Tag Archives: Social Security

I don’t want this kind of trust fund

“Social Security tax receipts for the first half of 2010: $346.9 billion; Social Security benefits payments for the same period: $347.3 billion. Before this year, projections have always been that Social Security wouldn’t cross that line into negative cash flow for five years or so. Now it’s a reality. Congress has been spending Social Security’s positive cash flow for years. Now there’s no positive cash flow to spend.”

Michael Tanner of the Cato Institute “the Trust Fund contains no actual assets. The government bonds it holds are simply a form of IOU, a measure of how much money the government owes the system. It says nothing about where the government will get the money to pay back those IOUs.”  In other words, the Trust Fund doesn’t actually have any real money in it.”

I’ve posted a bit on my concerns with our governments unfunded liabilities. Social Security is a disaster in the making unless we undertake some serious reforms.  There are claims that the trust fund will keep Social Security solvent until 2037, that is of course if you don’t consider that there is no trust fund and the government will have to tax or borrow the money in order to pay it out.

Personally would like to see Social Security privatized while protecting those too close to retirement to take advantage of reforms. I would settle for some simple changes, such as rasing the retirement age and removing the income limit on contributions. When SSI was created the average life expectancy was about 62 or 63 years. The thought was the people would not draw on their SSI benefits for many years before they died. Now life expectancy exceeds the retirement age by roughly 15 years, which really screws up the actuarial calculations.

Others propose means testing, but I don’t agree with this approach because SSI is supposed to be insurance not welfare. If people pay in to the system for years, they deserve to get their money back. Otherwise we will reward bad behavior and penalize good behavior. An example, let’s say we have two workers who both average $75,000 in income for their lifetime and pay in pay roughly $500,000 (including employers contributions). Let’s say that worker 1 also saves 10% of his income in a 401K and invests wisely and is able to save another $1 million for his retirement. Worker 2 doesn’t contribute much to his 401K or personal savings, uses the cash to buy a Harley and a boat, and ends up with $100,000 in savings at retirement. We then apply means testing and Worker 1 gets nothing and Worker 2 gets nearly his full SSI benefit. Is this fair and reasonable, I think not.

To make matters worse, we have an Adminstration in the White House that this that there is not a problem and we don’t need to do anything about it.  The article by Charles Krauthammer sums things up nicely.


Leave a comment

Posted by on March 11, 2011 in Unfunded Liabilities


Tags: , ,

Impending Doom?

Most people are not aware of a financial crisis which may be even worse than our Federal Government issues with the budget deficit and unfunded liabilities for Social Security and Medicare. The local and state unfunded pension crisis is something that you should care about because it is big and it is coming soon. Many cities pensions are just a few years away from running out of money.

From a the report, The Crisis in Local Government Pensions in the United States by Robert Novy‐Marx, Univ of Rochester and Nberjoshua Rauh, Kellogg School of Management courtesy of the Heritage’s Foundry. full report

Chicago takes first prize in underfunded city pensions, and this in a state that already has such seriously underfunded state employee pension plans that each household in the city already owes $29,000 just for the state plans. The authors estimate that the combined underfunding of the two jurisdictions equals about $71,000 per household.

However, other city pension funds are so underfunded that they could run out of money in the next few years regardless of the amount owed per household. In order, the first 10 to run out of money unless they do some major reforms quickly are as follows:

1. Philadelphia: $9 billion underfunding ($16,700 per household) in 2015
2. Chicago: $45 billion underfunding ($42,000 per household) in 2019
3. Boston: $7.5 billion underfunding ($31,000 per household) in 2019
4. Cincinnati: $4 billion underfunding ($15,700 per household) in 2020
5. St. Paul, MN: $1.4 billion underfunding ($13,700 per household) in 2020
6. Jacksonville, FL: $4 billion underfunding ($13,000 per household) in 2020
7. New York City: $122 billion underfunding ($38,900 per household in 2021
8. Baltimore: $3.7 billion underfunding ($15,400 per household) in 2022
9. Detroit: $6.4 billion underfunding ($18,600 per household) in 2023
10. Fort Worth, TX: $2 billion underfunding ($7,200 per household) in 2023

The paper goes on to report that the total of State and Municipal unfunded liabilities is over $3 trillion. California alone has a $500 billion unfunded liability.

