As Robert Reich said Medicare's future cost estimates may be grossly inflated. The problem may not be as bad as reported. When they calculate Medicare's inflation rate they use the inflation of medical costs - medical costs have been indeed rising faster than inflation. ... Even if the future liabilities are grossly inflated - Medicare is a huge unfunded liability and it will be a big problem. I wrote a article in Seeking Alpha about the problem titled "The Dollar is Doomed"
Medicare and Social Security are not debts. The future obligations aren't TRUE liabilities, because the government has no contractual obligation to keep current benefits. They can change benefits at will by changing the law. Social Security is easily fixed: raise payroll taxes and reduce benefits. Medicare will be very difficult to fix.
The Govt has only four remedies:
1. Raise taxes to confiscatory levels
2. Renege on healthcare obligations (cut benefits)
3. Massive Borrowing.
4. Weaken The Dollar.
5. Cut the costs of providing care (generic drugs, cost-effective treatments)
The government will employ a combination of all of the above. Remedy 1: If taxes were raised to draconian levels, tax evasion would become rampant and government collections would come up short. Taxes will certainly go up, but not to the confiscatory levels required to meet future obligations. Remedy 2: A major cut in benefits is political poison, but a few cuts can be made.
Remedy 3: Massive Borrowing. The government will resort to what has always worked in the past: It will borrow massively and invoke Remedy 4: Devalue the dollar. Because the US is seen as a safe place for foreigners to park their excess cash, and the Dollar’s reserve currency status, government borrowing costs are comparatively low. Due to dollar devaluation, over the past decade, the US Government has had a negative real rate of interest. Given these generous terms, the U.S. government will borrow as much as it can as long as it can.
Remedy 5, sure - you can cut costs - but how far? Even if they cut 56T by half to 29T - it still would be a big problem. if the benefits and funding levels remain the same, the unfunded "liabilities" will swamp the system. Some combination of all 5 remedies must be employed. It still comes down to massive borrowing and weakening the dollar