Guest Post: That Which is Unsustainable Will Go Away: Medicare

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

That Which is Unsustainable Will Go Away: Medicare

Medicare is an example of an unsustainable system that will go away in the decade ahead.

Here are the sobering facts about the number of workers and those drawing Social Security, Medicare and Medicaid entitlements in the U.S. While the government claims to have a "trust fund" to pay for Social Security and Medicare, this is illusory propaganda. There are no funds set aside to pay these entitlements--they are "pay as you go" programs funded by current tax revenues. If the tax revenues don't cover the programs' expenses, the Treasury sells bonds, i.e. issues debt to pay the entitlements.

Social Security (SSA) has 61 million beneficiaries as of March 2012.

Medicare has 49 million beneficiaries as of November 2011.

Medicaid has over 50 million beneficiaries; another source puts the current number at 58 million.

Kaiser Family Foundation says roughly 7 million "dual-eligibles" who receive both Medicaid and Medicare, so let's use the data point of 50 million Medicaid-only recipients.

We can assume that most people drawing Medicare benefits also draw Social Security, while the 8+ million drawing disability from Social Security are also covered by Medicaid.

However you slice it, there are roughly 60 million people drawing Social Security and Medicare/Medicaid and another 50 million Medicaid recipients for a total of 110 million people drawing significant entitlements.

As I have noted here many times, there are only 115 million full-time jobs in the U.S.

That means the ratio of workers to recipients of significant "pay as you go" entitlements is roughly 1-to-1: 115 million full-time workers and 110 million people drawing Social Security and Medicare/Medicaid.

These programs consume the majority of the Federal budget. The Federal government spends around $3.7 trillion and collects around $2.6 trillion in taxes, so the basic deficit is $1.1 trillion. Off-balance sheet "supplemental appropriations" mean the real deficit is actually considerably higher.

Social Security costs $817 billion, Medicare and Medicaid costs total about $800 billion annually, and program outlays rise every year. The Pentagon/National Security budget is around $690 billion.

As I detailed in The Fraud at the Heart of Social Security (January 17, 2011), the program paid out $707 billion in 2010 and collected $631 billion in taxes, a $76 billion shortfall for 2010. The current program (2012) cost is $817 billion, a leap of $100 billion in a few short years as Baby Boomers flood into the program.

Of the roughly 150 million workers in the U.S., 38 million earn less than $10,000 per year, 50 million earn less that $15,000 a year and 61 million earn less than $20,000 annually. All these numbers are drawn directly from Social Security Administration payroll data.

100 million wage earners, or 2/3 the entire workforce, earn less than $40,000 per year.

Median pay in the U.S. is about $26,360 annually, while the average pay is about $40,000. Since the average American household takes in $63,091 per year, it seems the typical wage is roughly $30,000 a year.

The Medicare tax is 2.9% of wages, 1.45% each for employer and employee. If the typical worker makes $30,000 a year for 35 years, then lifetime earnings are about $1 million. If we take the $40,000/year average, then that rises to around $1.4 million in lifetime earnings. The 2.9% Medicare tax thus totals about $30,000 to $40,000 in lifetime contributions for the average worker.

The average benefits extracted from the system run from $393,000 to $525,000 (due to the benefits extended to non-working spouses, benefits for never-married people may be somewhat lower). Average annual costs per beneficiary run as high as $18,000, though expenses typically rise significantly in the last year of life.

As I have reported here earlier, a friend's father was in the hospital a few years ago for less than a week for "observation" and a non-invasive gall-stone procedure. Medicare was billed $120,000, or roughly the lifetime contributions of three workers for this modest procedure and a few days in a hospital. My Mom had an office procedure performed on one of her toes and Medicare was billed $12,000. An office procedure (not in surgery) that took a few minutes absorbed 1/3 of my entire lifetime contributions to Medicare.

What we have is a system where the full-time worker to beneficiary is already 1-to-1 and the system pays out 10 times more per person than it collects in taxes. The Medicare system would need about 10 workers for every beneficiary to be sustainable. Right now the ratio is just above 2-to-1. That simply is not sustainable.

