Health Care Reform On Track - Look Both Ways Before Crossing
It's coming. Health care reform was passed by the Senate right before Christmas. The Wall Street Journal said, "The bill would represent the the biggest expansion of the federal safety net since the 1965 creation of Medicare."
Here's what you need to know to get a good perspective of what we'll probably face when this health care "reform" (or whatever they're calling it now) is passed. We'll go with the concept of "safety net."
But first, Happy New Year! I hope you had some break from the ordinary these last couple of weeks. I did, and it did me good: refreshed and eager to get on with my work. Now back health care and what it's going to bring us in this year 2010.
The two biggest components of that Federal safety have been Social Security and Medicare - at least until now. Both programs are committed to provide benefits. The benefits they are committed to total somewhere in the neighborhood of $50 - $75 trillion, depending on the figures you believe. That's how much money the Federal Government will need to pay out over the coming few decades.
Where will that money come from? (I'm going to over-simplify a bit here, but I think you'll get the point.) It basically comes from deductions we all see withheld from our paychecks. Find the FICA and Medi-care deductions on your paycheck and you'll find the funding source for both these programs. The money's been coming out like clockwork. We've been taxed (those FICA and Medicare deductions from our paychecks) ever since we started working.
When these programs were first designed, the theory was that those deductions would pay for Social Security and Medicare. We who work now "contribute" money from our paychecks to pay for any expenses that these safety nets generate. It wasn't a bad design. But here's where it gets interesting.
For a time, the money withheld from paychecks was more than was needed for the programs. The government, rather than take less from our paychecks, kept deducting the same amount - more than was needed at the time. They claimed they were putting the excess money in what they termed a "trust fund" to save it for the day when it was needed. That day would come at some future date when the contributions coming in would be less than what was needed to pay benefits.
It sounded good, but it's not what the government did. Instead of saving the money, they spent it. The way they got away with this was by stuffing the "trust fund" with IOU's instead of the money they collected from our paychecks.
Think of it this way. Let's say you want to save 10% of your salary and invest the money for the future. We'll use $1,000 as the amount you decide to save. Every paycheck you set aside $1,000 of your pay intending to invest it for the future. But instead of actually investing it, stuff comes up that you need money for. So you spend it. (Actually, that's pretty much how lots of people manage their finances!) But rather than just admit you spent it when you should have saved it, you get a box and stuff it full of IOU's you write to yourself. Each paycheck you write an IOU that says you owe yourself $1,000.
After 25 years of doing this, you retire and now you need money to live on. You go to your box and find it stuffed with these notes, these IOU's. Go to the grocery store with one of these and try buying some food. Try buying an airline ticket to visit your grandchildren using one of these notes. The notes are, of course, worthless. You'll have to come up with cash to pay for the food and the airline tickets.
Now the government's got a huge box filled with these notes and it's time to spend them for Social Security payments and Medicare payments. That's the situation we're looking at now.
Just like you would have to do, the government's got to come up with cash to pay for the benefits it owes now.
Back to health care reform. We'll be looking at another huge "safety net" program created by the government. It will be designed so that it looks like it all makes sense. Who knows, maybe the people voting for it will really believe that it won't be like Social Security and Medicare and build up huge debts and obligations that will have to be paid for in the future.
Question: Do we have reason to believe that this new safety net program - this health care reform - will fare any better? Or will it also build up future obligations that the government has no possible chance of meeting? If past history is any indication, I think you know the answer.
Here's what you need to know to get a good perspective of what we'll probably face when this health care "reform" (or whatever they're calling it now) is passed. We'll go with the concept of "safety net."
But first, Happy New Year! I hope you had some break from the ordinary these last couple of weeks. I did, and it did me good: refreshed and eager to get on with my work. Now back health care and what it's going to bring us in this year 2010.
The two biggest components of that Federal safety have been Social Security and Medicare - at least until now. Both programs are committed to provide benefits. The benefits they are committed to total somewhere in the neighborhood of $50 - $75 trillion, depending on the figures you believe. That's how much money the Federal Government will need to pay out over the coming few decades.
Where will that money come from? (I'm going to over-simplify a bit here, but I think you'll get the point.) It basically comes from deductions we all see withheld from our paychecks. Find the FICA and Medi-care deductions on your paycheck and you'll find the funding source for both these programs. The money's been coming out like clockwork. We've been taxed (those FICA and Medicare deductions from our paychecks) ever since we started working.
When these programs were first designed, the theory was that those deductions would pay for Social Security and Medicare. We who work now "contribute" money from our paychecks to pay for any expenses that these safety nets generate. It wasn't a bad design. But here's where it gets interesting.
For a time, the money withheld from paychecks was more than was needed for the programs. The government, rather than take less from our paychecks, kept deducting the same amount - more than was needed at the time. They claimed they were putting the excess money in what they termed a "trust fund" to save it for the day when it was needed. That day would come at some future date when the contributions coming in would be less than what was needed to pay benefits.
It sounded good, but it's not what the government did. Instead of saving the money, they spent it. The way they got away with this was by stuffing the "trust fund" with IOU's instead of the money they collected from our paychecks.
Think of it this way. Let's say you want to save 10% of your salary and invest the money for the future. We'll use $1,000 as the amount you decide to save. Every paycheck you set aside $1,000 of your pay intending to invest it for the future. But instead of actually investing it, stuff comes up that you need money for. So you spend it. (Actually, that's pretty much how lots of people manage their finances!) But rather than just admit you spent it when you should have saved it, you get a box and stuff it full of IOU's you write to yourself. Each paycheck you write an IOU that says you owe yourself $1,000.
After 25 years of doing this, you retire and now you need money to live on. You go to your box and find it stuffed with these notes, these IOU's. Go to the grocery store with one of these and try buying some food. Try buying an airline ticket to visit your grandchildren using one of these notes. The notes are, of course, worthless. You'll have to come up with cash to pay for the food and the airline tickets.
Now the government's got a huge box filled with these notes and it's time to spend them for Social Security payments and Medicare payments. That's the situation we're looking at now.
Just like you would have to do, the government's got to come up with cash to pay for the benefits it owes now.
Back to health care reform. We'll be looking at another huge "safety net" program created by the government. It will be designed so that it looks like it all makes sense. Who knows, maybe the people voting for it will really believe that it won't be like Social Security and Medicare and build up huge debts and obligations that will have to be paid for in the future.
Question: Do we have reason to believe that this new safety net program - this health care reform - will fare any better? Or will it also build up future obligations that the government has no possible chance of meeting? If past history is any indication, I think you know the answer.
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