On Friday, the Social Security and Medicare trustees reported that Medicare will be insolvent by 2024. Like all projections, the writers must make certain assumptions in order to build their forecast. One thing we know about all forecasts is that they are probably wrong. Even so, our confidence in any forecast comes from examining the assumptions made in building it. The more reasonable the assumptions the more confidence we have in the forecast.
So let's examine their assumptions:
- The reports must accept the conditions described by the current law. Current law requires that Medicare outlays will be reduced by 30%!! in 2012. Given the historical behavior of both the legislative and executive branches, this is highly unlikely.
- Here's the real whopper: The report assumes an unemployment rate of 5.5% by 2018. Granted, a lot can happen in 6½ years, but cutting the unemployment rate by more than 40% seems far-fetched ... especially when inflationary pressures and the weakening currency have almost always slowed or even stalled recoveries - both in the US and abroad
It is time for us to accept the reality of a failed experiment, and look at genuine structural alternatives. Defined reimbursement for premium payments is a great step in the right direction. We will quickly see almost every product for seniors match the maximum reimbursement level. Perhaps it would be even better to have a defined transfer payment to seniors, allowing them to keep any excess to do with as they please. Premiums would then reflect competitive pricing, and seniors would have the freedom to pick and choose the level of health insurance that is right for them.
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