system that pushes up costs by rewarding inefficiency, causing unbelievable waste, pushing over-medication

TO BE NOTED: From Robert Reich:

"The Truth Behind the Social Security and Medicare Alarm Bells

What are we to make of yesterday's report from the trustees of the Social Security and Medicare trust funds that Social Security will run out of assets in 2037, four years sooner than previously forecast, and Medicare’s hospital fund will be exhausted by 2017, two years earlier than predicted a year ago?

Reports of these two funds' demise are not new. Fifteen years ago, when I was a trustee of the Social Security and the Medicare trust funds (which meant, essentially, that I and a few others met periodically with the official actuary of the funds, received his report, asked a few questions, and signed some papers) both funds were supposedly in trouble. But as I learned, the timing and magnitude of the trouble depended a great deal on what assumptions the actuary used in his models. As I recall, he then assumed that the economy would grow by about 2.6 percent a year over the next seventy-five years. But go back into American history all the way to the Civil War -- including the Great Depression and the severe depressions of the late 19th century -- and the economy's average annual growth is closer to 3 percent. Use a 3 percent assumption and Social Security is flush for the next seventy-five years.

Yes, I know, the post-war Baby Boom is moving through the population like a pig through a python. The number of retirees eligible for benefits will almost double to 79.5 million in 2045 from 40.5 million this year. But we knew that the Boomers were coming then, too. What we didn't know then was the surge in immigration. Yet immigrants are mostly young. Rather than being a drain on Social Security when the Boomers need it, most immigrants will be contributing to the system during these years, which should take more of the pressure off.

Even if you assume Social Security is a problem, it's not a big problem. Raise the ceiling slightly on yearly wages subject to Social Security payroll taxes (now a bit over $100,000), and the problem vanishes under harsher assumptions than I'd use about the future. President Obama suggested this in the campaign and stirred up a hornet's nest because this solution apparently dips too deeply into the middle class, which made him backtrack and begin talking about raising additional Social Security payroll taxes on people earning over $250,000. Social Security would also be in safe shape if it were slightly more means tested, or if the retirement age were raised just a bit. The main point is that Social Security is a tiny problem, as these things go.

Medicare is entirely different. It's a monster. But fixing it has everything to do with slowing the rate of growth of medical costs -- including, let's not forget, having a public option when it comes to choosing insurance plans under the emerging universal health insurance bill. With a public option, the government can use its bargaining power with drug companies and suppliers of medical services to reduce prices. And, as I've noted, keep pressure on private insurers to trim costs yet provide effective medical outcomes.

Don't be confused by these alarms from the Social Security and Medicare trustees. Social Security is a tiny problem. Medicare is a terrible one, but the problem is not really Medicare; it's quickly rising health-care costs. Look more closely and the real problem isn't even health-care costs; it's a system that pushes up costs by rewarding inefficiency, causing unbelievable waste, pushing over-medication, providing inadequate prevention, over-using emergency rooms because many uninsured people can't afford regular doctor checkups, and spending billions on advertising and marketing seeking to enroll healthy people and avoid sick ones.

posted by Robert Reich"

Social Security and Medicare totaled more than $1 trillion last year, accounting for more than one-third of the federal budget

TO BE NOTED: From the NY Times:

"Recession Drains Social Security and Medicare

"Recession Drains Social Security and Medicare

By ROBERT PEAR

WASHINGTON — Even as Congress hunted for ways to finance a major expansion of health insurance coverage, the Obama administration reported Tuesday that the financial condition of the two largest federal benefit programs, Medicare and Social Security, had deteriorated, in part because of the recession.

As a result, the administration said, the Medicare fund that pays hospital bills for older Americans is expected to run out of money in 2017, two years sooner than projected last year. The Social Security trust fund will be exhausted in 2037, four years earlier than predicted, it said.

Spending on Social Security and Medicare totaled more than $1 trillion last year, accounting for more than one-third of the federal budget.

The fragility of the two programs is a concern not just for current beneficiaries, but also for future retirees, taxpayers and politicians. Lawmakers say they would never allow Medicare’s trust fund to run out of money. But beneficiaries could be required to pay higher premiums, co-payments and deductibles to help cover the costs.

The projected date of insolvency, a widely used measure of the benefit programs’ financial health, shows the immense difficulties Mr. Obama and Congress will face in trying to shore them up while also extending health coverage to millions of Americans.

The labor secretary, Hilda L. Solis, noted that 5.7 million jobs had been lost since the recession began in December 2007. With fewer people working, the government collects less in payroll taxes, a major source of financing for Medicare and Social Security.

A resumption of economic growth is not expected to close the financing gap. The trustees’ bleak projections already assume that the economy will begin to recover late this year.

The Treasury secretary, Timothy F. Geithner, said the only way to keep Medicare solvent was to “control runaway growth in both public and private health care expenditures.” And he said Mr. Obama intended to do that as part of his plan to guarantee access to health insurance for all Americans.

But if cost controls do not produce the expected savings, Congress is likely to find it difficult to preserve benefits without increasing taxes.

Just hours before the trustees of Medicare and Social Security issued their annual report, suggesting that the nation could not afford the programs it had, the Senate Finance Committee finished a hearing on how to pay for the expansion of health insurance coverage that Mr. Obama seeks.

Mr. Obama has said he does not want to finance expanded health coverage with more deficit spending. Rather, he says, Congress must find ways to offset the costs, so they do not add to the deficit over the next decade.

Federal deficits and debt are soaring because of the recession and federal efforts to shore up banks and other industries while trying to revive the economy with a huge infusion of federal spending.

“The financial outlook for the hospital insurance trust fund is significantly less favorable than projected in last year’s annual report,” the Medicare trustees said. “Actual payroll tax income in 2008 and projected future amounts are significantly lower than previously projected, due to lower levels of average wages and fewer covered workers.”

