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The Medicare Ponzi Scheme

Just today, our next President spoke out against the largest investment swindle in US history.  The alleged behavior of Bernard Madoff may have cost investors up to $50 billion.

“In the last few days, the alleged scandal at Madoff Investment Securities has reminded us yet again of how badly reform is needed when it comes to the rules and regulations that govern our markets. … And if the financial crisis has taught us anything, it’s that this failure of oversight and accountability doesn’t just harm the individuals involved, it has the potential to devastate our entire economy. That’s a failure we cannot afford.” — Barack Obama Dec. 18, 2008

What did Madoff do?  He lured investors with big returns, and used the “profits” as a means to encourage additional investment by investors, while luring new ones.

The only problem is he was using the new money to pay off the old investments. And when current investors asked to redeem their shares, there was no money left.  The whole scheme was a sham.

Which brings us to Medicare.

When you hear about “unfunded liabilities”—insert the phrase “Ponzi scheme.”

How much is Medicare’s unfunded liability?

Adding up Medicare Part A, Part B, and Part D … $85 trillion

Let’s make this even simpler. To meet the obligations “promised” to Medicare current and future recipients — that is how much would need to be in the bank today.

There is zero difference between the promises made by Madoff and those made by elected officials of both parties on Medicare.

Anyone want to consider whether the new administration or the Republican minority will use the same language that President-elect Obama used today to describe the Medicare system?

It is time we add another letter to the alphabet of Medicare: P.

Welcome to the world of Medicare Part-P!

And, for my “single payer” advocate friends, have no fear, because everyone in the USA is already covered.

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Heriberto EleamDean SBarry CaroljdPatrick Schoenfelder Recent comment authors
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Heriberto Eleam
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I’m not sure exactly why but this blog is loading incredibly slow for me. Is anyone else having this issue or is it a issue on my end? I’ll check back later on and see if the problem still exists.

Dean S
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Dean S

Kuttner: “A comprehensive national system is far better positioned to match resources with needs — and not through the so-called rationing of care. (It is the U.S. system that has the most de facto rationing — high rates of uninsurance, exclusions for preexisting conditions, excessive deductibles and copayments, and shorter hospital stays and physician visits.) A universal system suffers far less of the feast-or-famine misallocation of resources driven by profit maximization. It also saves huge sums that our system wastes on administration, billing, marketing, profit, executive compensation, and risk selection. When the British National Health Service faced a shortage of… Read more »

Dean S
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Dean S

Robert Kuttner: “Changing demographics and medical technology pose a cost challenge for every nation’s system, but ours is the outlier. The extreme failure of the United States to contain medical costs results primarily from our unique, pervasive commercialization. The dominance of for-profit insurance and pharmaceutical companies, a new wave of investor-owned specialty hospitals, and profit-maximizing behavior even by nonprofit players raise costs and distort resource allocation. Profits, billing, marketing, and the gratuitous costs of private bureaucracies siphon off $400 billion to $500 billion of the $2.1 trillion spent, but the more serious and less appreciated syndrome is the set of… Read more »

Deron S.
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Well said Barry.

Barry Carol
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Barry Carol

Deron S. and Peter, Significant cultural differences between the U.S. and other countries with respect to attitudes and expectations regarding end of life care and the U.S. litigation environment which drives doctors to perceive the need to practice defensive medicine to a greater degree than elsewhere drive up costs here materially. Moreover, we have many more doctors practicing solo or in very small groups and more small hospitals as compared to other healthcare systems. That also adds costs. All of these cost drivers, interestingly enough, have absolutely nothing to do with how our healthcare system is financed or whether providers… Read more »

Deron S.
Guest

Peter – You need to start providing some depth to your single pay argument because your only justification is that it works in other countries. Are you saying that you have controlled all of the other variables in your analysis when comparing to other countries? In other words, have you taken into account that our obesity rate is the highest by far? Our teen pregnancy rate? Our gun violence rate? The list goes on and on about why our spending is higher. The average Medicare recipient has several chronic conditions, sees 6+ providers each year, and takes 10+ medications. How… Read more »

