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Medicare sustainability

Social Security and Medicare, funded by FICA taxes, face challenges due to demographic changes and rising healthcare costs. The Baby Boomer generation's retirement is depleting Social Security, while Medicare costs are growing faster than inflation. Without changes, these systems could become unsustainable. Created by Sal Khan.

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  • leaf green style avatar for user Paul Kïttson
    Why is health care cost growing so fast? Shouldnt as technology improves they decrease?
    (63 votes)
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    • piceratops ultimate style avatar for user drmarkwong66
      It's an interesting fact that 90% of your health expenditure is spent in the last year of your life. As you get older, it seems there is much more complexity in keeping you alive - multiple organs fail- so you need more specialists, more drugs, more investigations - to keep you alive or to try to maintain some quality of life. I find, as a doctor, an elderly patient can take up to 10-20x the resources of a middle-aged adult. And so much of the population is getting older!
      (80 votes)
  • blobby green style avatar for user trismarck
    What is the difference between social security and medicare? What benefits does a person get from social security system and what benefits does a person get from medicare system?
    (6 votes)
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    • blobby green style avatar for user dickanders38
      Social Security provides benefits after a worker has paid in FICA taxes over a period of time; to be fully insured the worker must pay in over 40 quarters (the equivalent of 10 years) although the 40 quarters may be broken into segments over a longer period of time (for example, a young woman pay work for 4 years, then start a family and not pay FICA for 10 years, then return to work and pay in for 6 years; she will have paid FICA for 40 quarters and be fully insured)

      Social Security pays survivor benefits should our example woman/mother die and leave dependent children. Or, if she becomes disabled, she can receive disability benefits until she reaches retirement age (approximately 67). At retirement age she can receive retirement benefits.

      Medicare is the health insurance part. Our example woman worker may be eligible for hospital, medical, and Rx coverage once she has received Social Security disability benefits for 24 months, or when she turns 65. It really is very good health insurance once she becomes eligible.
      (5 votes)
  • blobby green style avatar for user James V Gallagher IV
    per the annual report: http://www.ssa.gov/oact/trsum/index.html
    Part B of Supplementary Medical Insurance (SMI), which pays doctors’ bills and other outpatient expenses, and Part D, which provides access to prescription drug coverage, are both projected to remain adequately financed into the indefinite future because current law automatically provides financing each year to meet the next year’s expected costs.

    As such, if the political will existed both SS and MC could also be so funded.
    (3 votes)
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  • blobby green style avatar for user David Tharakan
    The rise is healthcare costs is primarily controlled by insurance companies by raising rates for individuals and cutting reimbursment for doctors (in some cases by 50%). How can we have a healthcare system when doctor's practices are closing due to rising costs and quality is being sacrificed for quantity?
    (4 votes)
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  • leaf green style avatar for user Márcio Porto
    why are health costs growing more than the inflation?
    (3 votes)
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    • blobby green style avatar for user Randy Jones
      I am a physical therapist and I can tell you that our fee schedule increases have been less than inflation for past several years and we have had a large cut of 21% or more looming over our heads for sometime. This same fee schedule applies to general practice physicians and others. If these kinds of cuts were to occur, Medicare patients could expect to be unable to find a physician to treat them without long waits.
      (3 votes)
  • spunky sam green style avatar for user David Abramovitch
    Would establishing a federal (or state wide) non profit medical service increase or decrease the cost of providing medical assistance? I know that since competition works differently with medical care, prices are driven up far above what is needed for equipment, drugs, and salaries.
    (3 votes)
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    • leaf green style avatar for user Ryan
      A non profit has to get money from somewhere. Usually non profits get money through donations and grants, as well as charging fees for their services. The only difference is that they don't make profit above and beyond their expenses. So, I assume you are thinking that through donations and grants, they could lower the fees charged. The big question would be, can they get enough money to provide the same level of care, while also retaining the necessary skilled staff in order to provide the care?

      Who is going to donate this money and/or where are these grants going to come from?
      (2 votes)
  • blobby green style avatar for user valentinohuggins
    I know doctors are extremely important. No doubt about it, but I hear on the news all the time about doctors getting paid from insurance at the same time as the pharmaceutical companies for recommending and prescribing their drugs. Teachers have to protest and strike for better wages and to keep their jobs, while some doc rolls around in his Ferrari for dishing out prescriptions. I just am starting to think doctors are overpaid and that there is a tremendous flaw in our healthcare system, and distribution of wealth and importance. Is there something that I'm missing?
    (3 votes)
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    • leaf green style avatar for user Adam
      my answer is opinion based and not fact based: #1) First of all hopefully doctors are offering medications to their patients becuase they are the best solutions to their problem. This is an ethics question. i would say that 90% of doctors are ethical while 10% are greedy and are doing whatever they can to make more money. #2) Most people have a choice in the career path they want to take. I chose my profession and path because it allows me to make more money than most people my age. This was important for me thinking the enviroment I want my kids raised in. Years ago when I graduated from college I wanted to be a teacher also but soon realized that they dont make a lot of money so (sadly I might add) I chose a different career path. Now my kids go to private school and lets just say we live a different life because of the career choice I made long ago. I could go on and on but hopefully you get the piont.
      (2 votes)
  • blobby green style avatar for user Randy Jones
    I would like more information about how medical costs have been increasing when I know as a provider that we have not been getting increases in our fee schedule that match inflation. In fact the part B fee schedule has increased at about half that of inflation in recent years. How much of our medicare budget actually goes to providers vs administration of the program? Can you show me a more detailed breakdown of these inflated medicare costs?
    (3 votes)
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  • winston baby style avatar for user hs87677
    At how is this possible?
    (2 votes)
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  • leaf orange style avatar for user Kirsten Heck
    You said that the baby boomer generation is moving to the right side of the equation and we'll run out of the SS Trust money but the population has continued to increase substantially since the baby boomers. Wouldn't we continue to have a surplus with more citizens to pay into Social Security?
    (3 votes)
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Video transcript

