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Transcript
The first key challenge is demographics and entitlements. The dependency ratio is the ratio of youth to working-age people, or the aged to working-age people. As can be seen in the chart, since the end of the baby boom in the 1960s, the percentage of dependent children has dropped significantly. This has reduced the amount of money expended to raise children in the near-term. As the chart shows, that trend has run its course and flattened out. In the long-term, a relatively smaller number of children per adult ensures that the ratio of the aged to working-age people will increase. America is just entering that time period as the baby boomers begin to retire. As the chart shows, the dependency ratio is set to nearly double over the next two decades with the financial strain falling squarely on the shoulders of the working-age people.
And health care costs for seniors are soaring. If current trends continue, Medicare will cost over 18% of GDP by 2082. Interestingly, the vast majority of that increase is due to an increase in spending per person. The cost increase for Medicare due to the increase in the number of seniors is small. This implies that if America can arrest the increase in the cost per person, Medicare’s predicted financial debacle can be avoided.
But all health care costs are soaring – not just Medicare’s. The chart shows that all health care costs are rising just as fast as Medicare and Medicaid. Thus, there is a systemic problem with the costs of the health care system, not just Medicare and Medicaid. A solution for Medicare and Medicaid’s growing costs must address the entire health care system, not just the two government programs. But Americans are health care socialists. We want people to get health care when needed even if they cannot afford it. What are the requirements for such a health care system? This question will be answered later in this presentation during the discussion about the proposed health care reform.
This book estimates that America had $127.3 trillion in unfunded liabilities plus explicit debt, which includes U.S. Treasuries and municipal bonds, in 2008. This compares to a GDP in 2008 of $14.4 trillion and a year-end net worth of $51.4 trillion. As the table shows, most of the unfunded liability comes from Medicare with Social Security a distant second. The chart shows that between 2005 and 2040, the U.S. government’s cash flow will worsen by an estimated $900 billion per year because of increased Social Security and Medicare hospital insurance expenditures.
Slides
FixAmericasFuture_Present_No_Audio-compressed-kc-Entitlements
Cost Estimate
Not applicable.