Tom Cruise and Katie Holmes (AKA TomKat) had a baby last month, Suri Holmes. Apropos, this week the Medicare program’s public trustees reported that even though only 7 percent of TomKat’s federal income taxes now go toward Medicare, when Suri turns 15 years old, 25 percent of the federal income taxes levied on her modeling earnings will go straight to Medicare. By the time Suri turns 25 years old, 40 percent of the federal income taxes levied on her book deal will help finance Medicare benefits for her dear old dad, who will then be 68 years old.

On May 2, I attended an American Enterprise Institute symposium on Medicare’s financial outlook. That outlook is awful.

I offered the Stroke of a Pen solution of raising the age of eligibility going forward. In Crisis of Abundance, I explain in more detail how to phase out Medicare.

This idea was ridiculed by the panel. For the most part the panel reminded me of an old business cartoon with the caption, “I don’t have a solution, but I really admire your problem.”

However, the most likely alternative to cutting benefits is “cost control,” meaning price controls and/​or rationing. The audience and the panel seemed much more receptive to cost control than to cutting benefits. Maybe the AEI is getting ready to play a role in the Hillary Clinton administration.

One of those who emphatically resisted cutting benefits was Mark McClellan, the Medicare czar. He was so gung-ho about Medicare’s quality initiatives that during the Q&A I asked him whether Medicare should take over health care for everyone. Instead of saying, “No,” he gave a political answer about how Medicare’s new initiatives were a “partnership” with the private sector.

Public-private partnerships are problematic, in my view. Power corrupts, absolute power corrupts absolutely, and private-public partnerships absolutely corrupt the private sector.

We have reached the point in health care policy where government is like the ten-year-old boy who starts fires so that he can be lauded as a hero for helping to put them out. Massachusetts gives huge hospital subsidies for “uncompensated care”—the subsidies apparently exceed the cost of care, because one of the obstacles to the Massachusetts reform is that hospitals are worried that they will lose money. Anyway, these subsidies, along with dysfunctional insurance regulations, favor uninsured free riders, causing the fire that needs to be put out with health insurance mandates.

McClellan lauded the Massachusetts reforms.

This morning the Today show ran a remarkably pro-consumerism segment on how patients can shop around, get price information, and negotiate discounts for medical care. You can watch the segment here. If that doesn’t work, click here and then click on “How to manage health-care costs.”

Ezra Klein thinks some countries have achieved universal health coverage. Ramesh Ponnuru demurs: “If you can’t get an operation because your country’s national health insurance system has you on a long waiting list, in what sense have you enjoyed ‘universal coverage’?” Klein replies by defining away the problem: “waiting for an elective procedure — no country I know of has waiting lists for emergency procedures — that you then receive doesn’t contravene the terms of health coverage at all.” Jonathan Cohn adds: “some countries with universal coverage don’t seem to have waiting lists at all,” notably France and Germany. Who’s right?

The evidence seems to lean toward Ponnuru’s position. A few items:

1. Canada’s Supreme Court wrote in a case last year: “The evidence shows that, in the case of certain surgical procedures, the delays that are the necessary result of waiting lists increase the patient’s risk of mortality or the risk that his or her injuries will become irreparable. The evidence also shows that many patients on non-urgent waiting lists are in pain and cannot fully enjoy any real quality of life.” So the issue isn’t just about elective or unnecessary medical care, or just about mortality risk. (Next Monday, the Cato Institute will release a study by the doctor who litigated that case.)
2. In a 2004 poll conducted by the Stockholm Network, residents of France and Germany expressed the least dissatisfaction with treatment delays (out of eight European nations surveyed). Nonetheless, the French and Germans who were dissatisfied with their health care system’s waiting times outnumbered those who were satisfied (50 percent and 55 percent dissatisfied, respectively). So there may be a problem in those countries, even if the authorities do not measure it. (Perhaps we could approach the uninsured the way that France and Germany approach waiting times, and just stop counting them.)
3. There are indications that people who actually get sick in the U.S. fare better than in nations with “universal” coverage. Women who get breast cancer in Germany are slightly more likely to die of it than breast cancer victims in the U.S. (31 percent vs. 25 percent). For prostate cancer, you are twice as likely to die of it in Germany as in the U.S. (44 percent vs. 19 percent). More such data can be found here and here. If that’s the case, the appeal of “universal” coverage fades.

