ATLANTA— I came across the above chart over the weekend and found it both fascinating and frightening. Look at the above total federal obligations, when MediCare and Social Security are included on a GAAP basis. Evidently this exceeds world gross domestic product. Unbelievable!
The significance of the “GAAP basis” inclusion of MediCare and Social Security is this. Under generally accepted accounting principles, the total benefit obligation for health care and post-retirement benefits as of a fiscal period end are supposed to be projected using actuarial models and presented as a long-term liability on an organization’s balance sheet. It is virtually equivalent to debt in the sense that the liability represents a paper obligation to make promised payouts to a given population. Legally, to the extent you have promised the benefit, you are required to pay it.
Among other things, the actuarial projections take into account the health, age, income and general welfare of the population to which the benefits apply. They project the amount of benefits to be paid and the period over which they will be paid. The projections also take into account the rate at which the assets associated with the plan are expected to grow to offset those obligations and the rate at which the company or government will fund the plan going forward.
My understanding is that the obligations given above for MediCare and Social Security represent the unfunded projected benefit obligations. This means, they are the portion of the obligations that will accrue over and above the assets associated with these plans and the projected pay-ins that will be made by the government and Americans via payroll taxes. In a nutshell, this means the government is currently promising substantially more benefits than it is currently prepared to deliver.
When you look at the chart, you see the $10 trillion in national debt for which we largely have Ronald Reagan and George W. Bush to blame. That debt level is pretty bad. But the additional $55 trillion in unfunded obligations under Social Security and MediCare largely are the result of Democrats, such as FDR and Lyndon Johnson. George W. Bush also did not help here when he “reached across the aisle” and signed MediCare D into law in 2003 (though that addition to MediCare contributed “only” $8 – 10 trillion to this oligation, from what I have read).
All the same, I think the above chart is incredibly frightening.
In recent weeks, I have been called insensitive for talking about the need for the Obama Administration to tackle entitlement reform in the midst of a major world economic crisis. How can you talk about leaving people high and dry?, some might say. The reason it is so painfully important is that it is clear from the above chart that those people are already being left high and dry! Social Security and MediCare are the biggest Ponzi schemes in history, far outstripping anything Bernard Madoff could conjure up. It is time the government became honest with its people and said as much. The promises do not exist- the government cannot fund them. They exceed world gross domestic product.
If you think the current economic slump is going to cause public unrest, imagine the absolute outrage that could occur in the future, if MediCare and Social Security tip towards insolvency and the government cannot fund these entitlements so many people now are told they should depend on.
TennesseePaul
Stephen VanNuys
Brooklyn Daniel
The Freedom Thinker
“Look at the above total federal obligations, when MediCare and Social Security are included on a GAAP basis. Evidently this exceeds world gross domestic product.”
Doesn’t this already mean it is insolvent? I don’t care how you time value money and whether you put an stable growth rate on at the end of a model, you aren’t going to fund this.
Ha- in theory, you are correct. I guess by insolvent I mean the actual day on which these plans transform into the state of California and no longer can make payments to retireess. For the near future, I think they have the capacity to at least make payments and thereby give the appearance of solvency.
One thing I’ve thought about in the above discussion is we talk a lot about the “end of capitalism” during this current economic crisis, but I think the inability of world governments to fund these social welfare programs over the upcoming 10 to 15 years may be even worse economically- sort of the “end of socialism.” My limited understanding is that Japan and Europe are even worse off than we are.
My final thought on the above chart when I saw it is look at what happened between the year 2003 and 2004! I guess that was G Dubbs signing MediCare D into law. That was completely reckless in my view. I didn’t like it at the time and I really don’t like it now.
Interesting. This chart doesn’t include the trillions that the Democrats have just tossed on the fire does it? This will be the third? massive stimulus or bailout bill Democrats in Congress have passed within the last year.
Yeah – it doesn’t have Obama’s stimulus. That third column up there is intended to show the annual deficit on a GAAP (accrual) basis. Meaning, it shows the accruing of long-term obligations on top of the difference b/w cash outlays and cash receipts in a given period. The purpose is to show that the true deficit based on government promises expanded at a rate of $5.1 trillion last year. I can only imagine what it will be this year after Obama is done printing money for every Tom, Dick and Harry that comes crawling to Washington.
