Sometimes to see truth, you just have to sweep away the clutter ….. — kavips

During our previous discussion over the National Debt, it became obvious that our deficit problems stem from these two entitlements: Social Security and Medicare.

Doing away with both will easily bring our national budget into balance, but that act will wreck inconceivable havoc upon the life of every American citizen. Doing just the opposite, offering free unlimited health-care as well as a full blown retirement package to every aging American citizen, unfortunately is no longer affordable when one factors in both demographic and economic factors.

So what do we do?

If one opens one’s mind to possibilities, we have five choices. Simply put, they are these.

a) Keep both as they are:
b) Keep both with modifications
c) Get rid of one; keep the other as is:
d) Get rid of one; modify the other:
e):Get rid of both:.

These are our alternatives. The purpose of this chapter is to look at each one and decide which appears to be the best solution…..

Our first option is to keep these two entitlements as they are without changes. Let’s review the data. In a famous CBS interview, the former head of the Government Accountability Office (GAO), David Walker laid it out clearly. “The cancer”, Walker says, “(is the) massive entitlement programs which we can no longer afford, exacerbated by a demographic glitch that began more than 60 years ago, a dramatic spike in the fertility rate called the baby boom.”

Let’s go straight to the bottom line: how much will it cost us?

The following predictions are based on GAO simulations (2004). If we do nothing about our two entitlements, and if we wish to balance the budget by 2040, we will need to:

1) cut federal spending by 60% (impossible)
2) raise Federal taxes to 2.5 times of today’s intake (impossible)
3) achieve sustainable economic growth in double digit range, every year till 2079 (impossible)

This gorilla-in-the-room problem belies the fact that there will soon be more people collecting benefits, than there will be those contributing. Old estimates (2004) predicted that this year (2009) would be the year when that subtle switch would occur. During 2009, our surplus stops growing, and we start down the other side; the pool from which we pay benefits, begins to shrink. By 2017 (the first year of the next presidency) the costs of paying out benefits, rise higher than the actual taxes bringing in the revenue. By 2041, the Social Security trust fund will be completely gone.

After that, if we truly wish to continue these entitlements, we must so on a pay-as-you-go plan, year to year; today’s current level of taxes brings in only three fourths (74-78%) of the needed annual revenue…

So we wonder: just how much additional money are we discussing per year? For Social Security … we are speaking in the realm of Billions….

Currently (2007) Social Security Benefits cost 4.3% of GDP and are expected by 2035 to peak at 6.1% percent of GDP… If the GDP at that point is close to $15 Trillion dollars, our annual benefits (at that future level of 6.1%) level out at $915 Billion dollars, and the shortfall amount, (25% of that), is extra we need to step up and pay beyond what we pay now….. That total is $228 Billion Dollars more each year, which is half the amount of last year’s discretionary federal budget! … Per person, assuming an estimated 330 million national population, each citizen will pay $690 more per year into Social Security which will amount to a charge of $1.89 per person per day. After 2041…..one bread winner in a family of four would need to cough up $2760 extra dollars every year.

That is IF….. nothing is done. Which brings us to the second option.

Keeping both with modifications. The Social Security’s own trust report says this:

Social Security could be brought into actuarial balance over the next 75 years in various ways, including an immediate increase of 14 percent in payroll tax revenues (from 12.4 percent to 14.1 percent) or an immediate reduction in benefits of 12 percent or some combination of the two.

It’s a small price to pay for solvency. But we must remember that Social Security is the easier of the two entitlements to fix. As David Walker, (former)GAO is quick to point out.., “the Medicare problem is five times greater than the Social Security problem. The problem with Medicare”, Walker says, “is people keep living longer, and medical costs keep rising at twice the rate of inflation!” No! That doesn’t sound good.

Congress made things worse in Dec. 2003 when they expanded the Medicare program to include prescription drug coverage. “The prescription drug bill was probably the most fiscally irresponsible piece of legislation since the 1960s,” Walker argues.

When asked why, Walker says on tape, “Well,…. we promise way more than we can afford to keep. Eight trillion dollars added to what was already a $15 to $20 trillion under-funding. We’re not being realistic. We can’t afford the promises we’ve already made, much less to be able (to afford those) piling on top of ’em.”

With one stroke of the pen, the federal government increased existing Medicare obligations nearly 40 percent over the next 75 years. Walker says, “We’d have to have eight trillion dollars today invested in treasury rates, to deliver on that promise,” Walker explains. When asked how much we actually have, Walker replies, “Zip.”

So where’s that money going to come from?

It’s gonna come from additional taxes, or it’s gonna come from restructuring these promises, or it’s gonna come from cutting other spending,

As a nation, we have promised unlimited health care to each of our senior citizens who will never see the bill, and our government is borrowing that money (at interest) to pay for that privilege. Obviously this is absolutely unsustainable! More so it is abominably immoral to our children. As a nation we simply cannot keep up.

So what modifications are on the table? Some being mentioned are 1) means-testing supplicants for benefits, 2) increasing payroll taxes, 3) increasing the retirement age, 4) cutting back on benefits, and 5) paying cheaply for preventative health-care so fewer citizens require the more costly operations. But none of these options cover the looming demographic shift of baby boomers who are now beginning to reach retirement. Here is a pictorial representation of the problem….

How Entitlements Eat Up Our GDP
(Right Click on Image for Full View.)

Means-testing supplicants for benefits, is the second surest method to stretch out our resources so those who solely rely on these two Social Services can still have them available despite their catastrophic cost.

But there are two opposing sides to implementing “means testing”. Those with high incomes who paid more of the burden, feel they should at least get something back in return… This group uses social security and medicare at relative high percentage rates. The opposite side argues, that because today’s crises is drying up funding, those with high incomes who can otherwise pay out-of-pocket for their expenses, should have their benefits allotted to those who earned less over their lifetimes… That last argument is a fancy way of bluntly saying that “those with money are funding the health care of those without”…

Whereas we balk at the concept of having the rich pay the costs of the poor, the social cost of returning to the alternative, …. say Victorian England’s version of dealing with the poor, bothers us as well.. It at least opens our perspective that the option we currently have of keeping both social entitlements solvent (even if it is a bad option), may be cheaper and better than the alternative of eliminating either or both Social Security and Medicare altogether. The ultimate answer lies in this one question that needs to be asked? In the future … how much of today’s corporate or small business profit will need to be siphoned off to cover other unforeseen expenses; expenses that the current entitlements prevent from happening?

