Life Lunch: Social Security and Medicare
Professor addresses challenges posed by changing demographics, consequences for life
In the first of a series of “Life Lunches” to occur this semester, the McGrath Institute for Church Life hosted Associate Professor of Accountancy and University Life Fellow Jeff Burks for a lecture entitled “Social Security and Medicare Funding Problems: Causes and Consequences for Life.” Addressing an audience of community members, faculty, and several students, Burks offered explanation of the financial trouble facing the Social Security and Medicare programs and the resulting effects on human life.
Burks began by explaining Social Security and Medicare trust funds, debunking the common assumption that money paid into the programs is set aside for future payments. According to Burks, current payments into the program are entirely used up to pay for benefits for current recipients of Social Security and Medicare, leaving no money to pay future beneficiaries. While the programs have historically run a surplus, they have run a deficit for roughly the past five years, paying out more money than received.
Moreover, Burks objected to the notion that surplus money is truly invested. While it is continually held in U.S. Treasury securities, Burks claimed that this is not true investment but instead like “the right hand is investing in the left hand.” This causes problems because when the Social Security and Medicare programs need to use their saved surplus, which they do whenever they run deficits, the U.S. government must raise money, typically through borrowing, to pay the trust funds back.
This borrowing currently amounts to a significant portion of overall federal borrowing, totaling eighty to ninety billion dollars, roughly one sixth of recent federal deficits. While these payments are currently extremely problematic, they will be even more so in the future as they are projected to increase drastically, posing an enormous burden on the government’s budget.
To demonstrate exactly how large this future obligation is, Burks used a financial measurement called the present value of these future obligations. The present value is the amount of money that would need to be set aside today to pay for obligations in the future. While in the private sector this is included on balance sheets as a liability, it is not done for Social Security or Medicare. However, when calculated, this liability totals $47 trillion.
Burks put this enormous unfunded liability in perspective by comparing it to the national debt, currently roughly $19 trillion. He noted that while some politicians draw attention to our large national debt, almost none draw attention to Social Security and Medicare’s even more massive unfunded liability. To further demonstrate the magnitude of the unfunded liability, he put it in terms of liability per household, which amounts to roughly $500,000 a household.
Burks then emphasized the importance of action soon by displaying a graph of the projection of the national debt versus the size of the economy if no action is taken, showing many years of rapid growth beginning in roughly a decade as the debt spirals out of control. This spiraling rapid growth takes hold due to compounding interests, “something that Einstein called the most powerful force in the universe,” as paying interest on borrowed money requires borrowing more money, generating more interest expense, a cycle that repeats until drastic action is taken.
Next, Burks explored the root causes of this problem, attributing it to three primary factors, namely, inflation in health care costs, longer lifespans, and a decreasing worker-to-retiree ratio. Rising healthcare costs contributes to the problem because it directly raises the cost of seniors’ medical care and Medicare as a whole. Longer life spans also play a role in the programs’ financial hardship because the five year increase in life expectancy since the 1960’s results in each person drawing more total government benefits. However, Burks claimed that the biggest problem is the declining worker-to-retiree ratio, which is how many workers are paying into the programs for every retiree receiving benefits. In the 1990’s there were three workers per retiree however, this has drastically declined and will likely reaches two workers per retiree by 2040. This poses a great challenge because it removes an entire lifetime of payments into the program. Burks explains that a huge cause of this decrease is the U.S decline in fertility rate, as it has fallen from roughly three children per mother in the 1960s to less than two children per mother today.
Burks then connected the financial problem to the matter of life, saying that this situation demonstrates the public harm of sins such as abortion, saying that in decreasing the fertility rate, “closure to life’s beginning increases pressure to speed life’s end,” as the declining number of young people leads to the elderly being seen as a burden. Despite the overall gloomy picture, Burks ended by providing tips about what we can do to help the problem, namely being good stewards of our money and building strong families.
Kevin Angell is a freshman studying economics and political science, with possible minors in theology and computing and digital technologies. When asked if he slept well, he is accustomed to replying, “Great! I got a full 40 minutes.” Contact Kevin at firstname.lastname@example.org.