Have either of you seen the statements the Republicans have made today regarding the socialization of the banks (including Lindsey Graham)?
Chief Crazy Talk do you keep having to earn your name over and over again?
This mess rests squarely on the shoulders of Supply Side Economics! Reagan, Bush 1, Clinton and Bush 2! Clinton is as much a son of Reagan as Bush 2! The two of you don’t have a leg to stand on!
#5 You are right, if you look at the chart above, it seems the supply siders did add some of the debt. But what are your thoughts on all the debt added by the “progressives” (FDR, LBJ, etc.)? They probably won a lot of votes and kept healthy grips on power by promising more than the government could possibly pay for. Curious your thoughts on the $45- $55 trillion in unfunded entitlements under Social Security and MediCare? What are your solutions to that one?
I’m the CFO of a regional medical center and know true and well that socialized medicine is already here and it is already broken. It is unfortunate that so many people are dupped into thinking that capitalism reigns supreme in medicine. It doesn’t. Obama has expanded Medicare BIG time in his lie of a stimulus bill.
What they do is just dictate what they will pay for services. For example, we get a letter each year from Medicaid that says we pay $100.96 for each service you provide regardless of the cost of service. What this does is forces providers like me to then shift these costs to private payers and other third parties (i.e. the government has already created a hidden tax).
My concern is that medical centers like the one I operate depend on third parties and private pay for the balk of our revenue and to cover the costs not paid by the government patients.
What will happen as Medicare and Caid become more “competitive” (i.e. available to higher income brackets) is that more companies and individuals will drop their third party coverage. Meaning all these actuarial charts are most likely probably overally optimistic. As more people will shift to Medicare and Medicaid services. This is headed to a major crash.
What I don’t understand is the end game. Reagan and Bush I’m sure it was starve the beast and it will die but did they underestimates socities willingness to vote the treasury? Or is this a play by the liberals to crash the whole system to then rush in and pretend to be the savior as we are all duped into thinking medicine operates on free market priniciples?
#7 Preach it brother Freedom Thinker! Great post.
That is exactly my observance in the few healthcare clients I have assisted with. None of them want to touch government healthcare. They say not only does the government pay substantially less than market for services (often more than 50% less), the government is also incompetent and slow paying. Obama’s healthcare program is going to be a nightmare for one and all, I am convinced.
No – all this “blame the free markets” is a ruse. As time goes on I’m becoming increasingly convinced you can pretty easily demonstrate that we don’t have truly free markets in most industries here in America. Government sets wage price floors for all industries and price floors for agricultural products. Government is a health insurer. Government mandates capital requirements to banks. Government controls the price of short-term credit through the federal reserve. On and on we could go. Then when the government’s bumbling in all of these different areas serve to distort markets, the government blames run-away free market capitalism so that it can take more control over the markets. It gets downright silly after a while.
At any rate, socialized medicine likely is here to stay. Conservatives were unable to mount a credible counter-argument. They were focused on other areas and the demand for socialized medicine has become too great. Without a clear alternative plan, I think the liberals have won this debate.
Here’s my Orwellian view on all of this though. With the government now going to be in control of a central database of health records as a result of this stimulus package, they can dictate treatments for various people and fine doctors who don’t listen to them(from what I understand- correct me if you think I’m wrong). So – with that said, they can have greater influence over how long we live. If we all die sooner, they won’t have to keep paying out the entitlements above- they could balance the budget on these programs.
Well as for the Orwellian view it is sort of already here. Health insurance isn’t preventative. It’s cheaper if you have massive heart attack or stroke and die. It’s much more expensive to live to 98 with Alzhiemer, cancer, and slowly die in a nursing home on $2,000 in monthly drug prescriptions. So, your Orwellian view is already here. I don’t know if it is so much that Doctor’s will be fined as much as they just won’t get paid. This is already the case. I have a manual on my desk listing this already.