If you could imagine this futuristic scene: an unsecured retail store just sitting in the middle of a town that is full of people who had not eaten a full meal in months…. How many dollars, how much additional money would be needed to bolster that store’s security, to insure that business was present and ready to do business the following morning? Is the small amount we pay out for entitlements cheaper than the costs we will have to bear for abandoning them?

To find the answer that is required, we need to investigate alternative models to help us determine whether or not, the alternative costs of doing away with our entitlements, would be more, or less costly than keeping Social Security and Medicare as they stand today….

Whereas “means testing” may create a line in the sand and prevent some leakage slipping upward into taking care of the well-to-do, it also may allow a greater problem to become exacerbated. That would be to alienate to our detriment, those few providing the majority of the funding for these two programs in the first place… For they are already paying out far more than they will ever receive… If we push too hard and force them to pay for something they will never use, our American virtue of fairness will one day catch up to this arrangement, and allow them to opt out of the system entirely, because basically, we will all agree it is the fair thing to do. If that event ever happens, our entitlement problem just fell over the canyon wall.

However the surest method of entitlement solvency lies in increasing our payroll taxes. Yes, these are regressive taxes but if we would just be willing to pay 12% to 14% percent more in FICA taxes, which raises their rate from 12.4% to 14.1% percent, it would save social security.. That is an increase of 1.7% per paycheck… At 1.7% percent on an income of $60,000, the average family would receive $1020 less per year in take home pay…. But that extra $1020 would be enough to keep Social Security solvent for years to come…

These are hard facts we deal with. We can write our Congressmen and say “you must protect Social Security”…. But when they follow our orders, and our time comes to ante up $1020 that we do not have…. we begin to wonder how on earth we will ever survive on what little we have left….

The ultimate question is: can you afford an additional $1020 each year of less income? That averages out to $19.61 per week, or .49 cents for every hour you work! That is the unmentioned bottom line that is required to keep Social Security solvent for years to come… Whereas some of you may doubt whether you can afford that increase… those of you still wondering how you can survive on $20 less per week, … must balance that cost against the cost of having no money available to you after you quit working.

Now if that increase is coupled simultaneously with a larger decrease in Health Care costs, then perhaps the 14.1% increase is affordable after all.. This is why all arguments on dealing with entitlements must take place in an open forum. For there are consequences out there that are so remote and yet so overwhelming, that no one person can see all the options while staring at the drawing board… Only with the give and take of offering a plan, and then having it modified under sharp criticism, can we forge from such diverse outtakes as exists across the American spectrum, a solution that is workable over an immense span of time…..

Most likely that increased cost will be split between the business and the employee as is currently done today.. Per person $510 or half of the $1020 will be paid by the employer, with the additional $510 being supplemented by the employee… However we must factor that this too creates a drag upon the economy. Every business must now pay $51,000 over what they currently pay now for every hundred employees on their payroll… A small business with 100 employees and $1 million in sales, loses 5.1% off their margin. If every similar business was losing around 5.1% off their benefit line, it would be hard to convince such a business to re-invest in people in order to get America back to work… Far better instead it would appear for that business to invest in a machine that does the correct job each and every time, and over its work-life costs less than a human being…

However, sobering as this increased cost is, if this moderate increase is dropped into place simultaneously with the exiting of having-to-provide-medical-insurance to each and every one of its employees, this solvency issue could become a big win for business, and the hiring of human beings would be less negative than it was before…

The second option, the one of increasing the retirement age, confronts the Social Security problem in two ways; although it does not completely solve the entitlement problem, it is the best option available to stem some of the ebbing of money away from the trust fund…. Jumping the retirement age upwards by 5 years from 65 to 70, adds 5 additional years of tax money pouring into the system, while also decreasing by 5 years the amount of benefits that are needing to be paid out….. If we garnish 5 years of extra funding and lose up to 5 years of paying out benefits, just moving up the retirement age by 5 years gains 10 years of funding per future retiree.. This is easy to do, and benefits all that do it… Some may protest having to wait longer to retire… It is not so bad if waiting 5 years is framed as helping out one’s country…. Sort of like doing one’s duty as a citizen…. For those fortunate to have private accounts with anything left since November, the additional 5 years of compounding can make a huge difference in how one passes the time during their retirement…..

All evidence points to a net benefit with no negatives, of raising the retirement age.

Cutting back on benefits, the third option, is the normal way unimaginative managers struggle to control costs. Although some monitoring of the government’s money is always required, mandating the spending of every penny and watching every penny being spent, is a costly waste of time. Furthermore, cutting back is the worst option.. for even though it may help balance the budget over the course of one year, in doing so it jeopardizes the balance of all fundamental economic structures that exists today…

Cutting back on our aging population’s social security income places tremendous detrimental effects upon our entire economy. Just as taking one’s foot off a car’s accelerator causes it to slow down, anytime one tinkers with the income flowing into America’s citizens by reducing it, they decelerate the economy… With less income suddenly entering the fuel line, people have no choice but to cut back…

Thereby saying “yes” to Social Security cuts, ie. a reduction of benefits per person, does indeed cut down on the amount of Federal money being paid out; it also depresses the economy by that exact same amount which is being removed… In a booming economy, that cost saving device might have a different consequence than if it were to take effect today. Now, at the historic moment when we desperately need Federal money priming economic transactions all across our country, to diminish the pay-out to those receiving Social Security, hurts the very economy from which we need to acquire the additional income required to pay out those benefits in the first place… Instead of helping solvency, we aggravate its spiraling out of control…

Representing 4.3% of our GDP, we do reap benefits from all that Social Security money moving through the grid of our markets. Cutting back Social Security payments impacts a huge economic detriment. This plan should be used when default has become the last and only option…. When one wants to start a car’s engine, shutting down or decreasing its fuel supply, is the wrong way to get it started.

