Sixty-three trillion dollars. That’s the sum of unfunded liabilities for both Social Security and Medicare, according to the latest trustees report. In fact, the shortfall is almost twice as large as that. This is because when the Affordable Care Act was signed, more than $50 trillion dollars of future Medicare spending was cut from that entitlement program. But this would result not in a reduction of future spending, but in a shift away from seniors and toward younger people. It’s difficult to believe that Congress would muster the political will to sustain reductions in Medicare spending, according to Independent Institute Research Fellow John C. Goodman.
“In fact, the possibility of ‘Obamacare’ policies cutting Medicare’s unfunded liability in half is so unlikely that Medicare’s chief actuary, Richard Foster, provides an ‘alternative’ report, in addition to the official trustees report, in which he projects much higher levels of Medicare spending,” Goodman writes in his latest op-ed for Politico.
Meaningful reform of Medicare, Goodman argues, would require changing it from a pay-as-you-go system into one in which workers pay their own way. Employees (and employers) would need to save 4 percent of payroll in order to reach a point at which each generation of retirees pays for most of their post-retirement healthcare without an increase in payroll taxes. The boost in private savings would bring significant additional benefits: it would support increases in physical capital and higher wages, as Independent Institute Research Fellow Burt Abrams explains on MyGovCost.org. In contrast, the pay-as-you-go Medicare system (like Social Security) reduces the incentive for people to save for their retirement years, robs young people of their own earnings, and slows the rise of the standard of living.
Social Security Going Broke, by John C. Goodman (Politico, 4/25/12)
Pay-As-You-Go Government: Inter-Generational Robbery, Burt Abrams (MyGovCost.org, 4/30/12)