Why do you say we have lost the argument?
FT, VanNuys: I see where one could say the argument is lost on this topic, but I don’t agree. The point revolves around the need for a clear counter argument of which none has yet been presented. The left is winning (but has not won) in this debate because, as children of the damned, they all mechanically belive the same thing and are unanimous and boisterous when delivering a consistant arguement. At this point it becomes politics. Kerry, McCain, Gore and many others failed to win the “debate” because they had complicated solutions to an everyday problem. Part of getting everyone to unite behind the idea is to present the idea in a simple self-explanitory manner.
For the liberals it’s,
Problem: Health Care is expensive.
Solution: Let the Government payfor it.
For the Conservatives it’s
Problem: Health Care is expensive.
Solution: remove government regulations and taxes which compound an already complicated system of checks and balances and burden the future growth of the country. This should free up private capital allowing for innovative solutions to complex problems and thus reduce the out of pocket costs for each citizen.
That just doesn’t fly with the masses. Even if you point out that the Libs bemoan Bush’s deficits but exhault piling trillions of more spending onto the Government books.
#9 – FT: In post #10, TP (operating independently) summed up my thinking exactly. I think the liberal solution just sounds easier to the American people. That’s part of why we sit here with Democrats having substantial majorities at virtually all levels of government and a president who is serious about pursuing socialized health coverage. Liberals have it easy b/c the solution is always simple: hey- forgo your freedoms and just let the government do this or that for you.
I think people get bewildered by their company provided health ensurance (I know I do). All those forms and schedules and acronyms. I think most people would think just having a little government healthcare card that I take with me every time I go to the doctor would be a lot easier- they wouldn’t have to think through these decisions. That’s sort of the solution Democrats offer. Something simple.
What people don’t understand is that we can’t maintain the high quality and inventiveness of our current health care structure without private capital and investment. And once government comes in with magnificently low rates and mandates on what doctors can and cannot treat, it will drive down health care profits and drive health care professionals crazy (I bet there are a good number of older doctors that just quit and I bet young folks become less interested in becoming a doctor). Then we’ll have lower quality healthcare that is less available. But everyone will be able to “access” it- they’ll just have to wait in a very long-line to do so.
Whatever. I just think McCain did a miserable job last year talking healthcare with Obama. We need some good, articulate conservatives to come out and set the record straight on the ills of government-run healthcare while simultaneously proposing clear, understandable alternatives.
Curious, FT, what do you think the system needs from your vantage point? Any good articles you’ve read on the subject? Health care is an area I don’t have much exposure to.
The solution I’m looking for is operational for my facility. I’ve only been at the C-level in health care for 2 months so I’m still learning, reading, listening, etc. The short term solution operationally again is to shift costs to private pay policies making it more expensive for business and individuals to have health insurance. Also, remain small (I wouldn’t want to grow into a full inpatient emergency room hospital). Don’t try and add specialists refer those patients else where. Specialits are about the only area that still remains competitive when the attack comes against specialists quality health care is doomed except for the very rich us in the middle class are done for… (i.e. I want out of the middle class as soon as possible)
The long term solution for the nation is too hard. There is no way we can go back from here because it would be scalling back health care. Which would enable the government to better pay for the services they do offer, lessen the tax on private insurance making it fall in price. De-regulate some of the privacy restraints so information can be better shared allowing insurance to better design and group coverage in risk brackets. Privacy is a lie for the most part to begin with.
These steps would bring competition and price reductions to private health insurance which would allow health centers to better streamline, BE MORE PROFITABLE, so they can invest back into their facilities and people.
The argument against this though is simple. Because in the short term it would appear to be taking healthcare away from the most needed (and it would be this in the short term) in order to give greater profits to companies (which it would in the short term).
The counter argument is profits mean competition and competition means price reduction, better service, more jobs and less moral hazard. The poor would suffer but then again fewer poor would suffer in the long run then already suffer today as the industry would adjust.
People are to ignorant to understand this. They just don’t understand economics and finance enough to recongize how business runs. I’ve now been in the financal, internet, telecommunications, and health care industries and I recognize traits through all industries that are the same and rules that apply across the spectrum.