Our last option, the one of paying cheaply for preventative health-care so that fewer citizens require the more costly operations, is the true, best scenario, long-term approach to our reducing our nation’s future costs… Take just one example: one gastric operation costs as much as 100 colonoscopies. If everyone received a colonoscopy and we had not one gastric operation because of early detection and removal…. consider the savings that would be at our disposal.. If we tackle our top four killers, strokes, heart attacks, breast and prostate cancer with detection and prevention as mandatory practices, then the total payout amount from the Fed to physicians and hospital corporations, could be greatly reduced… Unfortunately there is little data in the United States to verify whether or not this theory has merit upon our human population… But there is large veterinary evidence currently embraced by the United States agribusiness community, that speaks quite well of the cost savings being found through preventative care… Likewise, other countries which decided not to leave something as important as human health care to speculators and money hoarders…. can also provide similar evidence which backs moving health care towards a preventative direction. We can glimpse hope for our own medical future by looking hard at some of their historical statistical evidence….

Lifespans. Obviously as a society we dream of achieving as long as life as possible. It would make sense to find out which form of society has the longest lifespan and then do what they do… As I said, it makes sense.. According to the CIA, the top ten countries ranked by lifespans are as follows…

Macau ……….84.33 years
Andorra………82.67 years
Japan…………82.07 years
Singapore…..81.89 yrs.
San Marino…81.88
Hong Kong…81.77
Australia…….81.53
Canada……..81.16
France………80.87
Sweden…….80.74

The United States (78.14 years) is ranked at 46th behind such countries as Bosnia Herzegovina (42), Jordan (39), and Greece (25)… At first glance it appears that living in a small country or municipality can lengthen your lifetime…. Out of the top ten, only five would be considered “real countries”. But if one thinks for a moment, the benefit of having a territory consisting of only urban area, makes sense out of these figures. One has only to remember the access one has to medical care in our metropolitan areas versus what one finds across the vast expanse of rural America, where one might live 30 minutes away from emergency medical care often requiring a full hour round trip. If one looks down the CIA’s list, rural nations as well as those suffering extreme poverty, tend to have shorter lifespans..

But even so, several of the top ten nations have vast expanses of rural areas. Both Canada and Australian do rather well on the chart of life expectancy… France and Sweden also have large areas unsettled by cities and suburbs, as does parts of Japan…. How do they do so well and what take-away can we pull from those five societies who all seem to have discovered the secret of living well….

If one focuses on diet, perhaps there is some magic in eating sushi, or kangaroo, or berries, or drinking wine, or vodka out of bottles with a blue label

But if one focuses on their medical care one sees some interesting correlations… Here is a smattering of several of them as correlated by Wikipedia…

A) In the Japanese health care system, healthcare services, including free screening examinations for particular diseases, prenatal care, and infectious disease control, are provided by national and local governments. Payment for personal medical services is offered through a universal health care insurance system that provides relative equality of access, with fees set by a government committee.

B) The Swedish health care system is a socialized, public health care system. It is informally divided into 7 sections: “Close-to-home care” (primary care clinics, maternity care clinics, out-patient psychiatric clinics, etc.), emergency care, elective care, in-patient care, out-patient care, specialist care, and dental care. A person seeking care first contacts a clinic for a doctor’s appointment, and may then be referred to a specialist by the clinic physician, who may in turn recommend either in-patient or out-patient treatment, or an elective care option. All emergent cases are treated by an emergency department at a hospital.

C) Health care in Canada is funded and delivered through a publicly-funded health care system, with most services provided by private entities. Health care spending in Canada is projected to reach $160 billion, or 10.6% of GDP, in 2007. This is slightly above the average for OECD countries. In Canada, the various levels of government pay for about 70% of Canadians’ health care costs, which is slightly below the OECD average. Under the terms of the Canada Health Act, the publicly-funded insurance plans are required to pay for medically necessary care, but only if it is delivered in hospitals or by physicians. There is considerable variation across the provinces/territories as to the extent to which such costs as outpatient prescription drugs, physical therapy, long-term care, home care, dental care and even ambulance services are covered.

D) Healthcare in France is funded by compulsory national insurance. Social Security in France is calculated as a percentage of income.Doctors and dentists establish private practices. Patients are free to choose which they visit. A patient is expected to pay and claim up to 85% of the cost from the state. France has a high standard of care. The health system was ranked first by the World Health Organization in 1997 and 2000.

E) Health care in Australia is provided by both private and government institutions. Primary health care remains the responsibility of the federal government, elements of which (such as the operation of hospitals) are overseen by individual states. In Australia the current system, known as Medicare, was instituted in 1984. It coexists with a private health system. Medicare is funded partly by a 1.5% income tax levy (with exceptions for low-income earners), but mostly out of general revenue. An additional levy of 1% is imposed on high-income earners without private health insurance. As well as Medicare, there is a separate Pharmaceutical Benefits Scheme that heavily subsidizes prescription medications. In 2005, Australia spent 8.8% of GDP on health care, or US$3,181 per capita. Of that, approximately 67% was government expenditure.

I chose these links because they open up ALL of the questions which we in the US must become familiar before making our “choice of a century”. These show some of the benefits as well as the costs coming from national medical plans which are run and which are funded primarily by government taxation.. Bottom line which should not be missed by pawing at the details, is that in each of these nations, people live longer than they do here… For there, ALL have unlimited access to medical care.

Granted, it is incontestable that the citizens of those nations live longer. The real question now lies in how much does it cost them? Surprisingly for most, the United States spends more on health care per capita than any nation in the world. True, because of it our system does have some benefits. Therefore the real question at hand is for us to weigh the loss of those benefits against the gains brought on by increased affordability.

As of 2008, here is our track record: The World Health Organization (WHO), in 2000, ranked the U.S. health care system as the highest in cost, first in responsiveness, 37th in overall performance, and 72nd by overall level of health. Obviously if one thinks hard about it, concepts such as overall performance and overall health, are purely subjective… However, it should not negate the fact that our current for-profit system guarantees our position as number one in responsiveness.. Other countries in the top ten included Japan, Canada, and Sweden, in part because the study noted that those governments had also invested in enough infrastructure to insure that their patient’s accessibility to health care was sufficient where needed.. For example, in some countries, health care accessibility includes a vast system of air ambulances….

