Time to Overhaul Medicare, Medicaid, and Social Security

“We can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life, but we have tried to frame a law which gives some measure of protection to the average citizen and his family against the loss of a job and against poverty-ridden old age,” said President Franklin Delano Roosevelt, as he signed the Social Security Act into law August 14, 1935.

“Care for the sick. Serenity for the fearful,” were the words Lyndon Johnson expressed some thirty years later when he amended the original legislation to add Medicare to the Social Security Act in 1965.

Originally created in the middle of the great depression, Social Security was created as an insurance program to provide benefits to the retired and unemployed, as well as to offer a lump sum benefit at one’s death. In Roosevelt’s original proposal, but later stricken from the bill, he stated that the initial funding for the program be merely a temporary tax and affirmed that government funding “ought to ultimately be supplanted by self-supporting annuity plans.”

The act further provided monies to states to render assistance to aged individuals; unemployment insurance; aid to families with dependent children; maternal and child welfare; public health services; and aid to the blind. Medical benefits were left out of the original legislation.

Medicare is a section of the Social Security Act of 1965. This provision was the codification of entitlements that had been continuously debated since the signing of the original Social Security Act of 1935. This section of the 1965 Act offered a social insurance program that provided for health insurance coverage to people age 65 and older, or who met other specific criteria.

Clearly, Roosevelt’s original temporary tax is now permanent. At the beginning of this odyssey, Social Security accounted for 0.70% of the federal tax rates paid by citizens. Interestingly, by 2014, the effective rate of Social Security coupled with Medicare/Medicaid taxes are expected to be 9.75% a 1,392.00% increase. In the same time frame, amount of total spending for Social Security in 1937, the first year that benefits were doled out, equaled $1.3 million. By 1940, that number had jumped to $35 million. The combined programs in 2008 were $1.1 trillion, 7.6% of our GDP, and by 2035 it is expected that the available funds for such benefits will be depleted—exhausted.

An illustration of the efficacy of this system is best captured by the story of the first beneficiary, Ida May Fuller. The first monthly payment made to anyone under the Social Security Act of 1935 was issued to Mrs. Fuller in January of 1940. At the time of her claim, she had paid into Social Security a total sum of $24.75. By the time she died, at the age of 100, she had received $22,888.92 in benefits. Like today most of the funds came from the children of her generation.

While many seem to think this is a government insurance program partly funded by employers, it is not. It is simply a method to very inefficiently redirect back to ourselves a very small percentage of our future retirement needs. Today, more and more businesses are feeling the impact of this inefficient system. And, as more and more employees express doubts that Social Security and Medicare will provide them a safety net, demand for a 401K or other type retirement plans, along with the employer’s contribution to those plans, has increased.

One way or another, this zero sum game needs to change.

As the entitlement benefits from the first implementation of Social Security have been increased time and time again by politicians, still the drain on the existing workforce forced to shoulder the burden of past retirees has increased to current unsustainable levels.

The problems resulting from the way this program functions are not simply fiscal in nature. More than any other program in our history, Social Security, as part of the New Deal, changed the expectation of Americans from that of self-reliance to an expectation that the government and everyone else in the country would become responsible for each American’s life, livelihood and care. No longer just an old age insurance fund, Social Security, Medicare and Medicaid are what most of us have come to expect will take care of us.

Medicare and Medicaid, in conjunction with Social Security, need to be redesigned, incorporating the true economic realities of today, and the lessons learned about our economy from prior years. Both programs need to become a true safety net, not a replacement for personal accountability. Most Americans are living longer and reportedly healthier lives. The retirement age needs to be extended significantly. Also, and most importantly, income and asset eligibility tests need to be established. Full coordination of care and benefits need to become mandatory across all available sources in order to reduce fraud, abuse, and duplications of services (estimated at as much as sixty cents on the dollar). Medicare and Medicaid also need to be combined into one national safety-net program and focus also needs to be placed on eliminating the duplication of expenses for the fifty-eight state and territory infrastructures that exist to administer the funds.

If we step up once again and take the responsibility for our own retirement—that is the funds we need during that period of our lives—then perhaps we will become more aware of what it is we have to sock away in our individual life times to meet the demands of the “golden years.” It isn’t that most do not have the money to fund their old age needs, it is rather the attitude that since everyone else “will take care of me” via these programs – people instead spend the money they might save on that wonderful 50” plasma flat screen or the luxurious vacation to Hawaii. Each of us needs to wake up and set enough aside for that inevitable rainy day.

If we don’t take that approach we must then ask ourselves: What legacies will we leave our children if we do not teach them well or if we ignore addressing the holes in the system and our responsibility in filling them. Is that really what we want to leave behind?

And on top of this, we now have the Patient Protection, Affordable Care Act (Obamacare). While most believe this $2.6 trillion behemoth is supposed to improve healthcare for all of us, the truth lie in the words of Charles Rangel, and Barney Frank who both said, “…this is our best path to a Federal Single Payer system.” In the end the act is not supposed to fix healthcare in America, it is supposed to drive all the profit out of healthcare — already a largely un-profitable enterprise for most of its practitioners.

Few truly understand the wide range of fees and taxes that will be assessed on everyone, including the poor and middle-class. In the end little under this bill will really be affordable, but no one will pay much attention because most of us will not pay for it directly. For the poor and much of the middle-class, they will believe that it is free care paid for by the government. For the rest of us we will understand that it is coming from all of us in the form of fees like taxes on medical devices, tanning treatments, large sized soft drinks; taxes on people who do not purchase insurance, enough insurance, or the correct insurance; new taxes on businesses; a new 3.5% Medicaid tax on real estate, and many others.

What will we do when the part of population that believes this care to be free rises about 51% of the voting population, we no longer understand the form of government that our founders constructed—a constitutional republic—but have regressed to a pure democracy—something they specifically did not want us to become—and we find our economy in irreparable disarray, our nation at war with itself, and our future no longer under our control? Once we moved from citizen politicians who made rules that affected their own day to day lives to the professional political class that produces nothing but trades freebies, paid for by our own production, for votes we began the path to our own downfall.

The question is, “Are we willing to make the sacrifices and face the consequences of the past seventy-eight years of wants and desires trumping needs and common sense in order to correct this before it is too late?”

(Thomas W. Loker served as the Chief Operating Officer of Ramsell Holding Corporation. Prior to joining Ramsell, Mr. Loker was the founder and senior partner of Wild Tiger Holding Company and Thomas Loker Consulting. Visit his website at www.loker.com and his blog at tloker.wordpress.com.)