FYI – when I say lessen the tax on private health insurance I mean lessen the hidden tax imposed upon individuals and organizations that purchase private health insurance at a higher cost due to the hidden taxes created by medicaid, medicare, and the like due to the often capitated nature of the payment arrangements dictated by the government which reduce competition therefore shifting costs (i.e. creating taxes) to the private industry.
Just didn’t want the word “tax” to be taken wrong by the ignorant who think of tax only as filling out a 1040 and then getting a refund in the mail.
However, you want to revitalize the health care industry take away payroll tax paid at the orgnaizational level for all health care provider organization and watch the health care crisis resolve itself VERY quickly.
Of course, all this takes power out of the hands of the State.
FT: Thanks. This is Exactly why the right loses the debate. For the left, they just listen, laugh and turn to the populus and say in a sing-songy chant: “Let the government pay for it.”
Healthcare seems to be interesting, but that damn Hippocratic oath almost by nature makes it to where it is a public good. My understanding is you cannot deny coverage if you operate an Emergency Room, right? That is effectively how many people who cannot afford coverage and that aren’t getting covered by the government for whatever reason generally get their health coverage. For instance, when my wife’s Grandmother came here on a visit, she had an international health insurance but there was going to be no way in hell that I was going to foot the cost and wait to get paid back. I took her to the Emergency Room in hopes that they would eventually get paid back. I think this is how many people treat it. My sister says that they have customers that have gone to the ER like 26 odd times over the past year.
Interesting points Freedom Thinker, but don’t Healthcare Organizations also have to deal with limitations imposed by private insurance companies as well? Any EoB that I ever look at always has the price that would normally be charged and what the insurance company has agreed to pay. Is that Ok in that it is a negotiated price that is in theory dictated by the market?
If we really wanted to see the cost of healthcare get in line with reality, it would probably be a matter of noone having insurance period. Not that that is feasible or in-line with reality.
BM, Your right you can’t turn the patient away. Your also right about private insurance in that the have costs that they cover. This is in the adjustments that we report. We BILL for more then the cost of the service, then we report our adjustments (a contra account to revenue), the we come back and negotiate based on this. Because that cost is negotiated each year with what providers we accept. If we don’t accept the providers they lose their income from those customers because why would the customer have insurance that isn’t covered by anybody.
TP, Exactly indeed… The entitlement and ignorance is bliss mentality. Eventually Atlas will shrug…
FT: Good points, interesting analysis. My very base-level understanding of health care in this country is that there are not many ways the market is allowed to properly function. Another way I have heard is that as people seeking health care, we are never quoted prices for the services we are requesting. That seems like a basic, fundamental key to a market: you know first-off the price of the good or service you are asking for. Instead, in healthcare, it’s always- forget the price, someone else is footing the bill- let’s do whatever it takes, irrespective of cost, to treat whatever your ailment (regardless of how petty it may be).
Now – I’m not talking here about a doctor coming in and flashing a price chart to a guy who just had his arm cut off in a manufacturing accident saying, it will cost you $30,000 to get your arm sowed back on, but I hear your Mexicans do it real cheap if we could fly you down to Juarez. No, I’m talking about the more basic stuff. I have a bunch of friends down here in Atlanta who are nurses, etc. who work in ER rooms and they say people come in there all the time with nose bleeds, etc. or basic cuts or things that people should be able to treat for themselves. I don’t believe health care is a right- I believe it is a responsibility. People should be taught to care for themselves first and to understand basic signs of when a problem needs legimitate medical attention. I actually agree with BMM here: if there were no health insurance, that likely would be the case.
My old man always gives me an example of what union-funded health care did back in the 1960′s when my grandmother first got it. People were amazed at health care being provided for them by companies and they didn’t have to bear as much of the cost. He said my grandmother got eye coverage that promised her a new pair of glasses each year. So she she went and got them each year. Because she didn’t have to pay for them. After a few years, they cut that part out of the package b/c everyone was doing it and the expense was getting out of control. But you see what can happen when people think a good or service is free.