by James A. Bacon
The Hospital Insurance Trust Fund, one of the four major components of the Medicare program, will run out of money in 2028 — two years earlier than previously projected. That appraisal comes from the Medicare Board of Trustees, which, the last time I checked, is not funded by the Koch Brothers.
The news of the accelerating structural crisis in the nation’s health care safety net stirred only the slightest of ripples in the news media, which buried the story deeper than an Iranian nuclear research facility. One would think the news to be of more than passing interest to the program’s 55.3 million recipients and thus to major media, but the nation’s elite journalists are so obsessed with the latest Tourettes-like tweets by Donald Trump that they cannot bestir themselves to ask the presidential candidates how they intend to preserve the social safety net.
This news comes soon after Congress and the Obama administration avoided the impending depletion of Social Security’s Disability Insurance (DI) trust fund only through the expediency of folding it into the Old Age Survivors Insurance trust fund, thus accelerating by a year the impending breakdown of both by 2034.
Medicare and Social Security will not collapse when the trust funds run out, but the gap between spending and revenues will have to be covered either by a hike in taxes, a cut in benefits or an increase in government borrowing, each of which would be grievous in its own way. The magnitude of this gap, caused by the retirement of the Baby Boomer generation, will precipitate the nation’s greatest economic crisis since the Great Depression — what I call Boomergeddon.
And to what do we owe the accelerating crack-up of Medicare’s hospital insurance program (often referred to as Medicare Part A). Not to accelerating health care costs, ironically enough. “Since 2008, U.S. national health expenditure (NHE) growth has been below historical averages, despite having accelerated in 2014 mainly due to insurance expansions,” state the Medicare trustees.
But having said what the problem is not, the Medicare trustees fail to explain what it was. That is understandable, given the politically sensitive nature of what appears to be going wrong — weak job growth, the low labor participation rates, and less-than-expected payroll revenues. After real-world economic performance has under-performed forecast economic forecast every year for seven years running, the Obama administration appears to be adjusting its long-range forecasts for purposes of long-term budgetary planning.
Nobody wants to admit, least of all in an election year, that economic growth and job creation stink. But that is precisely what underlies the rush to ruin of Medicare, Social Security and the federal budget deficit generally. A weak economy means weak revenue.
Bacon’s bottom line. Boomergeddon is running right on track. The Congressional Budget Office projects a $534 billion deficit this year. (We don’t hear about that number from our journalistic elite either.) Were it not for monetary easing, ultra-low interest rates and multi-billion remittances from the Federal Reserve Bank, the deficit would be far bigger. In any case, CBO projects a cumulative $9.4 trillion in deficits, to be added to the existing $19 trillion national debt. The U.S. is on track to carry World War II levels of borrowing by the mid-2030s, the big difference being that in 1945 the war was over and the nation could demobilize its massive military, while in 2035 the nation will not be in a position to demobilize its social safety net.
Meanwhile, the structural budget deficit of the United States must be viewed in the context of chronic deficits of the European countries and Japan, and the massive over-leveraging of the Chinese economy. As McKinsey & Co. pointed out in a 2015 report, the global economy has added $57 trillion since the Great Recession; rather than de-leveraging, virtually every major nation has doubled down with increased borrowing. Systemic risk has never been greater. All it takes is a black swan event, and financial chaos will rip through the global economy, transmitted by financial linkages that public policy makers don’t even know exist. The Bear Stearns/Lehman Brothers financial panic will be a picnic by comparison.
The question, as always, for Virginians is this: How do we as citizens and taxpayers protect ourselves from the inevitable financial reckoning? Borrowing more is not an answer. (Somebody please tell Richmond Mayor Dwight Jones, who proposes raising the city’s debt limit in order to borrow $580 million more in bonds over the next 10 years.) Building new transportation mega-projects that require subsidies indefinitely into the future is not an answer. Expanding social welfare programs like Medicaid is not an answer. The storm is coming, and we must prepare.
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