The summary of our Medicare seminar noted that the first facet of Medicare's financial crisis is one of demographics. But I believe that if you buy into the demographics argument, then you are buying into the largest chain letter in the history of humanity. The problem isn't that there will be more baby boomers drawing from the system with fewer workers to pay for them. The problem is one of over-promising, while under-funding.
If our elected officials funded the government services and benefits they promise, then we would not have a Medicare or Social Security financial crisis. For decades, politicians have used the promise of government services and benefits to get elected. But they don't have to tax voters to offer these benefits.
I am not saying that we should raise taxes. I believe if the amount of services and benefits were tied to the amount of taxes collected, then the politicians could only offer what the taxpayers were willing to pay for. If the politicians over-promised, taxes would have to go up and the voters would be less likely to re-elect the politicians.
It is noble to offer needy seniors benefits. But when seniors plan to rely on these benefits, it is immoral to make these promises without establishing where the money to pay for these promises will come from.
To understand how Medicare and Social Security should be funded, we can look to how employer pension plans, including post-retirement healthcare plans, should work. If an employer promises an employee post-retirement healthcare benefits, then an actuary estimates how much these benefits will be based upon the employee's age and estimated future health care needs and cost. Then the actuary determines how much the employer will have to set aside each year of the employees' working years to fund the benefits. Each year, the employer writes a check to the pension fund, which is put into account to accumulate and earn interest.
Each year, the actuary adjusts how much the employee will need to be paid based upon new life expectancies and raising healthcare costs. If the employer decides to give the employee more benefits, such as prescriptions drugs, then the actuary recalculates the employer's annual contribution based on the added costs.
Funds are set aside for each and every worker, so it doesn't matter how many workers you have now versus how many you will have in the future.
If the actuary has estimated correctly, then the retirement fund should have accumulated enough money to pay the retirement benefits promised. This estimate does get very tricky because healthcare needs and cost are difficult to estimate. My feeling is that we should seriously consider "making promises" to people, when we can't even estimate how much the benefits will cost.
Following this model, if the federal government is going to promise workers benefits, then actuaries need to estimate these benefits for all of the workers and should set money aside to fund these benefits. Each year, the actuaries would adjust to the contribution needed.
Annual contributions should have been adjusted to account for the increase in life expectancy. Each year an amount should have been set aside for each worker, so each babyboomer would have been covered as they worked. No matter how many workers follow the babyboomers, funds should have been set aside to cover each babyboomer.
The demography's argument makes it look like we have been surprised by the babyboomer population and the increase in life expectancy. We have known for years that the babyboomers' retirements were coming up. We have known for years that life expectancies were increasing. We should have increased the annual amount that should have been set aside.
If taxpayers felt that the annual amount we need to set aside was too large, then they might ask their elected officials to reconsider the amount being promised.
If the government and elected officials can't be trusted with the amount that needs to be set aside, then we should reconsider if the government should be in the business of providing these benefits.
