Medicare Sustainability How medicare is funded and why it is even less sustainable than social security
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- when we learned about social security
- we saw that people who are currently working are paying their faco taxes
- those...essentially those revenues are being used directly
- to provide the social security benefits for
- existing retirees and other beneficiaries
- and any surplus courses Social security trust
- and when you have this baby boomer generation
- on the left hand side of this...
- of the system right here so the baby boomer generation is this
- huge population boom that happened after world war 2
- after...after you know the country was happy
- and all the soldiers had come back, they produced a lot of babies
- and it was ...this population boom when the population boom
- was on the left hand side of this system
- they were able to generate a lot of revenue
- to supply for the benefit for essentially
- their parents' generation and so that did help build the surplus
- the problem is that they didn't produce
- uh...the population did not grow as much
- as next generation and you can do that as a problem or a good thing
- but it's a problem in the context of social security
- because starting recently in over the next 2 decades
- this baby boom generation is going to move on to the right
- hand side of this equation
- and we saw that they will start to
- drawdown even this surplus fairly soon and that
- because of this demographic change the social security surplus
- will be completely depleted between 2030 and 2040
- medicare is very similar
- you have some portion of the faco taxes is for medicare
- and that revenue is used to paid for the health benefits of the retirees
- any surplus goes into a medicare trust and
- that medicare trust of the formal name is the hospital insurance trust fund
- the problem with medicare is that the situation is even worse
- the medicare trust the medicare or i guess you could
- see the medicare system is already running at a deficit meaning
- they're spending more money on the right
- they're spending more money on the right and they're getting it on the left
- so there are already starting to drawdown
- already starting to draw down their trust
- so social security at least the trust is continuing to grow to 2023
- and that's our best estimate right now
- that it'll start drawing down and we get the puted between 2030 and 2040
- in medicare
- situations is a lot worse
- so in medicare we are already starting to draw down the trust we are already
- spending more beneficiaries and we're taking down
- it that we were taking in fico revenues
- and the entire trust based on uh...
- our current assumptions will probably be depleted
- in the next ten years
- in next
- ten years
- and what makes medicare especially troubling despite the fact
- it is a kind of a worst financial position
- is that these costs are growing even faster
- and i want to be clear a lot of people think that
- the so for social security the main problem with this system over here
- is a demographic changes you have this huge population
- that's retiring the baby boomers
- which makes this not sustainable
- but with medicare that's also going on but what makes medicare even
- uh...a bigger problems until security is above and beyond
- those demographic changes above and beyond these
- this baby boomer generation retiring
- instead of paying into medicare takings benefits from medicare
- the big problem is that you actually have medical
- health care costs going up
- well above the cost inflation personal security
- these people's benefits to just go up with
- inflation for medicare the benefits go up with
- the cost of medical care and that's going well above
- the cost of inflation and so you have the situation
- where based on current benefits and our best assumptions
- about the economy in the faco taxes coming in
- you kind of have a reality where
- if you have to give the cart benefits
- and if you expect medical costs health care cost to
- continue to increase at the rate they're doing
- and there's no sign frankly that it is stopping
- then you have this reality medicare
- left on checked could at a rate right now
- it's roughly about 23 percent of our budget 23,24 percent of our budget
- Three twenty four percent of our budget,or about four percent of our GDP.
- so here we are
- twenty eleven it’s about four percent of our GDP,
- we are spending on medicare and medicaid
- and medicaid is essentially health benefits for mainly the poor
- it’s run by the states but it’s gets federal funding
- so right now that’s four perent of GDP,
- but because of the cost growth in at health care costs,
- if we need a completely inch unchecked over the next fifty sixty years.
- it could go to fifteen sixteen seventeen percent of GDP in just to be clear.
- that’s the ,that’s the percentage of GDP.
- that’s roughly our entire federal budget.
- So this has a potential if we do not grow our bugdet
- any to actually crowd out a lot of other things and just understand this graph a little bit.
- They show they said they show the part of that part of the cost of medicare
- the part of the growth to do two defferent things
- This is the effect of aging population.
- This is the affect of access cost growth
- and and this is the interaction of the two
- and understand why that make sense,
- you just have to think about the total costs being the product of the number
- and maybe to see the net number of recipient for some people are paying as well.
- But this will hopefully hope you understand what I’m talking about number of recipients,
- number of recipients times.
- Times the cost per recepient,solicited this is ht cost per recipient
- cost per recipient.Cost per recipient
- so if you take the numbers have been some times the cost per recipient
- you are gonna get the total cost.
- Let’s say that the total cost today.
- So that’s that would be the area of that square just multipllying the base times high.
- So card costs,
- card cost and anunal cost,card costs.
- Now because of demographic changes
- you are going to have some increase in the net number of recipients.
- so you were to have some increase there
- but because of medical costs growth
- you are going to have old big increase in the cost per recipient.
- So this thing is going to increase much more
- and so if you go to some future point when you can pice your future point.
- But future point
- i am really just try to make you understand why we have three categoriest.
- the total cost is going not be that total cost for the total cost
- is going to be that total cost for sippin that has grown dramatically
- times the total number of recipients number of sippin
- and so now you are talking about this area. this area.
- this area is going to be the total cost
- and if you think about how much of the stole
- causes do purely to the increased cost growth
- well it would be this part right over here.
- would be this part over here
- this part would be the amount the cost the increase in the area ture
- ture purely due to the increased cost growth.
- So that would be this part of the graph right over here.
- What part of this increased area is due purely to the increased number of recipients.
- Well,that would be best part of the graph right over here.
- Purely due to the increased numbers recipients and that is right of your affect of aging population
- And then, you have some part of this error
- that’s created by both of you not increasing the number severty
- and the increase in costs and thats going to be
- That’s going to be this area right over here.
- Which is this part of the graph.
- So when people talk about the unsustainable.
- Well one we have an unsustainable that to begin with
- the second thing.The second thing is that the liabilities the obligations
- that we have aren’t even on
- these are not even counted in the govemment deficit
- and these are the things that are really really scary.
- Because something has to give
- Some thing all of these that the single factor this t
- this kind of driving most of the scariness is medicare in particular.
- And not just medicare
- but it’s not just the demographic change but specific to medical.
- It’s the increased costs of healthccare
- So if somehow that not can be cracked
- if health care can also be grow maybe just with inflation or maybe even slightly fashion inflation
- but not the right now
- then you could to alarge degree mitigate kind of the scariest of
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