Tweaking the payouts doesn't change the basic math: "pay as you go" entitlements are not sustainable when the number of recipients equals the number of full-time workers. Programs that pay out $400,000 per person (many of whom did not work a lifetime) and collect $40,000 per lifetime of full-time work are not sustainable.

Wishing the math were different does not make it different.

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francis_sawyer's picture

When will printed dollars go away is what I want to know...

Clueless Economist's picture

Thank you President Johnson...for bankrupting this once great country.

Hope it is nice and toasty warm in Hades.

Careless Whisper's picture

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el_brio's picture

Anyone else getting sick of people posting OT stuff as replies to the first post?

jeff montanye's picture

here may or may not be another.  the question of too many older people versus younger is largely a result of the population crash that is occurring and is being intensified by the global depression.  check out this very good book on the subject.

TheSilverJournal's picture

Hooked on ponzinomics worked for me...until it didn't.

Bicycle Repairman's picture

People like talking about SSI.  Well fortunately Medicare is the canary in the coal mine and it will come first.  Good luck dealing with the medical-industrial-complex.

StychoKiller's picture


People want Doctors to take responsibility for making them well, AND they want someone else to assume the responsibility for paying for it. [/quote]

From:  "Dreams Come Due, Government and Economics as if Freedom Mattered", ISBN: 0-671-61159-3, by John Galt

The book is dated, but many of the things it talks about are still valid today

ElvisDog's picture

I think fewer mouths to feed will be a very good thing in the not too distant future. The "population crash" you mention would be about the best thing we could do as a species for our long term sustainability.

New England Patriot's picture

You know who else talks like this? Satan.

LawsofPhysics's picture

LMFAO!!!!  The Laws of Nature really don't give a shit who "likes" what.  They are what they are and if you don't have access to clean potable water and food, you're dead just the same.  Do you have a point or would you like to tell us all how the Easter Bunny feels about all this because any statements on that would be just as pointless.

TheSilverJournal's picture

Still no need to promote ideas of cleansing the planet. The thing to promote is a better allocation of resources so people have at least an opportunity to give themselves a better life when this worldwide fiat ponzi collapses. To say, "No big deal, just let government keep running the monetary system / charity / retirement because they're the best at destroying people's lives and that's good for humans in the long run," is pretty hateful of humanity.

LawsofPhysics's picture

Let me guess, who's resources would you like to re-allocate first?

My point was that in order to have a productive discussion, you can't talk about fictional ideas.

TheSilverJournal's picture

I don't want to re-allocate any resources. That is the point. The market allocates them better than any other entity. Right now the government and the Federal Reserve is allocating them very poorly, which is why this crash is coming in the first place.

LawsofPhysics's picture

What is this "market" you speak of?

Correct capital and resource allocation in a functioning market only occurs when bad business models are allowed to fail and there are real consequences for bad behavior.  There are none, (FYI- having your "bonus" go from 25 million to 10 million, is not a real consequence) and hence there are no "markets".  The event horizan that you refer to has long since passed.  I have been jumping up and down about the socialization of private failures and capital losses for 20+, people think you are nuts, no way this won't get bloody now. Hedge accordingly.

TheSilverJournal's picture

You answered your own question.

Matt's picture

But what if the market of women decides they don't want to get married at 18 and pop out 8 children? What if the market AKA people, decide they don't want children, or that they want to have two children when they are 35 instead? The result of this choice by the market is less population. So the resources are already being allocated efficiently by a free market.

TheSilverJournal's picture

The federal government taking $2.2T in taxes out of the free market economy and the Federal Reserve creating currency out of thin air as it pleases (therefore stealing resources from the free market economy) and controlling interest rates is the misallocations I'm talking about. Not to mention regulation upon regulation so the "government can protect us."

tmosley's picture

People are not allowed to use simple technologies to purify their own water, nor is anyone allowed to create innovative ways to produce more food with lower marginal cost because physics.

LawsofPhysics's picture

Bullshit, they most certainly are, just like the do in India, China, Afghanistan, etc.  Do some quick math and tell us all how much arable land each of the 7 billion of us all get.  Winning!