In coming years, the trustees said, Medicare spending will increase faster than either workers’ earnings or the economy over all.

The trustees predicted that, for the first time in more than three decades, Social Security recipients would not receive any increase in their benefits next year or in 2011. In 2012, they predicted, the cost-of-living adjustment will be 1.4 percent.

The updates are calculated under a statutory formula and reflect changes in the Consumer Price Index, which was unusually high last year because of energy prices.

If there is no cost-of-living adjustment for Social Security, about three-fourths of Medicare beneficiaries will not see any change in their basic premiums for Part B, which covers doctors’ services. The monthly premium, now $96.40, is usually deducted from Social Security checks, the main source of income for more than half of older Americans.

The trustees said that one-fourth of Medicare beneficiaries would face sharply higher premiums: about $104 next year and $120 in 2011. This group includes new Medicare beneficiaries and those with higher incomes (over about $85,000 a year for individuals and $170,000 for couples).

Seventy-five percent of beneficiaries will not pay any increase, so the remaining 25 percent have to pay more to keep the trust fund at the same level, Medicare officials said.

The aging of baby boomers will strain both Medicare and Social Security, but Medicare’s financial problems are more urgent.

The trustees predict a 30 percent increase in the number of Medicare beneficiaries in the coming decade, to 58.8 million in 2018, from 45.2 million last year.

But the projected increase in health costs and the use of medical care is a more significant factor in the growth of Medicare. The trustees predict that average Medicare spending per beneficiary will increase more than 50 percent, to $17,000 in 2018, from $11,000 last year.

Representative Pete Stark, the California Democrat who is chairman of the Ways and Means Subcommittee on Health, said the Medicare report “underscores the urgent need for health reform.”

"estimated present value of future social insurance program expenditures for all current and future program participants to be $43 trillion."

Shopyield takes a look at the Federal Budget:

"The US Treasury has released the Fiscal Year 2008 Financial Report of the United States Government.

This report details the U.S. government’s current financial position, as well as its short-term and long-term financial outlook… the accrual-based Financial Report includes the cost of operations, the sources used to finance those costs, how much the government owns and owes, and the outlook for its social insurance programs.

From the Treasury release…

~~~~ “It is without question that we face extraordinary challenges in our financial markets and the larger economy,” said OMB Director Jim Nussle. “As a result, the bottom-line budget results in the short-term are sobering. It is imperative to continue to aggressively confront today’s challenges. Functioning markets and a healthy economy will not only help put the federal budget back on a path towards balance, but will position us to take on inevitable future economic challenges, such as the our nation’s biggest budgetary challenge, the entitlement crisis.”

Revenue results in this year’s Financial Report were $2.7 trillion, increasing slightly by $34 billion or just over 1 percent, compared to last year. Total costs were $3.6 trillion, an increase of $.7 trillion or 25 percent compared to last year. Net operating cost increased to $1 trillion, up from last year’s net operating cost of $275.5 billion. The growth in the net operating cost resulted from the economic slowdown, the government’s response to the slowdown, and significant re-estimates of the government’s long-term liabilities for veterans’ disability compensation benefits.

Treasury projected an estimated present value of future social insurance program expenditures for all current and future program participants to be $43 trillion. Over the next two decades, Social Security and Medicare expenditures are projected to increase from their current 8 percent of GDP to about 11 percent. Without reform, the cost of these programs is projected to approach 18 percent of GDP by 2080. Medicare, Medicaid, and Social Security accounted for 16 percent of total government expenditures 40 years ago. Today, they comprise 40 percent of all expenditures."

"requires that you abandon some of your past positions and pursue a more moderate, bipartisan course."

Good post by Greg Mankiw:

"Memo to the POTUS-elect Congratulations, Senator Obama. You ran a good campaign, and you racked up an historic victory. As you get ready for your new responsibilities, let me suggest four ways for you to become a reliable steward of the economy:

Listen to your economists. During the campaign you assembled an impressive team of economic advisers from the nation’s top universities, including Austan Goolsbee from University of Chicago and David Cutler and Jeff Liebman from Harvard. Your campaign’s director of economic policy, Jason Furman, is a smart, sensible, and well-trained policy economist. I know: He is a former student of mine."

I think that he'll be pleasantly surprised.

"Now you may decide that this plan does not go far enough. You may want a more generously funded social safety net to help the less fortunate get health care. Fair enough, but in pursuing that goal, you run into the next issue."

I think that he's likely to listen to him here.

"Pay attention to the government’s budget constraint. The nation faces a long-term imbalance between government spending and tax revenue. The fundamental problem is that the federal government has promised the elderly more benefits than the tax system can support. This fiscal imbalance will become acute as more baby boomers retire and start collecting Social Security and Medicare.

Yet during the campaign, you promised that you would cut taxes for 95 percent of Americans, that you would vastly expand health insurance coverage, and that you would never cut Social Security benefits or raise the retirement age. You will almost surely have to renege on some of these promises. As your economic team will often remind you, even if the laws of arithmetic are ignored during campaigns, they provide a real constraint when making actual policy."

I agree with this, and I believe he will.


"Take trade policy, for example. In the senate, you voted against the Dominican Republic-Central American Free Trade Agreement. You opposed free trade agreements with Colombia and South Korea. You supported Senators Charles Schumer and Lindsey Graham in their quest to put tariffs on Chinese goods if China failed to revalue its exchange rate. You supported the Byrd Amendment, which encouraged domestic companies to file anti-dumping suits against foreign competitors. You supported subsidies for domestic producers of corn-based ethanol and tariffs on imports of more efficient sugar-based ethanol."

Same here. I think that Professor Mankiw will be pleasantly surprised.