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Brooks Wilson's Economics Blog: A Problem with Medicare

Tuesday, March 1, 2011

A Problem with Medicare

In “Let's Begin Obama's 'Conversation' on Entitlements,” the Wall Street Journal identifies a major problem with Medicare.

According to Eugene Steuerle of the Urban Institute, an average couple retiring last year can look forward to consuming Medicare benefits with a present value of $343,000, having paid Medicare taxes with a present value of $109,000.

And don't let that figure get your hopes up, because even that $109,000 is not available today. That money was spent long ago. The government's trust funds are a fraud. Indeed, by some large amount, society missed out over many decades on domestic savings and investment that would have taken place had workers not been relying on unfunded government promises to support them in retirement.

There are only four solutions: raise taxes, cut benefits, reform Medicare, or some combination of the other three.

13 comments:

  1. Tracey Marsh1/3/11 10:22 PM

    The idea that an average, hard-working American can spend their lives laboring away at a job, and then have nothing waiting for them when it comes time to retire is very disappointing. People put their faith in the fact that they've paid into Social Security and Medicare their entire lives and they certainly expect to reap the benefits after retirement. Seemingly more and more this is not the case. How can the money just NOT be there? If the government has misappropriated funds to the point of not being able to aid our retirees then it should be the government that foots the bill to solve this issue, not the U.S. taxpayers. Should people stop trusting the "trust" funds and take it upon themselves to setup private savings in order to ensure a financially stable retirement? One thing is for sure, the baby boom is about to retire, and they want their money. And in 45 years, I want mine.

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  2. Lori Hodges2/3/11 10:05 AM

    Salaries of years ago were low compared to today's salaries. I think indexation for inflation is partly responsible for the increase in social security given to the elderly. Price indexes have been used to correct economic variables for the effects of inflation. I think medicare needs reforming. The nation's income must equal our expenditures for the economy as a whole. Your can't take in $109,000 and pay out $309,000 and be in balance. Individuals must not rely on the government for their retirement. WE must prepare for our own future because this is only the beginning of a fast fall.

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  3. They way things are looking we have no economic future unless the government and the people take a stand and make some changes. @ Tracey Its so true that we are blinded by the false hope that there will be social security and medicare for the current generation. We all need to wake up and either start saving for the future or taking care of the problem in the now.

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  4. Aleese .P.3/3/11 8:22 PM

    For the last decade the government has raised taxes and wasted our hard earned money down the drain. I think it is absolutly ridiculas that we are having to even make a decision on what to do about climbing out of our giant hole of debt. We are supposed to be the most powerful nation in the world and yet our government cant stop taking its citizen's money. I think it is obvious in the future our social security, and medicade will no longer exist which is absolutly unacceptable; however, its time that America starts to prepare itself.

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  5. Barbara Garcia4/3/11 9:58 AM

    In reading the previous responses, I find myself asking, "What about those of whom its too late for?" Yes, WE can prepare, save, and invest in our retirement, but for those who need to reap their benefits today and are finding themselves empty-handed, what are they to do? For some, working may no longer be an option. Without their 401K, without the ability to work, where does our government come in to help them?

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  6. Megan Kittner (economics student)

    The more I look at my very LONG away retirement, I realize I will not get anything. The even worse thing is that my mentors; youth ministers, school teachers, and even my parents are most likely not going to get what they have worked so hard for.
    The idea of taxes makes me quiver, I am not out on my own yet, so I haven't had to pay taxes except on the small consumptions I make like buying a purse. However, when I look at my awaiting independence I realize that what I will have to pay, as far as taxes go, is helping my friends and family get the retirement they deserve. Is it right for the government to put a great balance of taxes on us? Maybe not, however even though there is NO WAY for me to get my retirement, those people who have worked so hard for me deserve something in return. If I can help them by paying taxes, I will.
    In the end the way the circular-flow-map must stay consistent. Once my mentors have left the circulation, I step in as the household. The goods and services given to me by the firms while continue moving and my factors of production will go back to the firms. I will work so my friends and family can get that rest they deserve!

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  7. The way that things seem to be right now is pretty terrible, and from the looks of things we don't yet have a solution. People are being promised that after they've worked hard for years they have money coming, only to be cheated. The best solution I can see is a combination of the 3 ssolutions suggested, because too much of one might throw things out of whack

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  8. Everanit Lopez9/3/11 7:22 PM

    I believe that depending on Social Security and Medicare benefits are not sufficient for retirement benefits. It's up to each individual to obtain additional retirement benefits with your employer or independently. Regardless on how you save for retirement, the most important thing is save and spend your money wisely.

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  9. I tend not to get on discussions of these subjects for one reason - I was once told if you don't have a solution, don't come to me with the problem. My take on SS, Medicare, Deficit, etc, is simple - We all agree it's not "fair" or "ran well". Yet what are we doing as individuals to change it? It seems to me the general public that these issues affect the most can all agree that something needs to be done. And yet we don't do anything but agree with a newscaster or magazine article, and talk amongst ourselves at get togethers. I know I'm not even close to active in compared to how passionate the subjects make me. If I had the time I would more than likely educate myself further on these issues and be more involved. However, I make the choice to spend my time on school, work, family, etc. Think of the time, the leaders, the energy, and the effort it required historically to make radical changes. Us simply all agreeing on a blog post isn't going to make a step in that direction. And I know I won't be as active as I would like to be so I make the personal choice - to live as debt free as possible and focus on personal savings and retirement investments. It just seems we all agree and then still allow our money to be taken out of our checks, and then complain when the subject comes up that it's not right. However, I don't have an answer on how it should be or what would work better. We all know we want our money back when we retire, but what are we doing to ensure that will happen?

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  10. to tracey marsh- you said the government should foot the bill, but what money do you want the government to foot the bill with?

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  11. In my opinion, I think the retired people that have worked their whole lives deserve every penny they get - and should probably get more. I have a huge problem with the younger generation that live off the government for free. I know quite a few people that just keep having children and don't have to work because the government supports them. I think we need to tighten up on who the money can go to. If you receive any kind of government assistance then you should be randomly drug tested and be required to try to find a job. That is one of the problems we have today - it is so easy to just stay home and have the government take care of them that they don't need to go find a job. That money needs to go to the retired workers that have worked their whole lives and deserve it. I have S.S. taken out of my paycheck every week knowing when I get old enough to use it.....it will be gone.

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  12. James Emmele20/3/11 5:43 PM

    There is a fifth solution to simply remove the Medicare program and cut everyone's losses. I would hope that by the time I am of retiring age that Medicare (and Social Security) will have disappeared gracefully. It is obviously not a self-sustaining program, and at this point is relatively unneeded. Just by employing modern media to disseminate proper techniques to save for emergencies and retirement no individual would be worse than under the current programs. It's all a matter of discipline; those with foresight will be prepared for expenses like medical services in their post-income lives.

    If they wanted to reform Medicare, then simply let it act as a personal savings account. Any money put into the program by an individual is accessible to them. As long as an interest rate approximately equivalent to inflation is applied to the savings, no amount of money could be unaccounted for.

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  13. Carla Wilson20/3/11 10:48 PM

    Depending on medicare and social security for the future is somewhat impossible. The new generations will have to start their own savings and retirement plans. Its sad to say you work all your life and save to know that you possibly may not even see the hard money you have saved. I believe that people put their faith into a system that they feel that will only help them in the long run.

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