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Socialized Medicine Is Coming... (revised from print edition)

Using the Government's own audited financial statements, the Peterson Foundation calculated the Federal Government’s total accumulated liabilities for Medicare and Social Security. As of the third quarter of 2008, the Federal Government had $56.4 trillion in total liabilities and unfunded promises. The future liabilities of the two progams equate to $184,000 per capita.

Social Security
The Social Security nightmare is the most often mentioned as the biggest problem facing the Government. The Old-Age, Survivors, and Disability Insurance program (Social Security) is actuarily unsound. A better fix would be to replace Social Security with an actuarily sound program. That's a topic for another article.

Medicare
The Social Security mess, while huge, is not the biggest problem: it can be fixed with slightly higher taxes and less benefits. Medicare is far scarier - because it will be far more difficult to fix. The Medicare shortfall threatens to bankrupt our country. The Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds, in their 2008 Annual Report, warned that over the next 75 years, the government will need to find an additional $36.3 trillion (in 2008 dollars) above and beyond what is already budgeted for beneficiaries.

The only are only two classes of remedies that will close the Medicare funding gap. The classes are either to: Reduce Expenditures, Raise Funding or a combination of both.

Reduce Expenditures  
   
Ways To Reduce Expenditures
Pros And Cons Of This Solution
Automate records and find other cost savings. Government hype.
Nationalized Healthcare - (Fully Socialized Medicine) - Nationalize the healthcare system and Medicare goes away Whether or not the electorate will accept nationalized healthcare remains to be seen.
Partially Socialize Medicine - some of Medicare's expenses disappear. The current administration is already moving towards Socialized Healthcare. Look for a patchwork of programs cobbled together.
Cut Benefits (Reduce Level of Services Provided) A major cut in benefits is political poison, but a few cuts can be made.
Raise Eligibility Age Politically unpopular, but doable.
Lower Reimbursement Rates. Pay the Doctors less. This is hard to do in a free market for labor.
Means Testing - Make more people ineligible for Medicare. Already being done. Expect more of the same.
   
Ways To Raise Funding
Pros And Cons Of This Solution
Socialized Medicine. (Repeated from above)  This creates a more expensive problem. The beauty of this is that it gives the Government an excuse to impose a new tax to pay for the new program. This may be the endgame, but it is too radical - don't expect this to happen too soon.
Raise Payroll Taxes or Create New Payroll Taxes. Raising the percentage paid in Medicare taxes paid by the worker (or employer). This is politically unpopular and discourages workers from working and/or employers from hiring.
Raise other Government Taxes - use the proceeds to fund Medicare shortfalls Least likely. Like all other tax raising schemes this is politically untenable as well as fiscally unsound. 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.
Massive Federal  Borrowing - an commonly used solution to problems of the past.  Due to relentless buying of US Treasuries by the Central Banks of China and Japan, the US Government has had very low borrowing costs. Over the past decade, due to the declining dollar, 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.
Print Money Already happening, but not because of budget shortfalls. Keep printing and our creditors will start demanding higher interest rates. When the interest on the debt becomes unmanageable, the government has no choice but to monetize the debt by printing money. 

Conclusion Of Remedies
The government will employ a combination of the most feasible solutions outlined above. Look for a reduction in benefits and new socialized medicine programs. Also added to the solution mix will be an increase in federal borrowing, the printing of money, and an increase in inflation.

Inflation is taxation without legislation.
- Milton Friedman

Crazy Patchwork Quilt.
The current Medicare Program is overly complicated. This is evidenced by the hotlines setup to counsel baffled Seniors after the most recent changes to the program. Socialized medicine is most often used by the poor, the uneducated or the elderly. These are the least sophisticated of consumers, yet in order to obtain healthcare, they are forced to decipher an extremely complex and complicated system.

The government solution to a problem is usually as bad as the problem.   - Milton Friedman

A leopard doesn't change its spots. Rather than redesign systems from scratch, the US Government fixes problems by creating patches that address the problems of earlier fixes. Medicare and Socialized delivery of healthcare is about to get more baffling.

DISCLOSURE: No positions pertaining to Medicare.  You should perform your own due diligence and consult with a professional before investing.