During my recent presentations, I've asked audiences to consider a scenario in which they were interviewing an applicant for the position of Chief Financial Officer within their firm.
After the obligatory small talk, they would generally focus on the applicant's most recent position and the experience at that firm. Reviewing the applicant's resume, they would note that the applicant was in the job market because their previous employer had to close their doors and you'd likely ask what happened to cause that unfortunate circumstance.
"Well," your applicant might say, "the company wasn't able to sell enough widgets to cover their expenses and after a time, they became insolvent and declared bankruptcy." Knowing that one of the main tasks of any CFO is forecasting, you probe a bit more deeply, only to learn that the applicant had miscalculated the costs of one part of the operation by a whopping 633%. Well, you might reason, that was just one part of the operation and mistakes -- even big ones -- happen. When you ask about how the company did in total, the applicant admits that that they had missed the projection for the overall expense of the company by an even more astonishing 792%.
"Would you hire this applicant to be the CFO of your company?" The answer is always, "of course not." Frankly, most people are amazed that this person had the nerve to apply for any job involving finance. I then let the audience in on the "secret." The percentages I mentioned above are the amount by which the original 1965 Medicare projections for 1990 hospitalization and overall program spending (respectively) were missed. Yet this has not stopped the "applicant" -- the U.S. Federal Government -- from spending the last year lobbying for the job of CFO for the nation's entire health care system.
If the year-long Congressional dance around the health care "reform" campfire hasn't driven you to take advantage of Mental Health Parity, try taking a stroll through the Medicare Trustees' report. Trust me, you'll either need therapy, drugs, or both. The short, sad story is that the current unfunded liability for the Medicare program is $38,000,000,000,000 (that's "trillion" for those of you who, like our imaginary applicant, are a bit math-challenged).
Please note that this problem will persist and worsen regardless of what, if any, action is taken on "health care reform." Interestingly, while some in Congress decry the alleged "obscene profits" of health insurance companies, it is worth noting that they can't seem to run their program -- now nearly half of the medical spend -- at anything that even approaches a break-even. Unchanged, the Medicare fund is poised to implode like an aging NFL stadium in a controlled demolition.
Boom time
The system is about to encounter approximately 76 million baby boomers -- those of us born between 1946 and 1964. Do the math: The oldest of these "aging hipsters" will turn 64 this year; one year away from full Medicare eligibility. All of us were already on the continent when Medicare became the law of the land, and yet it seems that we kind of snuck up on the system. The original "Me Generation," hell bent on rearranging the universe to accommodate our needs and desires has not exactly been stealthy. In fact, we've been as visible as a pig in a python. In 1967, TIME magazine christened the baby boomers as its "Man of the Year."
One of the ubiquitous "Boomer stories" floating around the Web paints the picture. "We were put to bed on our stomachs in cribs painted with brightly-colored lead paint. We didn't have childproof caps on our medicine bottles and we rode our bikes with baseball caps, not helmets. We rode in cars with no car seats, booster seats, seat belts or air bags. We shared one coke bottle with four friends and nobody died or got the flu. We played outside until the street lights came on. No one could reach us, and we were OK." We survived all of this only to find out that as we approach age 65, we may not be able to receive benefits for which we've paid all of our working lives.
According to the Medicare Trustees, Medicare's reserve will be empty by 2017. That date is two years earlier than last year's estimate, and has been moved earlier on the calendar several times, so the situation may be more dire than today's projection. This looming insolvency refers to Medicare Part A, and while other parts are in slightly better shape, the situation is pretty bleak. These projections also assume that Medicare will actually cut payments to medical providers in accordance with the Deficit Reduction Act formula. As we've learned during this year's "Stealth Care" exercise, these cuts have been rolled back every year since 2003, and each year of delay hastens the deterioration of the funds' solvency.
Time to touch the "third rail"
Entitlements such as Medicare and Social Security have often been viewed as the "third rail" in politics: Sudden death for anyone foolish enough to touch the rail carrying the electricity. Yet if changes are not made -- and made soon -- the 76 million baby boomers are going to "go boom" indeed. Some in Congress believe that they can raise taxes to cover the shortfall, but the math just doesn't work -- at least, in any digestible, long-range manner. It is time for the electorate to flip the circuit breaker and demand renovation of that third rail.
Paul Ryan (R-Wis.), the ranking member of the House Budget Committee, is one of the few who have dared to touch this sacred cow of entitlements. His "Roadmap for America's Future" (available at www.roadmap.republicans.budget.house.gov) covers a variety of subjects (including health care reforms) and ought to be required reading for every American. This is a plan that even President Obama called "detailed" and "legitimate." In the section on Medicare, Ryan suggests that we preserve the existing Medicare program "as is" for those currently enrolled or who are 55 and older today.
As those under 55 today become eligible, they will receive a Medicare payment, initially averaging $11,000, which they can use to purchase a "Medicare Certified Plan" -- presumably in the free market. The payment would be adjusted to reflect medical inflation and pegged to income, so low-income individuals receive the greatest support. Also included is a risk adjustment, so that those with greater medical needs receive a higher payment.
In another consumer-centric, free market idea, Ryan's plan allows for funding Medical Savings Accounts for low-income beneficiaries, while allowing everyone else, regardless of income, to set up a tax-free MSA. According to his Web site, this plan has been developed in consultation with the Office of the Actuary of CMS as well as the Congressional Budget Office, and concludes that these reforms will make Medicare permanently solvent.
We boomers know that sometimes things don't work out as planned. Remember, we fell out of trees, got cut, broke bones and teeth and, oh by the way, we didn't sue anyone. We just walked -- or limped -- away, smarter than we were before. We are a generation of risk-takers and problem-solvers. We understand innovation and new ideas -- we've invented quite a bit ourselves. It may take all of those attributes for this problem to be solved.
If Congressman Ryan's plan is the best solution, we might even consider making the 40-year-old whippersnapper an honorary boomer. If we don't find a solution somewhere, we will have a lot of company inside that python.
David Saltzman, RHU, DIA, is a past president of NAHU and has been a health, disability, life and employee benefits broker for more than 25 years. He is director of the large group segment for Carolina Care Plan. Readers may write to him at Carolina Care Plan Inc., 201 Executive Center Drive, Columbia, SC 29210.
