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Wednesday, August 29, 2007

Medicare: A Glimpse of Reality

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By Al Jacobs

The nation's Medicare system is now engulfed in controversy over its future. What should we believe? I'll spell out the real problem.

In connection with the delivery of medical services in America, one fact must be recognized. While medical technology becomes increasingly involved and costly, a substantial and growing portion of the population, with little or no financial resources, is guaranteed limitless access to the services.

Any solution to the problem is complex, involving the political quandary of requiring massive transfers of wealth among various groups of the society. As difficult as this might seem, there are three factors that make it all the more unresolvable. First, the number of persons eligible for Medicare benefits now stands at approximately 50 million and continues to grow steadily. Second, an increasing number of businesses, many for pure survival, are ridding themselves of employees and transferring their assets outside our borders, beyond the reach of regulators and tax collectors. Third, and perhaps most crucial, is that the effective tax rate on a middle class working American is nearing 50 percent. Not only is there little slack, but the rate is reaching historical revolt conditions.

Here are my predictions for the future. As with the social security system itself, expect the costs to increase as benefits shrink. The practical limit beyond which fees and charges cannot be raised is that of "collectibility," usually reflecting the point when political considerations overrule the attempt to extract further revenue. As to reduced benefits, the die became cast with provisions inserted in the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA). For the first time, certain Medicare benefits are tied to the recipient's income and assets. With that precedent set, Medicare will progressively merge with the nation's Medicaid program that services the indigent among us, and eventually becomes indistinguishable from it.

Finally, let me put the matter into perspective. In searching for the guilty parties, don't try to distinguish the good guys from the bad guys. The deception and chicanery employed in enacting MMA is not unique to any particular political group. Under similar circumstances, the Democrats... or Libertarians... or Greens... or whomever... would engage in the same sort of activities. Never forget that, in an attempt to influence a sizable voting bloc, there are no boundaries. The political process is amoral.

Al Jacobs has been a professional investor for nearly four decades. His business experience ranges from real estate, mortgage, and securities investment to appraisal, civil engineering, and the operation of a private trust company.
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