Peter
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Peter

“Unfortunately, just giving someone coverage does not automatically make them healthier.” Au contraire, being able to get treatment for disease does make people healthier. Would you say starving people need to learn how to grow food before we actually feed them? “I’d like to see the cost/benefit analysis of universal healthcare and/or Medicare for All.” Look at every other industiralized country in the world. “In fact, calling it universal “healthcare” is a misnomer. It has nothing to do with healthcare and everything to do with moving money around in the existing, expensive system.” The present players would like to have… Read more »

Deron S.
Guest

Unfortunately, just giving someone coverage does not automatically make them healthier. I’d like to see the cost/benefit analysis of universal healthcare and/or Medicare for All. In fact, calling it universal “healthcare” is a misnomer. It has nothing to do with healthcare and everything to do with moving money around in the existing, expensive system.

jd
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jd

Why in the world are we acting as though the problem of untenable future costs is peculiar to Medicare? Medicare’s cost trend, putting aside demographics, is actually better than the cost trend among the privately insured and the uninsured. Because there is no “promise” by employers to keep offering group coverage and funding a majority of it we don’t classify it as an “unfunded mandate.” But how does that help us? To the extent that employers continue to fund coverage, they will experience the same unsupportable cost increases and be forced to reduce employee wages. To the extent that they… Read more »

Patrick Schoenfelder
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Patrick Schoenfelder

Eric — What you mean by unfunded liability is the future cost of health care for Medicare enrollees present and future. Yes, there is a huge future unfunded liability for health care. But if we make the assumption that we will continue to allow people to get health care, that unfunded liability exists whether it is covered by our existing system, but private insurance, by a single payer system, or by whatever. So talking about unfunded liability is not useful at all. What we need to do is figure out how to meet that unfunded liability, to reduce costs, to… Read more »

Peter
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Peter

“But you see, the reason single-payer is the way to go is because it is backed by the power of taxation and massive borrowing capacity.”
No Deron, single-pay has the hammer of universal budgets, the last thing present players want.

MG
Guest
MG

There is quite a difference between what Madoff did and “unfunded liability” in Medicare/Medicaid. If you want to make the case about the considerable fraud in the Medicare program, you would have a more apt comparison. What Madoff did was just commit outright graft with his wealth management unit and deserves to go to jail for a long, long time. Hopefully the rest of his life. My bet is that you will see justice here in the form of what is basically a life-long prison sentence because Madoff ripped some very powerful and politically-connected people. There will be a whole… Read more »

Deron S.
Guest

Eric – Interesting post. I forgot just how big that unfunded liability was! (Maybe we’re supposed to forget about it.) But you see, the reason single-payer is the way to go is because it is backed by the power of taxation and massive borrowing capacity. The private sector simply can’t match it. If I was a politician and I put a massive social program in place knowing it could at least sustain itself past my time in office, I would have nothing to lose. By the way, I used to limit my discussions to reform without interjecting political rants into… Read more »

Marky
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Marky

Speaking of Medicare ponzi schemes, one must also observe that its partners in crime include big Pharma. Medicare drug spending is forecast to grow from $2 billion in 2000 to $153 billion in 2016–a 7,550% increase. How will this enormous growth in Medicare’s share of total U.S. drug expenditures affect private insurers? Will it encourage employers to reduce or eliminate retiree and other “optional” benefits? How does this spending squeeze out the potential for other proactive efforts including prevention, EMR’s, and quality and safety efforts? Does the Obama team have the political backbone to go up against Pharma and other… Read more »

Rob
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Rob

This is an unspoken truth: IT doesn’t reduce costs over the long haul. It does leverage a single person’s efforts by hiding underlying complexity. In that regard we appear to be working “harder” and “smarter” but in reality, like when we blow up a photo too far, this sort of effort-Magnification creates ugly artifacts, worms in the details. The truth is that technology as a cost-cutting measure is more often a problem-hiding one. Data-mining yields “facts” found in the dark. Ubiquitous computing means no one has any sort of tactical or strategic advantage for more than six months. No, the… Read more »