As for filtering out cost factors, by removing the profit piece of 38% that is tacked onto every medical transaction occurring within the United States, other countries are able to provide services to their constituents for less… One method that is successfully used in other societies to keep their doctors happy and on board, is to link a physician’s income to a single fee per patient. Whether one has a cold, or a gastric bypass, the doctor and nurse staff receive the same income per transaction… The fees in most of the nations listed above were set by regional districts, which helped account for those cost differences varying from region to region… Likewise because of those local boards setting fees, some form of petition was allowable for a physician to argue his case among his peers if he felt that the transaction fee for a certain medical practice was set too low…

There are many options out there to minimize costs.. Japan pays a 70-30 split. The government pays 70% and the citizen covers 30%. Sweden’s split is 85-15. Canada is 70-30. France is 85-15. Australia is 67 to 33… But translated to US Dollars, the cost of health in each of these countries is still far lower than it is in the United States.. Japan spent $2908 per capita. Sweden pays $3149. Canada ($5170), Australia ($3181), and France ($3374) which are cheap when compared to the United States per capita health cost ($7900). So where does the difference go?

Total Cost of US Healthcare Compared to Nationalized Medical Plans
Courtesy of ADECRI (Right Click for Larger Image)

In the words of the National Coalition on Health Care: “Experts agree that our health care system is riddled with inefficiencies, excessive administrative expenses, inflated prices, poor management, and inappropriate care, waste and fraud. These problems significantly increase the cost of medical care and health insurance for employers and workers and affect the security of families.” Despite arguments to the contrary, when one looks at the magnitude of cost between our private health systems and those of other government-run health systems, the bang for the buck is simply not there. Anyone who argues otherwise should be suspected of trying to protect his lucrative piece in America’s health care system. For every piece of evidence we now have, shows our system fails at delivering quality health care at reasonable prices, whereas other systems… do just that…

Cancer rates? How does our nation stack up against others when it comes to surviving cancer?

There is good news there: the national cancer rate has declined.. ““The significant decline in cancer death rates demonstrates important progress in the fight against cancer that has been achieved through effective tobacco control, screening, early detection, and appropriate treatment,” said Centers for Disease Control and Prevention (CDC) Director, Julie L. Gerberding, M.D. “As a nation, we must commit to continuing and enhancing these important public health efforts.” Again it was public (not private) health programs, that were responsible for creating this decrease in cancer… However across the board, cancer rates are higher in modern developed countries than in those which are poorly or undeveloped… Not to be shocked, really. Living past the age of 40 opens the door to quite a few strains of cancer that may lie latent but never become diagnosed in an inhabitant from an impoverished country who dies long before reaching that age, thereby improving that nation’s cancer rate statistic in a rather sad fashion. So when measuring the incidences of cancer in many varying societies, those countries with better care and diagnosing abilities, tend to have higher rates of cancers… Meaning that if one goes to one’s physician long enough, eventually some form of cancer will manifest itself….

Currently the US cancer rate as of 2004 (filed 2008 ) averages out at 970.1 cancers per 100,000 of our population…. But what really matters to us is our ranking in the number of deaths being caused by various cancers; the rationale being that a good health care system would have fewer deaths per segment of their population than one that was not so good… So based again on 2004 data, we see that the United States is ranked as the 9th highest at deaths by cancer with 321.9 per 100,000 people, compared to Australia (10th), France (12th), and Sweden (14th). Canada and Japan do not show upon the chart. Again, as for getting the most of our bang for every buck spent, considering that we are paying the most per capita of anyone for health care, we are not doing very well.

Our health system was touted by insurance companies during our last attempt to establish national health care, as being the best in the world… Unfortunately that was a prideful remark appealing to America’s emotions, but had little relevance in fact… It has only been with the soaring of health care costs that corresponded with the time frame of the Bush Administration, coupled with a decrease in hospitalization caused by soaring out-of-pocket costs, that significant data has been made available to America’s citizens making it known to them that this is simply not true..

If one take the statistic of “Percentage Of Life Lived in Ill Health > Female (most recent)” by country , one sees the United States is 6th… following Mexico(1), Poland(2), Turkey(3), Slovokia(4), and Hungary(5). Or that the United States ranks 2nd in child maltreatment deaths, or 165th in Tuberculosis treatment success. But when it comes to obesity, we are number one. Those nations with nationalized health care system treating their citizens to longer lifespans are ranked in obesity: Australia (6th), Canada (11th), Sweden (21st), France (23rd), and Japan (28th).

As expected, when it comes to catering to the wealthy, our health care system stands up fairly well. We rank number one in plastic surgery;

So without going too far off topic, one can see that the argument that states our United States health care is the best system in the world, has some reasonable flaws. It may be good for some endowed with lots of wealth, but when it is stacked against other systems and when one looks at statistics to make their comparison, our system does not rank well… A preponderance of evidence leads one to conclude that money can be saved by switching to a different health care system,… a system that is focused on prevention, and not on gouging the poor sucker who just happens to get sick. It is far cheaper to prevent a costly disease, than it is to treat it… In the United States’ current system, private health insurers shy away from paying out for preventative health care items, knowing full well that the odds are that another provider will be the one who will reap the benefit of their current patient “who will not get sick”… Why should they whittle down their profit margin to enable another company “not” to have to pay out a benefit? Such is the logic in “for profit” health care.

Is there any other proof on this planet that preventative health care on such a massive scale can drop costs considerably? Absolutely. The graphic below (right click to see full image) shows how us humans have capitalized on prevention when it comes to making or costing us money when raising animals….

If It Works For Animals Why In The Hell Can't We Do It For People Courtesy of Journal of Dairy Research
(Right Click for larger image)

That last topic may have gotten us off track. For if you think back we were initially discussing the five options we had to deal with the problem of two entitlements: Social Security and Medicaid/Medicare. So far we have looked at the dismal picture of 1) keeping them as they are… (it doesn’t work).. and 2) keeping both with some modifications…. As we looked, we have seen various modifications as methods of salvaging one or both of the programs… But if you have gotten a good grasp of the numbers, no doubt as we extolled through the changes that could help ease the financial situation in which we find ourselves, you gradually got the sinking feeling down in the pit of your stomach that none of those fixes would be enough…

In an all to familiar setting common to many Americans today, our listing of the options above was sort of like those hopeful scenarios and arguments being made just two weeks before one finds they are about to be laid off.. As soon as that event occurs, when they look back… they see that even two weeks ago that it was inevitable; they simply chose to hope at that time for options that were still open, and they still held out something would turn up to save the day… Then, … came the pink slip. No one getting laid off in today’s world was a being who was not needed. There was just no money left to pay them anymore…. Their output was fine; there were no moral, ethical, efficiency standards that caused the job loss… There was just not enough money to pay them…..

