Commentary: In the red and out of control

Posted Wednesday, May 11, 2011 in Opinion

Commentary: In the red and out of control

by Thomas Lill, Bryant University

The U.S. national debt is currently $14.3 trillion, or roughly 100 percent of the country’s annual GDP. In 2010, we expanded our debt by roughly $3.5 billion each day to the point where every man, woman and child in this country owes over $46,000 to cover the national debt. To put this into perspective, the interest we paid in 2010 was larger than the economy of Switzerland. How can we ever get ourselves out of this mess?

When trying to answer this question the first thing one must do is look at the major sources of our debt. This nation’s debt, along with many of its current and future problems, stems from three main areas: health care, Social Security, and out-of-control government spending, which simply needs to be taken out of the hands of special interest groups. If reformed properly and quickly, these three issues are in my opinion the factors that will allow our country to remain a dominating superpower; if not, they will lead to our fall within the next generation.

Currently, national health expenditures totaled more than $2.5 trillion annually. In 2008, that translated to a whopping $7,681 in spending per person and consumed 16 percent of our GDP. This is more than any other developed nation, including those with universal health care. What did we get for that enormous expenditure, one might ask? How about an inefficient, overtly expensive system that left 47 million Americans uninsured.

The underlying issue with the system isn’t the total spending as a whole; we are indeed the most affluent nation on earth, and people do place a high value on their health. The real problem lies with how the system is set up and how the funds are distributed. Americans as a whole tend to over-consume unnecessary amounts of health care. A prime example of this is the uninsured individual who gets a bad cold and runs to the emergency room because he lacks a primary care doctor. Another example is the insured individual who rolls her ankle, gets three X-rays at the hospital, the most expensive brace they offer, and then goes back for a follow-up visit.

The best and most efficient way to fix this issue is to give every individual health insurance that’s set up similar to auto insurance. If people were covered for major things like broken bones, severe cuts, and other injuries that required immediate medical treatment, yet were forced to pay a steep deductible for both small problems and routine maintenance, then the system would automatically allocate funds to where they are valued the most.  

In order to fully understand this concept one has to think of health care as a scarce resource that everyone needs in varying degrees. It’s not the elderly and the disabled who necessarily over-consume; they need more health care. Rather, it tends to be the average Joe who is either fed up with paying such high premiums for his private policy and chooses to be uninsured, or the individual that has free company-provided health insurance and has no attachment to the actual cost of procedures.

People think and act with their wallets for the most part, if they are aware of the true cost of a good, they will think twice before over-consuming it.

The other major problem that is going to have catastrophic effects on this country’s financial well-being is the current Social Security system. The Social Security Act was passed in 1935 with the intention of providing individuals with an extra source of income to have during their retirement years. The initial idea was to provide retirees with something extra to go along with their personal retirement savings. Over time the system grew and began to include more and more beneficiaries; however, the pool of workers supporting the retirees, which once was 10 to 1, has drastically fallen to 3.3 to 1. Over the next generation it is predicted that the ratio of workers to beneficiaries will be an alarming 2.2 to 1.

From the time the program began it has seen huge surpluses each year. Instead of saving the surplus funds to cover future beneficiaries, the government simply spent them to reduce the deficit.

Currently the trust fund is predicted to be fully exhausted by 2037. In order to push this date out significantly, one simple change has to be made. Individuals should pay the Social Security tax on the full value of their salary, not just the first $108,000. If this one change were to be initiated, it would greatly extend the life and solvency of the fund. This isn’t a regressive tax; it’s a simple and equitable expense that goes to pay for something that we will all eventually receive.

Obviously there are other reforms needed in both health care and Social Security. However, if these initial changes were imposed, both systems would immediately be more solvent, efficient, and affordable for future generations.

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