Monday, September 07, 2009

How Can We Afford A National Health Insurance Plan When We Haven't Figured Out How To Pay For Medicare?

For liberal members of Congress like U.S. Rep. Andre Carson, they see tens of millions of Americans who are without health insurance and, naturally, they envision a solution to this problems that requires another massive government entitlement program to guarantee that all Americans have some form of health insurance. Carson and his liberal friends haven't a care in the world when it comes to figuring out how to pay for a new entitlement. Empower the government to raise taxes on workers and employers and borrow whatever is needed to make up the difference in the actual cost of the program from the certain shortfall in revenues derived from any tax increases. It doesn't take an expert to figure this out. We only have to look to the experience with the Medicare program to see this certain outcome.

President Lydon Johnson and a Democratic-controlled Congress enacted Medicare in 1965 to establish a health insurance plan for persons over the age of 65. The concept of the plan was to provide supplementary hospital insurance (Part A) and medical insurance (Part B) for social security recipients. When it came into existence in 1966, 19 million Americans were enrolled in Medicare. The combined payroll tax for social security and Medicare was less than 10%. Over the years, the program's benefits and costs, as well as the taxes levied to support it, have risen steadily. Most recently, Congress added Part C to expand private health insurance options for beneficiaries and Part D, which guarantees a prescription drug benefit to enrollees. Payroll tax rates have increased more than 50% to support the original Social Security retirement plan and Medicare.

The trustees of Medicare have been warning us for years that the insurance trust fund reserves will not support the current level of benefits. The $321 billion in reserves is expected to be completely exhausted by the year 2017. Quite simply, the Medicare trust fund reserves do not satisfy short-term financial adequacy, let alone long-term financial adequacy. The severe economic downtown is likely to deplete the reserves even sooner unless there is a major economic recovery in the coming years. In 2008, total Medicare expenditures were $468 billion for more than 45 million beneficiaries, and costs are increasing faster than workers' earnings and the overall economy. Current revenues are adequate to cover about 88% of the program's costs. By 2017, revenues are projected to cover only 80% of the program's actual costs. The trustees have this warning: "Closing deficits of this magnitude will require very substantial increases in tax revenues and/or reductions in expenditures."

Currently, employers and employees each pay 1.45% of their wages to support Medicare, while self-employed persons are paying a 2.9% payroll tax. The taxed earnings subject to Social Security and Medicare payroll taxes is currently capped at $97,500. Unless Medicare benefits are cut, Congress will have to lift the cap on payroll income subject to the tax, raise the tax rates, or both. Of course, government could also choose to make no changes to Medicare and simply run even higher deficits.

Economist Martin Feldstein projects the cost of Obama's health insurance plan for the federal government will be $2 trillion over the next decade. Obama suggests his plan will be self-financed through higher taxes on corporations' foreign profits and wealthy Americans. Feldstein notes that changed taxpayer behavior as a result of those tax increases will result in fewer revenues than the Obama administration estimates. The marginal tax rate for wealthy Americans, for example, would climb from 40% to 50%. Given the more than $2 trillion in additional debt racked up by the federal government to stimulate the economy, any tax increases will be needed simply to shrink the federal deficit. Feldstein notes that it would be "morally irresponsible" for Congress to ignore restructuring Medicare and, instead, enact a major new federal entitlement program such as Obama's proposed health insurance plan.

It's easy to promise health insurance for all, but our government leaders have a duty to explain to us how they plan to pay for the current benefits government has promised us before making new promises it cannot possibly keep. People should be pressing their congressional representatives to explain how they're going to address the Medicare shortfall and create this new entitlement at the same time. The only way it can be accomplished is if we all become slaves to the government. And that's precisely the goal of American liberals. Who needs capitalism when we could all be working for the government?

1 comment:

tarrandwoolley said...

If the government would stop taking money from Medicare to spend elsewhere, Medicare would not be in trouble. That is how we pay for it.