Unfortunately, it is the same with our entitlements. We are paying over $500 Billion dollars a year for each…. Their costs grow as Baby Boomers age, and the number of workers paying into their benefit pool shrinks… Just looking at the costs, and the inability of having the money to pay for it in the future, we need to wise up and figure out a plan…

This is the part of the solution that no one talks about… If you listen to David Walker, he makes allusions but never focuses directly on that question which “must not be named.” Which of the two programs do we scrap… Medicare/Medicaid? or Social Security? Since I have no qualms, we’re going there…

Getting rid of Social Security: Pros and Cons? Most of the literature on Social Security comes from the year 2005, just after Bush’s second term began and he began to privatize Social Security.

Perhaps we should review what Social Security is? And how it’s been abused?

Here is the argument against Social Security…. “The promise of secure retirements is a “hoax.” Taxes paid by workers are “wasted” by the government rather than invested prudently. And “the so-called reserve fund … is no reserve at all” because it contains nothing but government IOUs.” Sound familiar?

If it does you must be at least older than 70. Even then… you would have had to have been just 7 years old when you heard it… It was originally uttered by Alf Landon, who was running as the Republican nominee against Franklin D. Roosevelt’s second presidential term…

Social Security is a tax on employees. They pay part and their employer pays part. But it is still considered by all employers as part of an employee’s compensation and on every financial statement it is included in a category listed under “labor”. The government collects this employee tax and uses it to pay out pensions to those no longer working. Back when Social Security was created there were far more workers working, than retirees who were not… Solvency was not an issue. The government collected what was needed to then pay out….

But in 1982 under Ronald Reagan, Social Security taxes were accelerated to build up future funds in advance to pay for the bubble of baby boomers expected to retire by 2006. The plan authored by Alan Greenspan, sunk accelerated collections of SSA tax into government bonds in the Social Security Trust Fund. Government grew and income taxes went down financed by a long term debt obligation whose repayment horizon lay in the distant future.

Under Clinton, the force feeding of SSA collections into government began to be referred to as the Social Security Surplus. Clinton used it to pay down other national debt, rightly assessing that in order for the debt to the Trust Fund to be repaid, we would need a solvent government. Paying down the extra-Social Security debt and balancing the budget seemed to assure that the government’s indebtedness to the Greenspan plan could be serviced.

Given the apparent surplus created by the SSA tax it became impossible to resist the lowering of other taxes. In 2004 SSA collected $566 billion and paid out $421 billion with the difference of $145 billion going into the Trust Fund, that’s 25% of all collected. Of that $145 billion… the Bush administration used all of it for that year’s current operation of government. The gamble was done. Today we are faced with figuring out how we can pay back that money, lent to our government by the future retirees of the Social Security Trust Fund. The Republican gamble was devious: they never had any intention of repaying the Social Security trust fund…

Instead of reimbursement, we got a noisy push to privatize Social Security; in other words, remove Social Security from out and beyond the control of the government. By relieving the government from their responsibility of having to pay back the borrowed money from the Boomer’s retirement, they could pay off a few benefits to those already in the plan, and quietly shut down it’s operation by turning over the trust fund to investment bankers. This would continue to keep income taxes at low levels. We were using an accelerated tax rate on employees to fund a large portion of the government, and by liquidating the trust fund so we never had to pay it back, we could continue keeping wealthy corporate taxes at very low levels…

But as recent events have shown, putting a nation’s pension solely in the hands of stock market investors and financiers, IS extremely risky. It is far better to put our trust back into the American people themselves.. So once again we need to decide whether paying BACK all that money we cut in taxes just to keeping Social Security solvent, … is worthwhile; or whether we should abandon FDR’s program as a dream whose monthly payments just rose too high…..

In the short term, abandoning Social Security would save over $500 billion a year. Up until this past year, that was more than our yearly national budget. It’s abandonment would quickly bring us back to solvency. Basically it requires that America defaults on a loan it made to itself… which surprisingly is not as bad as it may sound. Really! It is not.

We do it all the time. It is similar to those who borrow hardship loans against their IRA or Keogh plans and never catch up on the chance to pay it back; they just get fewer benefits when it’s their time to cross over… Or to those who borrowed low interest loans from their own life insurance policy yet never get a chance to pay it back; they just get fewer benefits when it’s their time to cross over….. Or those who borrow loans from their parents and it gets deducted from their portion of the last will and testament; they just get fewer benefits when their parents cross over…..

So as long as there are other venues for covering the nation’s elderly, especially those dependent on social security, we could default on that promise made and survive. Like those examples above, we just wind up with a less rosy future than planned… that’s all….

So up to this point in time, all the tricks used to balance Social Security were based on moving money from one sector to another. But as the bill comes due, the revelation slowly dawns that the only way to guarantee that Social Security benefits get into the hands of retirees (both now and in the future), is through increased FICA or income taxes. It’s the only solution that seems to make sense.

The Social Security Administration has numerous plans to mitigate the transition of the baby boomers into the future when fewer people are working. What they lack is control over the political climate that has trended toward naked politically conservative self interest in the last decade. The fix is to answer the question: Is Social Security worth it? Is it worth the gradual doubling of the FICA tax by 2060 to once again become a pay as you go system?

