In late 2008, an extended period of financial irresponsibility and weak oversight led to the largest government bailout in American history. In a single piece of legislation, the federal government committed $700 billion to the credit crisis, in addition to more than $100 billion in tax cuts and spending increases. This caused the real national debt to skyrocket to $56.4 trillion in 2008.
A May U.S. government report said the nation’s economic downturn has added to the weakness of Medicare and Social Security. According to the report, the strength of the Social Security system has decreased more sharply in the past year than at any time since the mid-1990s. It predicts that the trust fund from which Social Security payments are made will run out of money in 2020, while the fund for Medicare will run out in 2017. Furthermore, beginning eight years from now, Medicare will be unable to pay all its hospital bills.
Not an impossible task
Administration officials believe if Congress acts immediately, the issue could be resolved three ways: By raising Social Security payroll taxes by 2 percentage points, from 12.4 percent to 14.4 percent; by reducing benefits by 13 percent; or a combination of the two.
According to the Peter G. Peterson Foundation, healthcare costs are more than twice as high per capita in the U.S. as in the rest of the developed world. Our current healthcare system leaves over 47 million Americans uninsured. Without comprehensive reform, growing healthcare costs could bankrupt the country and deny increasing numbers of people much-needed care.
With the oldest of 78 million baby boomers beginning to retire, the sum of our country’s unfunded liabilities and entitlement promises currently exceeds three times the size of the entire U.S. economy. Medicare and Social Security alone amount to more than $40 trillion, which increases by an estimated $2 trillion to $3 trillion per year. We need to reform our healthcare programs to reflect current economic realities and longer life spans, as people are now spending 20-30 years in retirement.
As financial advisors, what do you think is the solution to our looming healthcare crisis? I challenge you to examine our government’s fiscal health and the consequences for our national economy and raise awareness of issues crucial to our future economic well-being.