Bush's Dirty Little Medicare Secret

Politics / US Debt
Aug 15, 2008 - 03:03 AM
By: Mike_Stathis

We already know about the lies orchestrated by the White House to justify the invasion of Iraq . But there is a bigger secret that has not yet hit the mainstream media. And it probably never will until it's too late. Those of you who read my book already know about it because I discuss it at length. For those of you who haven't had a chance to read America's Financial Apocalypse , I'm going to expose this secret now.

Let's travel back towards the end of President Bush's first term in office. In preparation for his reelection campaign against Democratic Party Nominee Senator John Kerry, Bush instructed his Secretary of Treasury Paul O'Neill to commission an economic study to determine how much the U.S. government owed for the fiscal year 2004. As a part of this study, Dr. Jagadeesh Gokhale (senior economic adviser to the Federal Reserve Bank of Cleveland ) and Dr. Kent Smetters (economics professor at the University of Pennsylvania ) examined Social Security, Medicare, and Medicaid. They concluded that the total present value of the liabilities needed to pay some 80 million baby boomers for Social Security was $22 trillion. When Medicare and Medicaid were added, this obligation totaled $43 trillion. Finally, adding Part D Medicare brought the total to $51 trillion.

Independent groups studied this same data. It turns out that the estimates by Gokhale and Smetters were conservative by comparison, with total liabilities reported as high as $72 trillion. How much is $72 trillion? Well, it's more than the $60 trillion total debt held by the U.S government and consumers ( America 's total credit bubble, current estimate). Finally, these liabilities exceed the global GDP.

But it gets worse. While the present value of these mandatory liabilities is between $51 and $72 trillion, the future value of over the next forty years is around the $120 trillion. In other words, if Washington funds these programs as needed and without benefit cuts, the total amount over the benefit period could be as high as $120 trillion. Thus, by delaying the fiscal solutions the present value will increase accordingly each year due to inflationary effects, making matters worse. What this means for certain are higher taxes and fewer benefits.

Study Estimate of Present Value of Obligations For Social Security, Medicaid and Medicare

Gokhale & Smetters $51 trillion
International Monetary Fund $47 trillion
Brookings Institute $60 trillion
Government Accountability Office $72 trillion

Medicare is the Biggest Challenge

Of these three liabilities the greatest challenge is by far with Medicare since it's growing six times faster than that of Social Security . Medicare costs are directly related to the healthcare crisis few politicians want to mention. Rather than address the healthcare crisis, President Bush has chosen to create distractions by passage of Part D Medicare. But as we know, Part D does not provide solutions for nearly 50 million Americans without healthcare coverage. It doesn't even provide much benefit to seniors. Finally, Part D doesn't address the overall costs of healthcare, which has forced many with health insurance into bankruptcy. To distract from this enormous problem, Bush created another decoy by claiming an immediate solvency crisis in Social Security. In doing so, he failed to address the real problem with Social Security, which is not a solvency crisis at all. The real problem with Social Security is its failure to keep up with inflation.

Part D will only be beneficial to the drug industry, with huge annual profits estimated at $200 billion annually. This is the main reason why I continue to advise investors to use the weakness in drug stocks as buying opportunities.

Solutions

So what are the solutions? In the report written by Gokhale and Smetters, several options were identified as the only solutions to provide for these gigantic liabilities.

Increase the payroll tax by over 100 percent immediately and forever from a current 15.3 percent of wages to nearly 32 percent.
Raise income taxes by nearly 70 percent immediately and forever
Slash Social Security and Medicare benefits by 45 percent immediately and forever
Or eliminate forever, all discretionary spending , which includes the military, homeland security, highways, courts, national parks, and most of what the federal government does outside of the transfer of payments to the elderly
Sound scary? It should since option 4 is absolutely impossible. Likewise, option 3 is not feasible and if followed would sure destroy the economy…“immediately and forever.â€