Is it worth the pain? A great question. Perhaps instead, we should switch now and look at the per-person dollars-and-cents cost of NOT raising the FICA tax and of doing away with Social Security all together… If one has no safety net of Social Security there to catch him upon retirement, he has no choice but to save for himself.. He will be in charge of his own retirement…

So how much does one save? Again based on 2004 figures:

According to the Bureau of Labor and Statistics, the median hourly wage of Americans is $13.01 or $27,039 per year or $2,253 per month. Half the population makes more and half make less. Federal taxes on that amount are $3,698. State taxes would be another $811, not enough to be effectively deductible. $3,698 plus $811 is $4,509. $27,039 minus $4509 equals $22,529. So the median take home pay is about $1,877 a month, excluding FICA. Since inflation will be factored into any savings plan automatically, it is not important to adjust the numbers for inflation. At the end of a savings plan, the amount saved will be nominally higher, but the buying power should be about the same. Say a person is very frugal and spends about $500 an month on rent, $195 on utilities, takes the bus to work for $30, $300 on food, buys clothes at the Goodwill for $15, has employer paid health insurance and no dependents, the person might be able to save $877 a month. After 40 years at 3% interest after taxes, the median earner could have $812,000. If a person manages to save $812,000 during his lifetime and retires, he could withdraw about $3,423 a month, at current interest rates, for 30 years before all the money was gone. Good for him.

But…. what if everyone else is doing exactly the same as is our little enterpriser?

Personal consumption being nominally two thirds of the economy,… its drop (by half) would shrink the GDP by a third. Savings (being done by everybody) would be so abundant (because no one was spending), that the total lack of demand (for borrowed money), would cause the local interest rates and prices to collapse. And the frugal individual above would probably lose his job and his savings interest would plummet to nothing. Or put another way, if people start being strictly responsible for their own retirement, it will cause as much or more pain to the economy than the raising of the FICA tax. For if you withdraw money out of the consumer part of the economy in the form of personal savings, it will probably have considerably more negative impact on the economy, than the collecting and redirecting money back into the economy through the raising of the FICA tax.

Or put another way, if we personally saved as much as Social Security takes out and received a 3% return on our investment, at retirement we would receive $355 a month. But, wait. Social Security gives us $937 a month. How?

They do it by absorbing the risk of hundreds of millions of people. Most people won’t live 30 years after retirement, but no one person can behave as if he won’t. This is the unsung beauty of Social Security, it is a giant lottery that you win by living longer than anyone else.

I should mention that other “beauty of Social Security”: one that is certainly to be appreciated in these times of collapsing financial markets. Social Security is not a personal asset… You could be bankrupt; get completely wiped out: have nothing to your name. Social Security will still be there for you.. Unlike any financial annuity or mutual fund, it cannot be taken. It keeps paying long after your personal finances have evaporated over to negative numbers.

But the prime point in favor of keeping Social Security, is that it plays a big role in our economy. Were it to default suddenly, our economy would be (4.3% of our GDP) poorer… That loss would not hold at 4.3% of GDP. It would erode profits, jobs, and cash flow throughout our nation’s commerce. It would be one more tamping of that brake pedal slowing down the nations’ economy… Compared to that, the modest increase in FICA taxes (1.2%) even though it takes some money out of the economy today, would when cashed out, create a benefit 3 times its cost (4.3%), whenever it gets used at some point in the future…

Therefore, when seen over the entire length of its program, the removal of Social Security is more expensive than the cost required to save it, by a factor of three to one.

Which brings us to dissolving Medicaid/Medicare…. What costs or savings would that bring?

We begin with this ancient historical quote referencing Newt Gingrich, then speaker of the House:

“The Speaker says, ‘‘We don’t want to get rid of Medicare in round one because that’s not politically smart. We don’t think that’s the right way to go through a transition. But we believe that Medicare is going to wither on the vine,’’ again talking about section 1862 and talking about the Social Security Act, talking about Medicare. That is very debatable on this floor because that is a serious attempt to dismantle Medicare, Madam Speaker….”

Obviously getting rid of Medicare is nothing new…. but equally obvious (as one can glean from this description of just one little cut to North Dakota’s senior citizens), is that any tweaking of the Medicare Plan that reduces any tiny fraction of a cost saving benefit, expends just far too much political capital to ever get done.

“To their credit, Sens. Kent Conrad and Byron Dorgan and Rep. Earl Pomeroy have resisted enormous pressure from the administration and have taken leadership roles in Congress to stop these cuts, (which) as planned, (will cause) North Dakota seniors to lose over $1.3 million in essential health benefits this year alone. Their joint letter warns they are “deeply concerned that high-quality skilled nursing care for America’s seniors will be threatened – and reductions in spending of this magnitude would severely alter not only the quality of nursing home care, but also access to nursing home care for our nation’s seniors.” The letter also references AHCA’s finding that the Medicare cuts will hurt the state economy and cause North Dakota to lose $2.7 million in total economic benefits and $1.29 million in lost wages.”

Do you see the problem? All that was over the impact of just $1.3 million, (million as in “m”) dollars of cuts made to just one of fifty states. A paltry $1.3 million dollars… out of that year’s medicare budget of $560 Billion (with a “b”) dollars, amounting only to a national percentage of 0.000002.3%. As someone once said, if the government gave away free cars, then stopped the program in mid tracks, it would be impossible to argue that free cars were not necessary for the country’s survival… Even though we survived for how many years without them?

(Editor’s note: a free $20,000 car per household would cost this nation, assuming the Bureau of Census estimate of 113,568 households for 2009, $2.27 Trillion dollars.)

Thus it becomes readily apparent to any savvy politico, that cutting back on entitlements piece by piece, line by line, is an impossibility… Because of that, I am afraid that therefore, it makes more sense to scrap the entire program entirely… (it takes just as much effort as the cutting out of $1.3 million dollars) or …raise the revenue to continue paying for it … as it currently is..