The time has come to reform these pensions. Contributions by public union members must increase. The retirement age to receive a full pension must be raised (with the possible exception of Police and Fire pensions due to the physical demands of these jobs). Pension benefits have to be reduced for younger workers and those who are not immediately dependent upon the benefits.

I suppose we could continue to ignore the problem and assume that the states can punt and ask the Federal government for a bailout. Yes, the Federal government with a $14 trillion debt and near $100 trillion in unfunded liabilities. No, that is not workable and it just shifts the burden. Or we could raise taxes, but given the size of these liabilities the increase would have to be so large that they would depress the economy (I would prefer that we grow the economy in order to increase tax revenues).

Promises have been made that could never be kept in order to garner votes and political contributions. Reality has set in and it is no longer a future problem that we can delay, but a pressing current issue that has to be addressed. The reaction of the Wisconsin public unions, over the proposed increases in pension and health care contributions and limiting collective bargaining to just wages, tells me that this is going to be a long and difficult battle. I hope that the American people arm themselves with the facts and press our political leaders to make the hard choices that are necessary to get ourselves out of this mess.

Leave a comment

Posted by on February 19, 2011 in Pensions


Tags: , , , , ,

Is the ‘Affordable Health Care for America Act’ the best we can do?

We really can’t do any better than this?  The 2,000 page Affordable Health Care act passed last year is the best our country can do?  Creating more regulations that we can’t possibly understand, an Individual Mandate (evolving into the Individual Responsibility provision now) and giving more control over our health care into the federal governments hands, is the answer to the problem?  I am continually amazed at the desire of so many to put our health care into the hands of our government.  I am among the first to admit that we need to reform our health care system.  But turning it over to the government is not the answer.  We don’t have to follow other countries examples to solve our problems.  We are an innovative, creative country that has always found free market ways to solve hard problems.  This does not mean that the government does not play a role in the reform, it should provide the framework to allow a free market solution to prosper.

Let me begin by saying that any reform needs to address pre-existing conditions and expand coverage to those currently not covered.  I am not a cruel and heartless conservative schilling for health insurance companies.  I just want a system that continues to provide the incentives for innovation and creativity while addressing some of the major flaws in our current system.

We also need to be realistic about reform.  Turning our system over to the government does not mean there are limitless funds available to pay for everyone’s healthcare. Creating entitlements does not work some strange magic that creates money to fund them.  Someone has to pay the bill, there has to be real money paid by real people to fund the program.

Government is not really very good at running anything

Why anyone would use medicare and medicaid as examples of successful government programs is beyond me. They are broke and creating huge unfunded liabilities.  Why do we want our government to make promises that can’t keep, which cause huge deficits and in the end can’t deliver?

The 2009 Social Security and Medicare Trustees Reports show the combined unfunded liability of these two programs has reached nearly $107 trillion in today’s dollars!  That is about seven times the size of the U.S. economy and 10 times the size of the outstanding national debt.

The unfunded liability is the difference between the benefits that have been promised to current and future retirees and what will be collected in dedicated taxes and Medicare premiums.  Last year alone, this debt rose by $5 trillion.  If no other reform is enacted, this funding gap can only be closed in future years by substantial tax increases, large benefit cuts or both.

We want more of this?  This is logical and reasonable?  We think that this makes sense?  To learn most about this disaster of an entitlement, read here, or here The Forbes article indicates that all taxpayers would need a permanent 81% tax increase to cover the unfunded liabilities.  I’m sure all of you would have no problem with that.  All the wishful thinking and emotional handwringing will not make this go away and no matter how compassionate you are you can not justify making things worse by adding another entitlement.

New attitudes are needed

We need to examine our attitude towards paying for our health care.  I find that we expect our insurance to pay for all of our health care expenses.  We don’t want to pay for anything out of our pockets.  Insurance is not and should not be a replacement for personal responsibility.  Insurance should cover catastrophic expenses, not normal checkups, colds, flu, prescriptions, etc.  Think about our auto and home insurance.  We purchase this type of insurance to cover the big ticket items or the major accidents.  We don’t expect insurance to cover oil changes, tune ups or tire changes.  But when a tree falls on the house or our car, we expect our insurance to handle this.  Our premiums could be reduced if we had larger deductibles and planned for and expected to pay for routine medical expenses.

