Fiscal storm clouds gathering in USA

In the United States health care and retirement account for half of all federal spending – and that figure is rising. The problem has long been recognised, but it got dramatically worse with the passage of a Medicare drug benefit and will head into crisis with the baby boomers' retirement. If the United States is to avoid a Third World-type debt crisis, with a guarantee of lower living standards, it will have to come to grips with these issues, says USA Today.

That will mean taking on the senior lobby to enact health care reforms that halt soaring cost increases. It will likely require altering Medicare so that the wealthy pay more. And it almost certainly will require Americans to work longer. Consider:

Annual Medicare spending is projected to surge eightfold by mid-century from its already sky-high level of $346 billion, which is about 13 per cent of spending. It is being propelled to unsustainable levels by the same unsustainable 10 per cent to 15 per cent annual increases wreaking havoc on private employers.

Surging life-expectancy rates and other factors have caused the ratio of workers to retirees to drop from 16-to-1 in 1950 to 3.3-to-1 today. It is projected to drop to 2-to-1 when the baby boom generation is fully retired. A system in which every two workers support’s one retiree is too large a burden for any economy.

Senior groups, such as the AARP, understate the problems and point to the many accomplishments of programmes like Medicare and Social Security. Indeed, these programmes have been wildly successful. But without reasonable limits, combined with broad health care reforms, they cannot continue to be, says USA Today.

Source: Editorial, As Washington dithers, fiscal storm clouds gather: By catering to older voters, leaders shift financial burden to the young, USA Today, November 30, 2005.

For text (subscription required): http://www.usatoday.com/printedition/news/20051130/edit30.art.htm

For more on Federal Spending: http://www.ncpa.org/iss/bud/

FMF Policy Bulletin/ 20 December 2005