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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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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