Can we achieve “universal” coverage? If we could, would it be better than what we have? If it would, would it be worth the cost of a tax burden like that of France? These are open questions, and they are for proponents of universal coverage to answer.

As they try to answer that question, I recommend Crisis of Abundance, a short Cato Institute book by econo-blogger Arnold Kling.

Year after year, federal officials speak of the Social Security and Medicare trust funds as if they were real. Yesterday, the government announced that the Social Security trust fund will be exhausted in 2040 and that the Medicare hospital insurance trust fund will be exhausted in 2018 — projections that the media dutifully reported. 

But those dates are meaningless, because there are no assets for these “trust funds” to exhaust. The Bush administration wrote in its FY2007 budget proposal:

These balances are available to finance future benefit payments and other trust fund expenditures—but only in a bookkeeping sense. These funds…are not assets…that can be drawn down in the future to fund benefits…When trust fund holdings are redeemed to pay benefits, Treasury will have to finance the expenditure in the same way as any other Federal expenditure: out of current receipts, by borrowing from the public, or by reducing benefits or other expenditures. The existence of large trust fund balances, therefore, does not, by itself, increase the Government’s ability to pay benefits.

This is similar to language in the Clinton administration’s FY2000 budget, which noted that the size of the trust fund “does not…have any impact on the Government’s ability to pay benefits” (emphasis added).

I offer the following proposition:

• If the government knows that there are no assets in the Social Security and Medicare “trust funds,” and yet projects the interest earned on those non-assets and the date on which those non-assets will be exhausted, then the government is lying. 

If that’s the case, then these annual trustees reports constitute an institutionalized, ritualistic lie. Also ritualistic is the media’s uncritical repetition of the lie.

Michael’s posts below looked at the Medicare Trustees Report. The 2006 Report issued by the Social Security Trustees isn’t any better. With another year of inaction, Social Security’s problems have grown worse. The program will begin running a deficit in just 11 years. In theory, the Social Security Trust Fund will pay benefits until 2040, a year earlier than predicted last year. That’s not much comfort to today’s 33-year-olds, who will face an automatic 26 percent cut in benefits unless the program is reformed before they retire.

But even that is misleading, because the Trust Fund doesn’t contain any actual assets. The government bonds it holds are simply a form of IOU, a measure of how much money the government owes the system. It says nothing about where the government will get the money to actually pay those IOUs.

Overall, the system’s unfunded liabilities—the amount it has promised more than it can actually pay—now totals $15.3 trillion.

That’s “trillion.” With a T.

Setting aside some technical changes in how future obligations are calculated, that’s also $550 billion worse than last year. In other words, because Congress failed to act last year, our children and grandchildren were handed a bill for another $550 billion.

How long will Congress continue to duck this issue?

Fortunately, the trustees’ report (see below) does help lay the groundwork for future Medicare reform. One of the few helpful provisions of the 2003 Medicare Modernization Act is what is known as “the trigger.” As Medicare’s trustees explain:

If in two consecutive [trustees] reports, it is determined that the difference between Medicare outlays and dedicated financing sources will reach 45 percent within the first 7 years, then a “Medicare funding warning” will be triggered… This finding would require the President to submit to Congress, within 15 days after the date of the next budget submission, proposed legislation to respond to the warning. Congress is then required to consider this legislation on an expedited basis. This new requirement will help call attention to Medicare’s impact on the Federal Budget.

As they did in 2004 and 2005, this year the trustees reported that the difference between dedicated funding and outlays will first exceed 45 percent of Medicare outlays in 2012. Since that is just six years off, the trustees pulled the trigger.

Since it is likely that the trustees will pull the trigger again next year as well, reformers need to start gearing up for that fight today. Here’s one place to start.