Tuesday, September 22, 2009

Socialized Medicine Schemes: unfunded consequences

Socialized Medicine Schemes are Generational Theft? What does this mean? How does the concept of Generational Theft apply to Socialized Medicine Schemes? Its the concept of future generations having a financial obligation related to benefits paid to today's generation.

There are several major Socialized Schemes that have been introduced over the past 70 years into the United States Economy. Regarding Socialized Medicine, several Socialized Medicine Schemes already exist: Medicare and Medicaid.

The most well known Socialized Schemes are: Medicare, Medicaid, and Social Security. These three Socialized Schemes are unfortunately suffering from a monumental problem: future benefits are underfunded by $53 Trillion Dollars. (1) Yes, that's $53 Trillion.

Someone, future generations, must pay for the $53 Trillion of unfunded future benefits of these Socialized Schemes. Why? Because they are "pay as you go" schemes. These plans basically have no reserve fund other than printing money. (2) These schemes based on pay-as-you-go are about to become pay-a-whole-lot-more-as-you-go. (1)

Wait a minute. How can a series of "insurance" plans be underfunded to the tune of $53 Trillion? You can't have underfunded insurance! That's not insurance?!? Exactly!

Wait a minute part two. Where are the reserves, surplus.....what kind of Capital have they invested in and what is the rate of return on the Capital? Not to worry, in regards to Social Security, the US Treasury has issued IOU's. (2) On second thought, worry.

Medicare, Medicaid, and Social Security have merely been given a Political Moniker of "insurance". By no means are these Socialized Schemes based on insurance theory-and- practice encompassing regulated insurance company solvency requirements , regulated insurance company reserve requirements, etc..

Look at a few definitions within the world of insurance:

(a) Reserves of an insurance company, according to the Insurance Information Institute is: A company's best estimate of what it will pay for claims. (3)

(b) Solvency of an insurance company, according to the Texas Coalition for Affordable Insurance Solutions, is the ability of an insurance company to pay future claims. In order to remain solvent, insurance companies must always keep an adequate surplus of funds in case an unforeseen increase in claims occurs. (4)

(c) Surplus of an insurance company, according to the Insurance Information Institute is:
The remainder after an insurer’s liabilities are subtracted from its assets. The financial cushion that protects policyholders in case of unexpectedly high claims. (5)

Socialized "insurance" Schemes aside, we have those expense Private Insurance Plans. Those plans that are in fact regulated and audited regarding surplus, reserves, and solvency.

In the Political-Economy argument of "expensive health insurance", if the term "expensive" is more related to "solvency" (Economics) than related to "Populism" (Politics), then "expensive" might be better distinguished as funded and solvent.

Those same Private Plans are the plans that leave no unfunded items to your children, grandchildren, and so on into the future. Why? Because they are Private Sector plans that are funded insurance plans.

Think for a moment about funded insurance plans. Real insurance plans. They do not come cheap! However, as a consumer of insurance, you purchased health insurance, as well as other types of insurance, so that you do not leave anyone with unmanageable future obligations, including yourself.

A wise question to ask yourself is: if the three major Socialized Schemes in the United States have a current track record of being underfunded by $53 Trillion, what would be the direction of the funding/underfunding of a Socialized Medicine Scheme?

(1) http://gao.gov/new.items/d08411t.pdf

(2) Milton Friedman, "Social Security Socialism," Wall Street Journal, January 26, 1999, A18. http://www.hoover.org/publications/digest/3512071.html

(3) (5)


1 comment:

  1. How dare you bring up facts to rebutt a liberal pipe dream...this is not material to the discussion.Ponzi scheme!!!!!! The $53 trillion doesn't mean these programs are failures...it just means that we have not spent enough yet...check the war on poverty and see who is winning that one.
    Tax rates will be going up, the dollar is becoming worth less, and you better own a commodity when the day of reckoning comes.