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The Entitlement Enigma - Our Biggest Problem (Vo. 57)

Updated: Feb 7, 2023

analyticsbox | Jun 22, 2022


Entitlement Biggest Problem

Let’s start with the basics: What are Entitlements?

I see them one way, DC sees them another way...

To me, Entitlements are something we invested in, and are ‘entitled’ to a return on our investment. We all are required to invest in Social Security and Medicare, Part A (hospital care). Our employers are required to match our investment. It all goes into a fund and this fund is supposed to be what pays us back in the future. That is the theory anyway.

What DC calls Entitlements are those benefits we receive as imposed by law, whether or not we have invested in them. This includes Medicare, Part B&D, (medical and drugs) and Medicaid. For Medicare B&D, we pay some limited user fees if we elect to have the coverage. Unfortunately these fees do not come remotely close to covering the cost, about 25% of these costs are covered by these fees, the rest comes from general government revenues.

Medicaid is also considered an entitlement, it is the law. There is no forced investment for this nor any user fees. It is 100% paid out of general revenues of the Federal and state governments.

Collectively these Entitlements are breaking the bank. For the Fiscal Year Ended September 30, 2021, here is the breakdown of the deficit from entitlements and all other government expenditures (keep in mind All Other in 2021 was extraordinary because of COVID outlays):

billing revenue graph

Here are the most important facts:

  1. Social Security for the first year in 2021 has had a deficit. This just gets worse year after year and the fund is exhausted in 2034. At that point, to follow the law, benefits must be cut to match income. (In its inception, there were 15 or more workers for every retiree, today there are 2.6. And it is projected to be only 2.1 in the future.)

  2. Medicare Part A, has also just become a deficit in 2021. However, it gets worse every year and this fund will be exhausted in 2028. At that point, to follow the law, benefits must be cut.

  3. Medicare Part B&D are partially paid for with user fees. This is optional coverage, and the fees only cover about 25% of the costs, the rest comes from general revenues of the government, thus a large annual deficit.

  4. Medicaid is funded by Federal and state governments, there are no user fees. The Federal government’s share only is the amount shown above and a large annual deficit which is funded from general revenues.

  5. This is the biggest, but not the only, problem with our deficits. The Debt Bomb is ticking, as we describe in Facts, No Spin #55. If we are going to stop the bomb from exploding, one thing we must do is to make Entitlements self-sustaining. This is not easy but must be done, and it can be done without harming the current recipients of benefits.

BOTTOM LINE

Everyone recognizes the problem, but no one in DC has had the political courage to tackle it for fear of repercussions in the next election. We must send the message to our representatives that they must fix this, and do it now. Phase in the solutions without harming the current recipients.The longer we wait the more difficult the fix will be, until it can no longer be fixed.

We can’t let the Debt Bomb explode on our watch. Let’s give future generations the same benefit we had, don’t mortgage their future by saddling them with our debt.

LEARN ECONOMICS, THEN VOTE SMART

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