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The Incomprehensible Math of Medicare

September 10, 2012 in Solutions

We run into a lot of things that are confusing these days.  Issues about energy, health care, and retirement, are a part of this list.  While these are all things we must deal with, paying for them can often be so difficult that we refuse to deal with it.  This doesn’t make the issue go away but we can avoid looking at it until there is nothing to be done and can give up.

Health care at retirement is something that we all assume we will have because of our participation in the Medicare system through contributions taken through payroll.  We trust the government to take care of us at a later date when we need it based on our relatively small contribution now.  In essence we are taking part in an insurance program in which we all pool our contributions so that we won’t be bankrupted by infirmity later in life.

So how do these numbers actually stack up?  According to the Tax Policy Center an average couple making a combined income of $89,000 will pay in $119,000 in contributions to the Medicare system.  The average amount of claims for the same couple is currently $355,000.

The basic principle of insurance is that the risk of a few is spread across the ability to pay of many.  If we know the claims are on average going to be three times the contribution we’re past any concept of insurance and into the realm of major failure.  This is compounded by the fact that the monies gathered today are spent today, not saved for our use in the future.  This means that we are relying on the generations that follow us to pay for our care which will most likely only be more expensive than it is today.

So what are the solutions?  We’re doing well at burying our heads in the sand and ignoring the problem.  We imagine our electorate will suddenly and magically come up with a solution for us, but the reality is that the bills have to be paid with something or they have to be reduced.  We could ration care and only approve care which is considered effective thus reducing costs, limit payments, or increase deductibles, but in a society where no one wants to give up what they feel they are entitled to, this is unlikely to happen.

Seizing assets at death isn’t much of a solution as more than half of Americans die with less than $10k in assets. That’s not going to solve a $118,000 per person shortfall.  In the end we’re probably going to have to approach this from three sides.  Find less expensive ways to deliver care, motivate our citizens to take care of themselves and manage their own care effectively, and pay more without getting more.

We’re already unhappy to be taking on the burden our parents put on us, is it fair to just pass it along to the next generation?  If we don’t put a solution in place soon the one we get will be somewhere between Soylent Green and Logan’s Run, and not the good parts.



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