MeelionDollerBogus's picture

Total horseshit. Silver, chlorine & boiling have all been used regularly and continue to be affordable. For those who still go without clean water the fault is 100% on the parents for making babies BEFORE moving to where there is clean water and any supplies. MANY 100's of millions of parents are very bad parents who do this and it is THEIR fault.

piceridu's picture

You mentioned The Easter Bunny but what about Santa and The Tooth Fairy...less Elves to hire and what would the Tooth Fairy do with all that extra free time.

Matt's picture

You think population reduction through people choosing not to marry 6 wives that are 11 years old is a bad thing?

You think not having 8 children is evil?

You think women going to college and choosing whether to get married or not, and whether to have children or not, is a satanic plot?

Or did I miss the sarchasm?

ElvisDog's picture

Actually, Satan would laugh his ass off if we bred ourselves into oblivion until the starving masses tear each other apart for the last mud cake. Reducing family size in the face of resource/job scarcity is a rational thing to do.

onelight's picture

In fairness, I think you raise an issue that should be discussed, however ppl find themselves thinking about it. Within a decade or two, flexible automation (robotics) and digital printers will reduce even further the need for labor, leaving even more ppl w/o viable self-supporting work to do. At least the kind or work we can envision now. Granted, new needs and new jobs will be created, enormous opportunities are opening up for innovators, all of that is true. But even so, less work of the kind we have known for so long, seems to be the coming trend. Some groups like the Venus Project have a whole utopian vision of how that will be wonderful for humanity. Robots do the work, we all sing kumbaya, and think higher thoughts. But is that real? For how many is that real? What happens to the rest? I am neither for state determination of who lives and dies, nor am I for waiting to see what happens and then trying to figure out a solution. Thus, interested in others thoughts on this. It might be bigger than some of our current categories.

TheSilverJournal's picture

Less work is good, not bad. That means more resources are freed up to do other things.

Matt's picture

But the distribution of those resources becomes more and more uneven, as a smaller and smaller portion of the population has more and more income, while the rest have fewer and fewer resources due to a lack of gainful employment or business opportunities. 

TheSilverJournal's picture

There's ALWAYS things that people want that don't come automatically with the push of a button. When something comes automically and at will, the easier it is to pay someone and the higher the living standar there is for everyone. Everyone has a TV, everyone has a computer, most min. wage workes even have a car. Take away the automation to make those items, and suddenly living standards drop dramatically.

The point is much more can be exchanged for much less work.

MeelionDollerBogus's picture

"The point is much more can be exchanged for much less work."


the point is when you make life too difficult for others to survive for your convenience, they surround you and kill you.

MeelionDollerBogus's picture

"flexible automation (robotics) and digital printers will reduce even further the need for labor,"

Unaffordable to industry. For most work, except some heavy machinery automation (not much) it's self-repairing robots which make their own new versions that's wanted - slave humans.

MeelionDollerBogus's picture

Population BOOM. People are still making more babies and population is still increasing

Oh regional Indian's picture

The medical system itself is unsustainable.

Totally set up to be that way, starting with obscenely expensive education for th edocs and ridiculous technology that each hospital MUST have, tests tests and more tests... sick, diseased industry, making sicker people and having really sick people work in them.

Of course the system that manages it will be dis-eased too. I remember someone I knew was in hospital (in the US)...went to see them, at dinner -time. After a f'n open heart surgery, the person had fries and buttered buns and pink jello for dinner.

It's enslavement we are seeing, not the curing of the sick.

Perhaps the ailing healthcare systme in the US is really indicative of the malaise in all spheres of life there. Here and everywhere actually.

My sis is a surgeon in the US medical system. Highly regarded to boot. Sad, overworked life.

Reject Allopathy, you DO NOT NEED IT!

Try Garlic/H202/Baking Soda instead. 



TheFourthStooge-ing's picture

ORI said:

Reject Allopathy, you DO NOT NEED IT!

Try Garlic/H202/Baking Soda instead.

