Could You Die Faster? Medicare's Broke.

The wolf really is at the door.

For years Social Security and Medicare have been saying that they're running out of money. But, until now, the date of insolvency was years away.

The just-released Social Security trustees report says that Medicare will be spending more than it brings in this year. In less than a decade, the system will have run through all of its savings and be incapable of paying bills.

Social Security is slightly better off. By 2037--about the same time as GenX and GenY will want to punch out of the working world--Social Security won't have the money to pay full benefits.

When the systems stop running surpluses -- that's now -- it's also bad for taxpayers because the government has borrowed all the money out of the so-called "trust fund" to finance current operations. When those I.O.U. have to be repaid, there is less money for roads, parks, the military and every other service the government provides.

The check's not in the mail...
What happens to beneficiaries when Social Security and Medicare run out of dough? I called Bruce Schobel, president-elect of the American Academy of Actuaries and one of the nation's top experts, to find out. The answer isn't pretty.

The systems would continue collecting taxes, so they wouldn't be completely insolvent. Social Security, for example, would find itself about 25% short of having enough to pay all benefits. But the system couldn't simply pay less.

"They don't have authority to pay partial benefits, so they would have to delay sending out checks until they had the money," said Schobel. "At first that would mean that checks would be a couple of days late. But, they'd get consistently later and later."

No cash, no health care
The same would happen with Medicare. But instead of consumers getting stiffed, it would be doctors and hospitals. It's no stretch to imagine sick seniors being turned away at the door. No cash, no service. Be sick somewhere else.

If the Obama administration doesn't fix Medicare--and quick--millions of retirees may have to buy private health coverage or promise to pay their doctors themselves. That's not GenX's problem. That's going to hit current retirees and the Baby Boom first.

Tough Rx
Fixing Medicare is no easy task. Americans either must pay exorbitant taxes to finance the existing system, or they need to find ways to significantly cut costs. That requires more dramatic solutions than even what the Obama administration is discussing.

In fact, many experts believe that the only way to get Medicare to balance is to address a thicket of thorny mortality questions. Do we, as a nation, forestall death at all costs? The vast majority of health care dollars are spent in the last few months of life.

Do we restrict how much government money each person can spend on medicine, telling those faced with life-threatening diseases to chose between death and bankruptcy?

Do we demand healthy choices for public support? In other words, if you smoke, overeat or drink to excess, should the government refuse to pay your medical bills?

Or do you restrict the system's costs in other ways?

Should the government simply become a backstop for catastrophic care, telling seniors that they need to handle the basics--the cost of doctors visits and prescriptions, for instance--on their own? If the goverment pays for care, should it be able to recover the cost from the recipient's estate before heirs get their share?

Never retire
Schobel expects Congress and the Obama administration to come up with a solution before Social Security can't pay benefits, but he admits that these problems have been brewing for decades without a serious move to fix them. The fixes for Social Security are far simpler than for Medicare, but they're also not popular. The actuary group offers a game (it's instructive, but not particularly fun) on its web site to help consumers understand the choices, which boil down to these:

  • Hike the retirement age. "Normal" retirement age is already rising to 67 for those born in 1960. In future, you might not be able to collect full retirement benefits until you're 70.
  • Raise taxes by either hiking the tax rate, which already eats up 15.2% of wages to fund both Social Security and Medicare, or by making more income subject to tax. Right now, Social Security taxes are collected on your first $106,800 in wages. After that, you only pay Medicare tax.
  • Cut costs and that means cutting benefits. We've already discussed some of the ways to cut costs for Medicare. For Social Security there are two basic options--reduce monthly payments or "means-test" benefits to cut out the rich (who, incidentally, paid the most into the system). Or both.
What now?
Maybe there are other solutions. It's time to be part of the debate.

Is there a sliding scale to the value of life? Is health care a right, or a privilege? At what point can the government say that keeping a citizen alive costs too much? Should health care be handled like hotels--the best going only to those who can afford it?

What do you think? Do we raise taxes, cut benefits, or simply let future generations twist in the wind? Every minute that this problem festers, the options get worse.