If we scrap the entire program, we are saving our government $560 billion a year. But in doing so we are taking the health care industry off of it’s $560 Billion dollar life support. Yet while doing that, we are simultaneously saving American taxpayers close to $560 Billion a year in payroll taxes… So if one looks at the entire system and sees it as a giant circle, one can glimpse that there is no net gain or net loss to the system that comes out of eradicating Medicare… All we are doing with the Medicare cut, is to interrupt the shuffling of money away from the economy back to the economy….. bypassing the circuitous route that takes the money away from the employee and hands it over first to the government, and from there through the medical profession, where it is then matriculated down to those making their living from the medical field, who then go out and return it back to the economy…

But this is where details matter. Let’s say we stop Medicare immediately… No more taxes. No more reimbursements. Retirees who organized their work lives counting that Medicare would be there for them, do not see the benefit of no longer having Medicare deducted (1.5%) from their pay checks. Yet upon visiting their physician, they are still required to fork over their entire fee with no deductible. Likewise a young 20 year old with no thought of ever going to a physician, would receive his 1.5% weekly tax cut, and never notice its difference… At a wage of $8 dollars an hour, his 30 hour week gives him a tax cut off his $240 weekly gross amount… of three dollars and sixty cents…most of which goes towards the paying of his Verizon bill. No new spending gets created… But to those few still earning $250,000 a year, they in turn get an additional $3750 to play around with (whoopee)…. Which gives us…the moral equivalent of having someone who does not need an additional $3750 (whatever) pocketing the difference while someone older dies from being financially cut off from their medication… The impact on who is affected, greatly distorts the circular argument that no ill effects occur.

That is the problem with all previous talk of dissolving Medicare/ Medicaid entitlements.. Discussion gets focused on what is fair, and no one ever gets to discuss what is it that we can afford..

The total amount of money, both public and private, spent on Health Care within these United States is….. $2.26 trillion. That includes a 6.1% jump over last year. Medicare grew 7.2% to $431 billion; Medicaid grew 6.4% to $329 billion; Private spending grew 5.8% to $1.2 Trillion;

Our first step would be to determine that exact line where Health Care becomes “not affordable”. Once we determine that line, we chose not go over it.. The year 2000 was a very good economical year… If we choose to use that year as a base, we see we spent 13.7% of our GDP back then on health care… Since that seemed to work ok, and until we have a better target, we will let that be our benchmark percent… That means in 2007, our ideal health-care cap (13.7% of 2007’s GDP), should have been at $1.9 Trillion dollars. If so, since we actually spent $2.24 Trillion, we are up $0.34 Trillion dollars over where it should have been, had we kept that line of our budget at target…. So how does one trim $340 Billion Dollars off of our entire nation’s medical expenditures…?

To find that out, we need to first take a look at the roots underlying this question: Why does the United States spend more than other developed countries on Health Care? I can think of three possibilities.

One, is that we are sicker than citizens of other nations. Two, considering that as a nation we are rather wealthy, is it that we seek medical attention much more frequently than do other developed nations? And three, is that our prices for the care which we do seek, are higher when compared to those of everyone else?

Obviously we are not sicker. As a nation, we score well on health. If you examine our health by looking at 130 diseases and charting the incidence we have of those among our population, ….we do rather well.

Secondly, we actually seek medical attention far less than our developed world counterparts.. As this chart shows among civilized nations, Americans actually visit their doctor less per capita than citizens of all other such countries, except for Greece and Mexico…..

Therefore our high expenditures must come from the fact that our prices are simply too high…

McKinsey analysts estimate that, even accounting for more consumption of health care services due to our higher income, the U.S. would spend half a trillion dollars less than it does currently if its medical care prices were comparable to those in OECD countries. Such a reduction in spending would reduce our overall spending on health care from its current level of 16 percent of GDP to 12 percent of GDP.

There you go. In a nutshell, that seems to be the direction we need to pursue… The 12 percent estimate mentioned above is below our target of 13.7% of our GDP. One might expect that as the cost drops, the quality of American health care would increase due to its being more accessible and more affordable.

So how do we drop costs?

There is only one way. Remove the for-profit component deeply rooted in health care from out of the equation, and treat health-care as we do an obligation similar to how we promote commerce, build new infrastructure, and educate our children. In other words, put it under “the people’s” management, meaning government control.

As mentioned above, what works in other nations is the charging of flat fees for each visit. However, to keep physicians from milking the system by returning patients back to their office again and again (the auto repair shop syndrome), an incentive should be placed that tips the will of the physician more towards getting the problem correct on the first try… One suggested method is to reimburse a physician full price for their patient’s first visit, 50% for the second, and 0% for each visit thereafter for the same condition.

A second factor that helps suppress medical prices elsewhere, is the stability that comes from having these prices set by regional boards of the physicians themselves. Since it now will cost the same to go to either Doctor A or Doctor B, if Doctor B has a better success rate, his wealth should increase at the expense of Doctor A… Over time more patients will choose him because of his success. They want to get well faster.

A third factor that suppress prices, is the simplification caused by already having prices preset, and payments quickly transpired based on a simple transaction. American physicians’ largest cost is in obtaining payment. Large staffs are required to deal with a myriad assortment of insurance coverages, none of which have the same requirements. Often it is the physician’s office worker who must themselves become the expert of each individual patient’s insurance coverage; they must do so in order to advise the patient of that patient’s most cost effective options….

But, … if a physician sees 100 patients, and gets $75 dollars per visit, his take that day is $7500. Simple. That extra amount previously charged to pay those massive office staffs, which were required to achieve an 80% recovery, is no longer required.

The CDC estimates that 1.1 billion doctor visits were made in the United States last year.. At a per visit charge of $75 dollars, the net cost ( 1.1 billion X $75.00) equals a meager $82.5 Billion dollars.

So if the government were to begin tomorrow to supersede all current private and insurance payments now covering medical costs and simply charged $75 dollars per visit,…. for a cost less than the AIG bailout, all American medical visits could be free of charge to the patient, and cost the government $82.5 Billion dollars.

As a rough guide, the outlays for Medicare in 2007 amounted to $374 billion dollars which were spread among 43 million participants. The per person average spent on Medicare in 2007, then was $8697 dollars. If an average person went to a physician 4 times in one year, as research by the CCD subscribes… The average visit’s charge would be $2174 dollars.

Of course we are comparing apples to oranges here, for the total outlays cover everything from prescriptions to dialysis… However one can still compare cheap apples to expensive oranges and make a selective choice.. But the primary reason our health care is a higher percentage of our GDP than any other civilized nation, is because our prices are just simply way too high…..

If on top of everything we pay today,…. we were add an extra payroll deduction for government paid doctors visits, nationally, $82.5 billion dollars divided by the number of American taxpayers (138 million), would cost each American taxpayer $597 dollars on the average each year… Per week, that amounts to $11.48 dollars….