I'd just like to add that garlic is one of the easiest things to grow in a garden. Turn the soil with a garden fork to loosen it up, plant the cloves in the autumn in a place that receives full sun, keep it weeded in the spring, and harvest in the summer. Insects don't bother it, so there's no need for pesticides.

Start with good garlic, like you might find at a farmers' market.

It really is that easy.


Cathartes Aura's picture

agree heartily with you both.

I eat raw garlic daily with meals, luckily I have loved the flavour for years, so my body is accustomed to it.  when I'm feeling an incoming "cold" or low immunity, I use it "medicinally" which means: crush a large clove into a tablespoon, let it sit for 10-15 min to bring the allicin levels up, then swallow - I usually eat a piece of apple with this to keep it down - very powerful stuff, and if you're feeling delicate, your gag reflex will be strong!  do this before bed, good organ cleanse. . .

and definitely grow your own, even in a container!

I also advocate H2O2, inhaled - here's the method I've adapted, from Bill Munro:

for clarity, I'll add I buy "food grade 3% H2O2" and use a small plastic spray bottle from the "cosmetics" aisle in the pharmacy - literally pennies a day. . . I currently live in a heavily aerosoled area, and lung problems are common in the population - I picked up a very nasty version last Nov./Dec. which left me gasping for breath, rather like asthma - within 24 hours of using H202, I could catch my breath again - the remaining "headcold" effects took a bit to clear, and it was persistent in that it recurred a couple of times over about 6 weeks - but in the end, my lungs were more "clear" than they'd been in years - and folks that used antibiotics were having worse results.

garlic, H202, raw cilantro & chlorella (for cleansing the aluminium - cilantro releases it from the organs, chlorella gathers, binds and cleanses from the body - use together, so as not to have the aluminium persistent, but removed)

all easy, inexpensive and very potent.

Oh regional Indian's picture

So funny CA, that in India it is impossible to get food grade H2O2 and the stuff we do get is sold in transparent white plastic bottles.

Strange, eh?

But yes, all those awesome ways.


Cathartes Aura's picture

from all I've read, most folks are using the stuff with "additives" - and yet I've not read of any reactions noted - Bill Munro uses the 35% solution that he dilutes himself - and cautions others in their dilution/usage - but I found the "food grade" at a local health store, so was lucky. . . not sure how long these products will be available, given the state of the economy, but the store is gracious in ordering what they don't have in stock, so I'm somewhat mollified. . . even using it multiple times daily doesn't make all that much of a dent in volume - the spray is a few drops at a time at best, such small amounts, for such amazing results, eh!

best to you V.

Jack Sheet's picture

better than commercials like "my neighbor's brother's sister's cousin makes $2/hr on the laptop ".

NotApplicable's picture

First post is the traditional thread-jack post. I'd suggest either getting used to it, or finding another internet.

pods's picture

I much appreciate the effort by CW, as opposed to the threadbombing daily of MDB.  

MillionDollarBonus_'s picture

Here’s an extract from my new book entitled “Lies of the Right”. I thought I’d run it passed you guys so you can offer some constructive criticisms. This is an excerpt from the chapter dedicated exclusively to libertarians:

Chapter 7

Common Libertarian myths:

1. Government regulation impedes businesses from growing

This is one of the most widespread and tragically misleading myths spread by the internet libertarian machine. the truth is that most government regulations actually help businesses to grow. For example, if a business has to comply with health and safety regulations, they will improve their image and moral and will attract more customers.

2. The government can't pick winners and losers:

This is so easily falsifiable that it's a wonder the myth ever gained traction. A clear example of the government successfully picking winners was in 2008, when Treasury Secretary Hank Paulson successfully bailed out insurance giant AIG. This turned out to be remarkably successful, with AIG steadily recovering after many thought they would collapse.

3. The Federal Reserve distorts the business cycle:

The Federal Reserve Bank has been the subject of hysterical hatred and attack by libertarians. Libertarians sometimes go as far as to promote elaborate conspiracy theories, in which the Federal Reserve is stealing the wealth of the lower and middle classes. The truth is that the Federal Reserve has promoted prosperity for all Americans by delivering both low interest rates and economic growth.

