We’ve talked about phasing out Social Security and Food Stamps in a way that doesn’t hurt current beneficiaries of these programs, as well as stopping ObamaCare before it can become too intrenched.
But, the grand-daddy of the entitlement programs, as far as how deeply into the actuarial deficit hole the US has descended, is Medicare. By some measures, the US would need well over $100 Trillion in the bank today, earning interest, to pay for all the future promises of just this one program.
It doesn’t take a rocket scientist to understand that if we allow this situation to continue, at some point in the future Medicare will collapse, leaving all the people, who planned for retirement thinking that their medical bills would be taken care of, devastated. Medicare is Unsustainable!
So, if we’re not going to play ostrich, and bury our heads in the sand, let’s change the way we fund our retirement years medical payment system to the most efficient system ever invented – the Free Market. In a Free Market system, each of us can decide what level of insurance coverage vs medical savings that we will use to pay our doctor bills.
As with Social Security, switching retired people over to a Free Market choice, at this late date – after they’ve made all their financial plans, would leave them in dire straights. So, once again, I prefer to have them keep what they have while gradually switching over younger people.
Action Item: Medicare for non-retirees will be phased out.
- The Medicare enrollment age will be raised according to the following schedule:
- Americans under 65 may choose to forego any future Medicare benefits and instead deposit their 1.45% Medicare payroll deduction directly into a tax-free Medical Savings Account. This money is theirs to use for medical expenses (including insurance) after they turn 65. This money is theirs to invest and becomes part of their estate when they die.
- Americans under 65, whether they opt out of Medicare or not, may deposit up to 20% of their earnings, after tax, into the same tax-free Medical Savings Account. Half of this money may be used at any age, and half may be used only after age 65.
Current retirees would continue to receive benefits just as they expected. Current 60 year olds would receive full benefits once they turn 65 years and 10 months. 55 year olds would receive full benefits once they turn 67 years 6 months. 45 year olds would need to wait until age 72 years 6 months.
A current 45 year old would have to weigh their personal preference for full benefits at age 72 years 6 months vs having their 1.45% of Medicare payroll tax – for 27 years 6 months – go into their own tax-free Medical Savings Account. Many younger people would choose to drop out of Medicare even though it would mean losing any benefits their already had paid in for.
It is reasonable to expect that almost all of the $100+ Trillion Medicare actuarial deficit would disappear within 40 years, while protecting current retirees and giving younger people a choice.