So if we assess every American worker $11.48 a week, every American could then visit a physician, either private or in a hospital room, cost free. This does not aggravate the deficit; it is a pay as you go plan. This illustrates the cost savings available to us if we ditch our current system of for-profit medical care.

I don’t know about you, but this saves my household $6500 per year….. How much does it save yours?

As we can see, both entitlements have benefits. Both are extremely costly… But if cutting one entitlement is absolutely necessary, the least damaging one to disappear is that one funding Medicare and Medicaid.. As we previously saw, eliminating Social Security as a government funded pension, impose an additional economic cost that would hit us with another three dollars for every dollar saved…

However eliminating Medicare, or replacing it with a different system of nationalized health care, such as the one above which bypasses the “for-profit” motive behind today’s health care industry, can be done cost effectively while at the same time it improves the health care availability for everyone...The idea of replacing Medicare with a form of nationalized health care based on a per person fee scale, would drop our nation’s amount spent on Health care to a level below our targeted 13.7% of our GDP.

The facts speak for themselves… Eliminate $374 billion. Replace it with an $82 billion plan under which all basic medical care is covered at no cost to the patient. Preventative health care can and will be available, enabling American citizens to take care of small problems earlier before they become costly boondoggles creating a personal financial crises…. No more will large numbers of American have to forgo getting a filling put in their teeth because of financial hardship, and then have to go deep into debt for that root canal over which they have no other choice but to get done… It could have been prevented for only $11.48 dollars per week….

Let’s review where we are. Our choices were to:

a) Keep both as they are:
b) Keep both with modifications
c) Get rid of one; keep the other as is:
d) Get rid of one; modify the other:
e):Get rid of both:.

We have looked at all but the last. So what happens to us if we rid ourselves of both entitlements, as conservatives have been arguing for almost a century? The answer is simple.

Upon retirement, many Americans would have no income and no health-care.

You can figure out your future estimated expenses here. You can customize them to your own situation. In fact if you haven’t done so, you and every American should take the time, use this tool, and figure out your own budget sometime during these next two weeks. (Or if you are smart, print it out and give it to your spouse, friend, or lover to crunch the numbers…) Irregardless, writing down your finances in front of you is good for you to see.. For in today’s world, information is the wisest source of money……

Upon retirement most American couples will need at least $1500 to survive before medical is even considered. So if we were to pull both of those security blankets away, what happens to that person who retires without savings?

If we perhaps look at what other societies do when their old can no longer work, we find something helpful. Elsewhere, the elderly move in with one of their children. If total collapse were to ever come to us on these shores, this option of moving back in with family, would be our natural reaction. After all, what child would turn their parents out on the street? If one currently looks at the Social Security portion missing out of one’s paycheck, and sees it not as an expense but as an insurance policy against having the in-laws move in, …that missing amount should be a little more bearable to endure….

The arrangement of caring for one’s parent works well until a catastrophic sickness strikes … Their child, or guardian, is then faced with the tough choice of either investing in the medical care of their move-in-guest, or investing in their own future… The rule of thumb common to elderly-worshiping societies, is that one freely spends on one’s parents, fully expecting one’s children will freely spend on him…. But to suddenly flip a society away from caring for its children over to caring for its parents, leaves one entire generation out in the cold…. Or… even worse, forces one generation to pay double for both their children and their parents….

Is the cost worth it? How much investment does one put into their parent’s medical care?

Granted, we all die… So somehow extending one’s life beyond its natural progression feels great when one removes himself from all cost of determining its worth… But when one puts a price tag on something that is as priceless as one’s life, and determines that the tragic consequences will force some loved one into bankruptcy to cover one’s profligacy with unlimited medical opportunities, …. then living longer does not have the rosy connotation it once had…It becomes superseded by guilt. Would we go to such great lengths to transplant expensive organs, if it was our very own children who were putting up their house to foot the bill? Perhaps if our last name was Gates or Buffet and we were doing so at their entreaties. But most people would do what every single one of our ancestors did: depart with dignity when their time was due to refrain from draining their children’s fortune.

So what about those few having no children? They would be at the mercy of charitable organizations, whose role would be to provide compassion and kindness, but do little to alleviate any of the effects that old age renders…

Research that was begun in 2006 when the attempt to privatize Social Security was given its go-ahead, used data from the Federal Survey of Consumer Finances during the boom year of 2004 which pointed to a strong dependency of retirees on Social Security. Indeed, 41 percent of older couples and 33 percent of singles would experience a living standard reduction of 90 percent or more were Social Security benefits eliminated. (A surprising finding is the major dependency of very high-income households on Social Security. Indeed, were this upper income household denied of all its Social Security benefits on the eve of its retirement, it would suffer a 35.6 percent reduction in its living standard throughout retirement.)

A reduction of 90% or more.

That is the cost of removing Social Security for two fifths of our elderly couples, and for one third of our elderly singles. The burden of their care would have to be picked up by society, whether it was undertaken by their children or by charitable organizations.

So the question remains… can we afford that budget cut? Is balancing our budget worth the social cost it imposes on our elderly and society?

Actually the moving of one’s parent into one’s house add’s little expense to one’s normal day to day routine. True there would be one more mouth to feed, but if each family member ate less, the cost increase could still be zero. With the sharing of rooms to allow the grandparent to move in, there would be no additional utility charge, no additional property taxes, no additional insurance assessments, and except for medical expenses and psychological wear and tear, no additional cost to society would be incurred by such acceptance of one’s elderly …

But what would change would be America’s dream of freedom after retirement; that moment would switch from finally achieving independence, to one of dependency. We must question whether that privilege, granted one not seen by most of humanity, is worth over $500 billion to our nation every year?

But one thing is for sure. Having the grandparents stay at home would mean the death of America’s preschool childcare industry as we know it….but then again, having that inter generational exchange might actually instill more character in our youth…

If the economy simply stops, and it can… it is nice to know that we can survive without either Social Security or Medicare/Medicaid… But our analysis points to a better solution. To solve our entitlement’s long term boondoggle, our best bet is to keep Social Security solvent by increasing the FICA tax an additional 1.7% to 14.1% of payroll; create, establish and force feed a fee based national health service that charges one fee for each doctor’s visit; then faze out Medicare as we know it, leaving private insurers to cover the cost of high end operations..

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