Voiceover: When we learned about Social Security, we saw that the people who are currently working are paying their FICA taxes. Essentially those revenues are being used directly to provide the Social Security benefits for existing retirees and other beneficiaries. Any surplus goes to the Social Security Trust. When you had this baby boomer generation, on the left hand side of this system right here. The baby boomer generation is this huge population boom that happened after World War II after the country was happy and all the soldiers had come back. They produced a lot of babies. You get this population boom. When this population boom was on the left hand side of the system, they were able to generate a lot of revenue to supply for the benefits for essentially their parents' generation. That did help build the surplus. The problem is is that they didn't produce; the population did not grow as much in the next generation. You could view that as a problem or a good thing. It's a problem in the context of Social Security because starting recently, and over the next few decades, this baby boom generation is going to move onto the right hand side of this equation. We saw that they will start to draw down even this surplus fairly soon. Because of this demographic change, the Social Security surplus will be completey depleted between 2030 and 2040. Medicare is very similar. You have some portion of the FICA tax is for Medicare. That revenue is used to pay for the health benefits of the retirees. Any surplus goes into a Medicare trust. That Medicare trust, the formal name is the Hospital Insurance Trust Fund. The problem with Medicare is that the situation is even worse. The Medicare trust, or we could say the Medicare system is already running at a deficit meaning that they're spending more money on the right than they're getting in on the left. They're already starting to draw down, already starting to draw down their trust. Social Security, at least the trust is continuing to grow until 2023. That's our best estimate right now; then it'll start drawing down. It'll get depleted between 2030 and 2040. In Medicare, the situation's a lot worse. In Medicare, we are already starting to draw down the trust. We are already spending more on beneficiaries than we are taking down; than we were taking in FICA revenues. The entire trust, based on our current assumptions, will probably be depleted in the next ten years; depleted in next ten years. What makes Medicare especially troubling, despite the fact that it's in a worse financial position, is that these costs are growing even faster. I want to be clear. A lot of people think that the .... For Social Security, the main problem with this system over here is the demographic changes. You have this huge population that's retiring, the baby boomers, which makes this not sustainable. With Medicare, that's also going on. What makes Medicare even a bigger problem than Social Security is above and beyond those demographic changes, above and beyond these ... this baby boomer generation retiring, instead of paying into Medicare, taking benefits from Medicare, the big problem is that you actually have medical health care costs For Social Security, these people's benefits could just go up with inflation. For Social Security, these people's benefits could just go up with inflation. For Social Security, these people's benefits could just go up with inflation. For Medicare, the benefits go up with the cost of medical care. That's going well above the cost of inflation. You have the situation where, based on current benefits, and our best assumptions about the economy and the FICA taxes coming in, you have a reality where if you had to give the current benefits, and if you expect medical costs, health care costs 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 that Medicare left unchecked could; right now it's roughly about 23 percent of our budget, 23-24 percent of our budget, or about four percent of our GDP. Here we are in 2011. It's about four percent of our GDP we're spending on Medicare and Medicaid. Medicaid is essentially health benefits for mainly the poor. It's run by the states, but it gets federal funding. Right now, that's four percent of GDP. Because of the cost growth in health care costs, if we leave it completely unchecked over the next 50-60 years, it could grow to 15-16-17 percent of GDP. Just to be clear, that's the percentage of GDP that's roughly our entire federal budget. This has a potential, if we don't grow our budget any, to acutally crowd out a lot of other things. Just to understand this graph a little bit, they show the part and the cost of Medicare, the part of the growth due to different things. This is the effect of aging population. This is the effect of excess cost growth. This is the interaction of the two. To understand why that makes sense, you just have to think about the total cost being the product of the number. Maybe you could say the net number of recipients. Some people are paying in as well. This will hopefully help you understand what I'm talking about. Number of recipients, times the cost per recipient. Let's say that this is the cost per recipient. Cost per recipient, cost per recipient. If you take the number of recipients times the cost per recipient, you're going to get the total cost. Let's say that's the total cost today. That would be the area of that square. We're just multiplying the base times the height, current costs. Current annual cost, current cost. Because of demographic changes, you're going to have some increase in the net number of recipients. You're going to have some increase there. Because of medical cost growth, you're going to have a big increase in the cost per recipient. This thing is going to increase much more. If you go to some future point, and you can pick your future point. I'm really just trying to make you understand why we have these three categories. The total cost is going to be the total cost per recipient , that has grown dramatically, times the total number of recipients. Now you're talking about this area. This area is going to be the total cost. If you think about how much of this total cost is due purely to the increased cost growth, it would be this part right over here. This part would be the amount, the cost, the increase in the area purely due to the increased cost growth. 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? That would be this part of the graph right over here purely due to the increased number of recipients. That is right over here, effect of aging population. You have some part of this area that's created by both the increase in the number of recipients and the increase in cost. That's going to be this area right over here, which is this part of the graph. When people talk about the unsustainable ... one we have an unsustainable debt to begin with. The second thing is is that the liabilities, the obligations that we have aren't even counted in the government deficit. These are the things that are really, really scary. Something has to give. In all of this, the single factor that's driving most of the scariness is Medicare in particular. Not just Medicare, but it's not just the demographic changes, but specific to Medicare it's the increased cost of healthcare. If somehow that nut can be cracked, if healthcare can all of a sudden grow maybe just with inflation, or maybe even slightly faster than inflation, but not at the rate it's growing right now. Then you could, to a large degree, mitigate the scariness of what's going on with our obligations.