A large part of the problem with health care is the exorbitant cost.  Even the most basic out-patient procedure is more costly than most people can afford.  Any solution to the health care issue must address the problem with cost.  The current insurance system offers no incentive for health care providers to lower cost and improve efficiencies to attract customers.  We don’t ask how much a test or procedure is going to cost.  We don’t shop around for the best price, we just go wherever our doctor tell us.  We don’t operate this way for other services.  Most of us take pride in getting the best price we can.  Lasik is an example of how competition and removing artificial cost constraints can drive cost for health care down.  Lasik is not covered by insurance yet it is a popular procedure.  The cost of Lasik has not gone up like other medical procedures, rather is has decreased by more than 50% from a cost roughly $4,000 per eye in 1997 to an average of $1,800 per eye today.  We can’t always shop for price in health care, but if we were incentivized  to do so, prices would certainly drop making it more affordable (insurance premiums would also decrease).

Government regulations are part of the problem

Part of the problem with our current system is too much Government intervention.  Now before you accuse me of the desire to abolish all government regulation, let me explain.  I believe there is a place for regulation to protect consumers, I just think that we need to periodically examine these regulations to ensure that they are providing the value that was intended.  Often regulations create unintended consequences.  For example, the cost of providing insurance continues to increase because of government mandates for what must be covered in policies offered by insurance companies.  This is not necessarily a bad thing (although I disagree with some of the elective procedures required to be covered) but the unfortunate side effect is that the cost to buy these policies becomes prohibitive.  I’m not advocating the removal of these mandates, but rather more choice for the consumer regarding what coverages they include in their policy.  What I would like to see is more flexibility in the types of coverage one can purchase similar to auto insurance.  A simple example, I’m 45 years old, so is my wife, we don’t plan on having any more children, so I would like the ability to buy a policy that does not cover obstetrics so I could save money.  If people want to pay more for a policy which covers addiction counseling, sex changes, cosmetic surgery, etc. more power to them, just give me the ability to opt out so I can save money.

I won’t go into too much more detail on regulations, but I would like insurance companies to be allowed sell across state lines to have greater economies of scale (requiring cooperation by the multiple state dept. of insurance).  Also, allowing people to join together and purchase insurance as a group, much like a large employer, so they can negotiate discounts with the insurance carriers would provide two benefits.  First, the insurance would not be tied to your employer so it would be portable and second it would provide opportunities for those that do not work for large companies.  As an example, I am in the Software Development industry.  If a group of developers, testers, managers could join together to purchase insurance, potentially be hundreds of thousands of buyers, would result in significant discounts.  Current state and federal regulations prevent these ideas from becoming a reality.


The CEO of Whole Food offered some practical and in some cases ideas that are being practiced by his company.  It is unclear to my why he was vilified by some on the left, but here is a link to his WJS editorial;

Nathan Sass does a nice job covering and alternative proposal that I think is pretty novel.  Please take a look here;

Tort reform was left out of the AHCA.  While I think that people who have been a victim of negligent medical care should be made whole and deserve monetary compensation in many cases the settlement is about punitive damages.  Punitive damages are meant to punish the perpetrator of the offense so they won’t do it again.  The problem in our current system is that health care providers can buy malpractice insurance which covers punitive damages awarded to a plantiff.  They build the cost of the malpractice insurance into the the amount they charge for services, so it is the consumer who is punished not the doctor.  I think that the best punitive action that can be taken against a negligent health care provider is to take away their license to practice.  That is real and effective punishment that is not passed on to the consumer.  It is no surprise that trial lawyers are against tort reform, they have everything to lose and nothing to gain.

I am interested in learning about other ideas about how the health care issue can be solved.  Please feel free to post comments with ideas and links to others ideas.  As much as I hope that the AHAC will be repealed, I also hope that we can quickly move forward with creative and novel ideas for solving the problem.

Leave a comment

Posted by on February 6, 2011 in Health Care


Tags: , , , ,