Your (Non)Share of Entitlement Programs

Medicare is broke and broken.

President Johnson introduced the program in the 1960s as part of his “Great Society.” He didn’t originate the idea of healthcare for the elderly, but he was the President that eventually got it passed.

The original scope of the program was to provide affordable care – not free care – to Social Security recipients. Initially the program was a success. It did indeed provide healthcare to those who otherwise could not afford it. Then, of course, time and Congress took their toll.

Time took its toll by revealing that healthcare costs would soon outstrip the inflation rate of most every other item, including general prices, wages and interest rates.

Congress took its toll by ever-widening who qualified to receive Medicare coverage, and then failing to stick with cost-reducing measures needed to keep Medicare from spiraling out of control.

What we’re left with today is a program that covers tens of millions of people, at a cost to the participants far short of the cost of the care. The bottom line is, Medicare brings in less than it spends right now. Today.

But Congress didn’t stop there…

Every year Congress passes temporary laws that stop automatic cuts in Medicare payments. One such cut is a required reduction in the fees paid to doctors. This mandatory cut is part of a law from over a decade ago, created with the intention of helping keep Medicare solvent.

The idea was, if Medicare began spending more than it received in revenue (tax payments), then doctors were supposed to have their reimbursement fees cut by 5%.

Of course, that never happened.

Medicare has been underwater since 2008. So, for the five years since then, including 2008, doctors should have seen a reduction in their pay. By now, the drop would have been over 25%.

But, every year, Congress has passed what is called the “doctor’s fix,” to put off this cut. Once again, in January 2013 there is supposed to be a mandatory cut of doctor’s fees, and now the number is up to 31%. Will it happen? Not a chance.

Instead, we’ll go along pretending that all is well… that the U.S. treasury bonds in the Medicare Trust Fund are really worth something… that the program really can save money by enacting fictitious cuts somewhere in the future… that everyone will have healthcare in whatever form or amount they want.

At least, some people will keep pretending this to be the case. For the rest of us, reality keeps getting a bit uglier. It’s not enough that Medicare has lost money every year since 2008. It’s not enough that Congress can’t find the political will to simply stick with existing methods of bringing down costs, much less work on new ways to reign in the runaway spending.

Additionally, we have over 60 million Baby Boomers that will be retiring in the next 12-15 years, all looking for their piece of the Medicare pie. This is what should scare you.

There will be adjustments made. And adjustments never work for two groups – taxpayers and those with assets. If you are in either one of these categories, be warned. Medicare will be balanced on your back, no matter how much it hurts.


Rodney

P.S. There’s no doubt our health care system needs a major overhaul. But we can’t stop spending money on health care just because it’s busting our budget. That’s why players in the industry will continue asking, “Is there a better way?” The good news is… there is a better way and we’ll tell you all about it – and how to profit from it – in your upcoming June issue of Boom & Bust. Don’t miss it.

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About Author

Rodney Johnson works closely with Harry Dent to study how people spend their money as they go through predictable stages of life, how that spending drives our economy and how you can use this information to invest successfully in any market. Rodney began his career in financial services on Wall Street in the 1980s with Thomson McKinnon and then Prudential Securities. He started working on projects with Harry in the mid-1990s. He’s a regular guest on several radio programs such as America’s Wealth Management, Savvy Investor Radio, and has been featured on CNBC, Fox News and Fox Business’s “America’s Nightly Scorecard, where he discusses economic trends ranging from the price of oil to the direction of the U.S. economy. He holds degrees from Georgetown University and Southern Methodist University.