Ask Betty, a senior, how she feels about the prospect of her Medicare benefits being cut and you're likely to get a response along the lines of, "Hands off my Medicare! Those are my benefits. I've paid taxes all my life!"
And that makes sense--except for one detail: Her taxes haven't paid for those benefits, at least not all of them.
And that's the reason the current system is unsustainable. Americans are living decades longer in retirement than in previous generations. And the enormous demographical lump of baby boomers means that the number of those Americans will jump sharply and stay high for an entire generation. These two factors will dovetail into a massive entitlement obligation that will crush the federal government, unless something changes.
But back to the taxes our senior paid--don't they entitle her to that benefit? In an interview with National Public Radio, Eugene Steuerle, a former Treasury Department official and senior fellow at Washington's Urban Institute, explains the numbers just don't add up. "An average couple retiring today has paid just a little over $100,000 in Medicare taxes" over the course of their working lives, he explained. And what do they get back in the form of Medicare? After adjusting for inflation, "about $300,000 in benefits," Steuerle said.
One of Medicare's fatal flaws involves the way it was structured, says Steuerle. Passing the cost of current retirees to current taxpayers means that the incentive for a consumer to worry about the cost of health care isn't very high because a relatively small chunk of income is collected as tax. However, the incentive for health care providers to load up on services is very high, because, he explains, "The more services the hospital can list, the more they can collect."
Factor in the declining birth rate and runaway inflation in health care costs and the result is a Medicare system that pays for only one-third of itself. The shortfall is made up from other revenue streams, namely, "borrowing from China and Germany and a lot of other countries," Steuerle said.
What's the answer? According to Steuerle (and politicians and policymakers of various creed who are attempting to grapple with the Medicare behemoth), it's shared sacrifice. "I don't see any way we can exempt any broad portion of the population from tackling our broad budget issues," he says. In order to avoid bankruptcy on a national scale, everyone is going to have to give a little. And yes, that means you, Betty.