The Facts About Medicare and Social Security

It is especially an American trait to form opinions by what we hear on the TV and read in the paper.  Neither of these sources are necessarily factual.  The reason people would rather form and stick to their opinions is that it takes a few minutes of work to find out the facts.  Moreover, the facts may differ with their opinion and we cannot have that.

The way you get facts are to go to the source of the information. Do not accept the data from any intermediary.  If we want the facts, we need to get to the very bottom.  In the case of Social Security and Medicare, there is a Board of Trustees responsible for these accounts.  These people have the facts.  Let me share with you some snippets from their latest report.  So you don't even need to take my word for anything because you can check, at the source, exactly what I tell you in this post.

"Social Security and Medicare are the two largest federal programs, accounting for 36 percent of federal expenditures in fiscal year 2011. Both programs will experience cost growth substantially in excess of GDP growth in the coming decades due to aging of the population and, in the case of Medicare, growth in expenditures per beneficiary exceeding growth in per capita GDP."

The above paragraph tells us that we cannot leave Medicare and Social Security alone much to the opposition of seniors marching with their banners in protest.  To do so would drive the US into bankruptcy, where it is already headed. These 2 programs are just too large.  To reduce the deficit, these programs must be curtailed.  The paragraph indicates that the problem will not resolve itself and in fact, worsens with time as both programs will grow faster than the economy.

"Social Security’s expenditures exceeded non-interest income in 2010 and 2011, the first such occurrences since 1983, and the Trustees estimate that these expenditures will remain greater than non-interest income throughout the 75-year projection period. The deficit of non-interest income relative to expenditures was about $49 billion in 2010 and $45 billion in 2011, and the Trustees project that it will average about $66 billion between 2012 and 2018 before rising steeply as the economy slows after the recovery is complete and the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers."

The paragraph above is to quiet anyone that thinks that social security has a trust fund with ample assets.  The trustees plainly say that the social security deficits in each of the last 2 years exceeded $40 billion . Any difference came from the general treasury of the US thereby worsening the deficit. The paragraph should also dispel, for anyone that understands English, that Social Security is not self funding.  If the amounts people paid in covered what they received, then there would be no deficit.  In fact, people are paid more than they put in.  I show this in greater detail in another recent post.

As to Medicare, the Trustees say:

"The Trustees project that the HI Trust Fund will pay out more in hospital benefits and other expenditures than it receives in income in all future years, as it has since 2008."

In plain English, Medicare spends more than it takes in.  Medicare is funded both by premiums that seniors pay plus and tax on working people.  Even then, it is underwater and requires a subsidy from the US Treasury, again, contributing to the deficit. (Interestingly, in the last 3 years, the premiums paid by seniors has declined slightly and the starting in 2013, there is a separate increased Medicare tax on working people with a bigger tax on successful working people).

Please, no more talk about saving these programs or that people are merely getting back what they put in. The facts are simple and clear.  These programs are consuming tax dollars and contributing to the US moving toward bankruptcy. These programs cannot be fixed, only band aided to face the same problems again in the future. The idea to move the retirement age to 70 for full social security benefits will help but simply delay the problem to be faced by a later generation. The programs cannot be fixed because they are based on the concept of taking more out than goes in with the ever increasing difference made up by the Treasury, by the people who bust their ass everyday at work to provide benefits to those who are no longer contributing to the economy.

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