Social Security and Medicare

The Real Crisis

Jim LukeLCC Faculty PD DaysMay 17, 2011

Econproph.com

http://econproph.com/presentations/

THE BOOMERS ARE OLD!

THE BOOMERS ARE OLD!We are constantly told that:

“Socialsecuritymedicareandmedicaidare busting

the budget.”

“WE HAVE TO DO SOMETHING SERIOUS AND CUT

BENEFITS NOW!”

Nonsense.

Nonsense.

Social Security is OK.

Medicare per se is OK.

Healthcare is broken.

Nonsense.

3 very different programs.

Life is risky. SS is social insurance.

SS not threat to gov’t. budget.

Who needs Social Security?

• 1 in 4 households• 90% of people 65

– 66% half or more of their income

– 21% all their income

• All of us eventually, either direct or indirect.

The SS Trust Fund.

• 2 Functions:– Cash flow (checking acct)– Pre-pay Boomer bulge.

• Trust fund not needed.– Current taxes = current bfts

Projected Shortfall: 2040-2085

• 28 years from now

• Assumes reduced taxable payrolls*

• Then still pay 83% of scheduled bfts– Higher in real terms

For Social Security to be “bankrupt” and NOT able to pay any benefits….

…GDP must be near zero and nobody is working.

Social Security solvency is positively correlated with more employment and higher real wage

Bruce Webb. Angry Bear blog

Social SecurityIs NOT In Trouble

andDoes NOT Need to Be Cut

econproph.com, march 6

Medicare • Potential spending problem in 2020’s

• Medicare not really problem – Medicare is cheaper than private insurance.

• Other developed countries show an aging population does NOT significantly raise healthcare spending.

Healthcare Is The Problem

• US: $7,538 per person per year

2.5 x average

• Higher prices

• Higher usage per person

• Varied quality

Healthcare Is The Problem

• Incentives wrong: no checks-balances

• Admin costs: 15-30% (double others)

• High error rates• Monopolistic pricing &

wage power• 1/3 of Nursing Time is

Documentation

Medicare Is Solution

• 3% admin costs vs. 15-40% private

• Possible bargaining power

• Best practices

• If all were in Medicare: – Save $58 to $400 billion per year