UP Forester's picture

OK, to get back to the original topic:


Anybody else think a 1:1 ratio of McDonald's workers paying SS, Care and Caid recipients isn't exactly a good tradeoff?

Especially when the benefits received are about 150% those "paid in?"

Poetic injustice's picture

It's good for receivers of benefits.

Of course, paying dunno, 5000 dollars in year in taxes means that to pay for one 400,000 operation this person has to work just eighty years. So in short, of course system will crash and more likely sooner than later. For good examples you can see Asia - especially China and Phillipines, and Eastern Europe, for instance Latvia.

El Oregonian's picture

What a schmuck. Go screw yourself dummy. There, is that constructive enough?

Jack Sheet's picture

Shit a brick. The FED program again. Sorry mate, no users here.

Zero Govt's picture


in response to your points:

1. small biz in the UK spends 5 hours a week just form-filling and on other Govt garbage's not only killing European and US biz, it's killed Empires before (see demise of Ming Dynasty strangled in paperwork). You are obviously a cretin (academic?) with no real world experience

2. The Govt cannot pick winners and losers is absolutely 100% correct. Just see the garbage of public-private schemes/scams in US housing, healthcare, education, subsidising farmers, green energy

Total news to you but AIG will go bankrupt will GM, so did Solyndra, so is AmTrak, so is Tesla, so will NASA

Everything Govt touches turns to crap. Indisputeable Fact with 2,000 years of history backing it up all the way... what part or reality don't you get dickhead?

3. The Federal Reserve distorts the business cycle because it is a monopoly on money... and what do we know about every monopoly in history? It produces garbage because it is not a competitive system which has to provide value to end-users

The Fed and its fraud money will collapse as they will trash it for the greed of those on top and to the detriment of end-users. That's what monopolies do

Your book will be garbage, as predictable as the garbage that Govt (always) produces

tarsubil's picture

The problem seems to be that the more obvious you make your schtick, the more people get angry at you. Maybe it is time for another track?

MeelionDollerBogus's picture

"was in 2008, when Treasury Secretary Hank Paulson successfully bailed out insurance giant AIG. This turned out to be remarkably successful"

Except that was a criminal act of money laundering, moving money to Goldman Sachs where Hank Paulson came from with AIG just being a pass-through and NOT doing well since then.

Joe Sixpack's picture

"Thank you President Johnson...for bankrupting this once great country.

Hope it is nice and toasty warm in Hades."


According to Dante, failed rulers end up at the base of the mountain representing Purgatory, where they await their judgement.


Jeesh, even after life, politicians are cut some slack!

Older Than Dirt's picture

By George I think you've got it!

LBJ wasn't the only villain in this play; although pushing through Medicare in 1965 (aka The Social Security Act of 1965) is one of the 2 major "accomplishments" for which he will be "warmly" remembered.

The other gem he -- and the Congress -- gave us was the Gulf of Tonkin Resolution. It was based on a lie, and led to the Vietnam "War." Lot's of older guys who were drafted and lived through that period remember it well.

To the point of this post:

1. Medicare is intractable. With a payroll tax deduction of 1.45% for employees and a matching percent for employers there is no way in Hell that it can ever be solvent!

2. Social Security is often either misunderstood or misrepresented. By law, Social Security (FICA) taxes are "invested" in interest bearing "special issue" securities.

In any current fiscal year, disbursements (aka "benefits") are paid from taxes received in that year (nominally used to purchase special issue "certificates"). Thus the weasel words that Social Security is a "pay as you go" program. As of July 1 of the current year, any excess of taxes received over "benefits" paid are used to "purchase" (again, nominally) special issue "bonds" with various maturity dates (nomally, the excess funds are allocated in 15 approximately equal "tranches" with maturities ranging from 1 to 15 years). The total of both types of securities comprises the balance of what is laughingly called the OASI Trust Fund. At the end of 2010, the "balance" in the fund was approximately $2.4 Trillion.The special issue securities are backed by the "full faith & credit of the U.S. Government."