Registered Investment Advisor

Scott Burns' Articles -- Recent and Archived
Print Article Email Article

Medicare, Medicare Prescriptions, and Life Expectancy

Some columns bring more mail than others.

My recent declaration of enmity for the AARP because it supported the $6 trillion prescription drug benefit was one of those columns.

It brought a torrent of reader mail. A surprising amount was positive. But it disturbed me that the negative mail came in the form of personal attacks suggesting that I was too affluent, didn't care what happened to poor people, etc.

The negative mail also suggested we could easily pay for the prescription drug benefit by eliminating all the "waste, fraud, and abuse" in government spending. We could, for instance, eliminate spending on medical care for illegal immigrants. Others wanted to do it by cutting defense spending. Still others thought eliminating subsidies to corporations could cover it.

Sadly, "waste, fraud, and abuse" is what the government spends on others. It is never what the government spends on us. As large as waste, fraud, and abuse may be, nothing comes close to what we spend on Social Security and Medicare.

As I pointed out earlier last year, a new measure of the size of the bill we are sending to our kids was cut from the Presidents Budget for 2004. It was cut because the figures were so frightening. The new generational accounting found that our government had promised far more in benefits than it would ever collect in taxes. Priced in today's dollars, the shortfall was $43.4 trillion in 2003 and will rise to $44.8 trillion this year.

That's more than our collective net worth, even if you include Bill Gates. In effect, the United States of America is already a bankrupt nation. The only question is when our government will default on its promises--- and how the hurt will be distributed. Virtually every dime of that shortfall is related to two programs: Social Security and Medicare.

That $43.5 trillion figure, by the way, was growing more than $1 trillion a year before passage of the Medicare prescription drug plan. Which raises a question: when will either political party get real about what we can, and cannot afford?

If all this mystifies you, let me take you to the two root problems.

Biology.   The shortfall isn't the result of an evil plot by tax cutting Republicans or free spending Democrats. It is the result of raw biology. When Congress created Social Security in 1935, and Medicare in 1964, they created a seamless bond between our life expectancy and government spending. When life expectancy goes up, so does the cost of supporting the retired. Ditto their medical expenses, which are part of the cost of living. If the costs go up, taxes must rise proportionately.

In 1935 life expectancy at birth was under 60 years. A promise of lifetime income after age 65 wasn't a big deal. Life expectancy at birth, however, has been advancing for more than a century. As recently as 1950, male life expectancy at birth was only 65.6 years, indicating an average "retirement" of about 7 months.

By 2000 male life expectancy at birth was 79.5 years, indicating an average retirement--- at age 65--- of 14.5 years. If the trend continues, as we all hope it will, life expectancy will grow about 2.5 years every decade.

Retirement is getting longer and longer and longer.

Are we saving more money to pay the expenses? No. We're saving less.

Instead, we lobby for more benefits from government. This means we want our government to take the money from someone else--- those "waste, fraud, and abuse" people or, more likely, from our children.

The second problem is political.   Politicians of both ilks continue to wallow in comfortable but useless Have vs. Have-Not arguments. A more important dimension is never mentioned, let alone discussed.

And what is that?

It is the enslavement of the Laters by the Nows. We are willing to impoverish our children by voting to spend their future income on ourselves, while cutting what we pay in taxes today.

This is an issue we need to discuss honestly and head-on. It will affect all our futures, rich and poor, young and old.

Our silence is deafening.

On the web:

Sunday, December 14, 2003: It's right to refuse the AARP

Tuesday, June 10, 2003: Aging is a constant; Circumstances aren't

Sunday, June 1, 2003: Facts got cut prior to taxes

Sunday, may 4, 2003: Social Security's Secret

Only published comments... Jan 13 2004, 11:18 AM by scottb


Comments

No Comments

About scottb

Scott Burns has covered the changing world of personal finance and investments for nearly 40 years. Today, he ranks as one of the five most widely read personal finance writers in the country. Scott began his career as a newspaper columnist at the Boston Herald in 1977 where he was also the financial editor. Nationally syndicated in 1981 and now distributed by Universal Press, the column appears in newspapers from Boston to Seattle. In 1985 he joined the staff of the Dallas Morning News where his column quickly became one of the most widely read features in the paper. He left the Dallas Morning News in 2006 to become one of the founders of AssetBuilder and its Chief Investment Strategist. Burns is a graduate of Massachusetts Institute of Technology (1962). He has written four books, including "The Coming Generational Storm" (MIT Press, 2004) coauthored with economist Laurence J. Kotlikoff. His fourth book, also coauthored with Kotlikoff, was published in 2008 by Simon & Schuster. The paperback edition will be available in January, 2010.  "Spend Til' the End" uses consumption smoothing to demonstrate the errors of conventional financial planning. His business experience includes working as a staffer for a major consulting company and service as a director and audit chairman of a NASDAQ listed manufacturing company. He and his wife now live in Dripping Springs, a "hill country" town about 25 miles outside of Austin.


Contact Us

Open Monday-Friday
9 a.m. - 5 p.m. (CST)

ph. 972.535.4040
fx. 214.556.3848
Email Us

1255 W. 15th Street Suite 240 Plano, Texas 75075