, “Studies show that increasing the minimum wage results in fewer jobs and slower economic growth.  Do you favor an increase in the minimum wage?”

The Poll That Will Never Be

To provide some balance, perhaps AP should poll Americans about the following questions.

Do you favor higher unemployment and lower economic growth?

It’s basic economics that when the price of something goes up, demand falls.  Increasing the minimum wage, and requiring paid sick leave and parental leave may be desirable for employees, but many would lose their jobs as a result.

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Only a Half Trillion Dollars

It’s a sign of how much trouble we’re in when a budget deficit of a half trillion dollars seems like fiscal restraint.

It is progress, given that annual budget deficits were running above $1 trillion a year throughout President Obama’s first term and have been as high as $1.4 trillion.  And it could have been worse.  Recall the effort made by President Obama to stop the automatic spending cuts that took place when sequestration was adopted.

But a half trillion dollars is still a mountain of money.  It helps to give the number some context.CBO Chart

To reach a half trillion dollars, you would have to spend $8 per second beginning with the year 0 and continue spending through today.  If you had a stack of $1 bills adding up to $500 billion and were able to put them one on top of another, the stack would be 34,000 miles high.

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