FRED WOLFERMAN: Disaster Ahead On Health Care
You've probably heard the story of how Eskimos, or as they are politically correctly known, Arctic-Americans, used to retire their elderly by setting them adrift on ice floes.
This may be an apocryphal tale, but it is shaping up as a damned good idea, limited only by the diminishing number of ice floes due to global warming.
If you're not ready to volunteer for a brief cruise through the Bering Strait, you might start planning your own alternative, because the current health-care system is not going to be available in the not-too-distant future.
It's no secret that Medicare is an impending disaster. It cost $515 billion in 2005, 21 percent of the federal budget and $21 billion more than all defense spending. Some estimates are that it may double as a percentage of the budget by 2030. Do the math -- that's 24 years.
Some things could be done to improve the situation. Improve efficiency by paying for outcomes, not tests and hospital visits; require health-care users to pay more of the cost; cap the current open-ended commitment to everybody.
But even if major overhaul is undertaken, the numbers remain staggering. And remember, we have to rely on Congress to fix it.
But wait, the situation is actually much worse. The bill is coming due for decades of promised public employee retirement health benefits, and the money will not be there.
For years, local and state governments have been dishing out retirement benefits in lieu of salary increases when contract time rolled around. These costs have been handled on a cash-flow basis, without accruing any future liability or buying private health insurance. This is the sort of thing corporate types go to jail for, but never mind.
This is all suddenly coming to light because the Government Accounting Standards Board has belatedly changed the rules, and henceforth will require public agencies to disclose the future cost of benefits.
J.P. Morgan recently released an estimate that unfunded liabilities for health care and other benefits amount to between $600 billion and $1.3 trillion for the nation's 24.5 million public employees. That's a pretty big ballpark, which only indicates how sloppy the accounting has been.
The reason we need to care about this, even if we are not public employees, is because we are going to have to pay for it. Politicians will first try to paper over this liability by raising taxes and cutting services, but it seems likely that some gimlet-eyed citizens will notice and object. Now what?
Surely the civic-minded public employee unions will agree to cutbacks in benefits. John Abraham, of the American Federation of Teachers, said that union negotiators have been aware of this problem for some time
"If they [the municipalities] haven't been looking at the numbers, shame on them," Abraham said.
On the other hand, Lori Moore, spokesperson for the International Association of Firefighters, said: "The liability has always been there. They had to know in the back of their minds that it was there."
Ah. Now there are three basic accounting methods: cash basis, accrual and back-of-the-mind.
Perhaps we shouldn't expect much help from that quarter.
If the governments involved don't accrue cash to offset these future liabilities, then, under the new rules, they must reduce their assets by a like amount.
As these assets dwindle, their credit ratings will decline, increasing the cost of borrowing money, that is, of issuing bonds. This is a descending spiral ending in bankruptcy.
What's wrong with that? Won't it wipe out all those unfunded obligations? That's lawyer stuff, but I'd hate to count on it.
Even if it did, how well could a government function with bad credit, overtaxed citizens and furious employees who had just lost their presumed benefits?
This is a big mess, and just another example, albeit the largest one, of welfare politics run amok. We can't afford it, and short of shipping out on those ice floes, we need to control it by the obvious means.
We have to make more efficient health-care decisions, driven by patients paying first-dollar costs, rather than insurance companies or governments. We have to eliminate redundancies and unnecessary procedures. We may have to move Grandma and Grandpa back in with us in their final years. We may even have to decide how much those years are worth.
This is tough stuff, but you can only live beyond your means until you can't. We have been shoving unfunded liabilities into the future for decades, pushing the problem forward onto the next watch.
Now we are the next watch.
Fred Wolferman lives in Southern Pines. Contact him by e-mail at email@example.com
More like this story