The Healthcare Vote... and My Depressing Lunch With Senator Mike Lee
A titanic threat looms over U.S. financial markets.
Last week’s failed healthcare vote in the Senate proves it. And my lunch in Las Vegas with Republican Senator Mike Lee of Utah the week before further confirmed it.
It is going to be not just difficult to reform the nation’s out-of-control entitlement spending. It may not even be politically possible.
At least, not until it’s too late.
Let me back up and say this is not just about Obamacare. (In my view, there are parts that should be kept - like coverage for pre-existing conditions - and parts that should be changed or eliminated.) This is really about our current $106.9 trillion in unfunded liabilities for Social Security, Medicare and Medicaid.
How is that figure calculated? By taking the total U.S. population, estimating average life spans and benefits, and then determining just how far receipts will fall short of actual expenditures.
Again... the number is almost 107 trillion, a sum so stupendous that even cosmologists don’t throw it around.
(To see this ticking time bomb, click here - and check out the big red number on the bottom line.)
For decades, Congress has created gargantuan entitlement commitments without the revenue or economic growth necessary to pay for them.
Fixing Social Security would be relatively easy, of course. We could gradually raise the age of eligibility. (Unpopular but doable.) We could means test the program. (Unpopular but with only the minority who have spent a lifetime saving and investing.) And we could raise the FICA cap from the first $90,000 of income to something higher. (Even more unpopular but also doable.)
Far, far tougher are Medicare and Medicaid. Not just because the outlays are so enormous but because voters - angry enough to give Congress a single-digit approval rating - are in no mood to pay even more for healthcare.
The previous Republican whiff in attempting an Obamacare overhaul contained modest reforms to Medicaid, small steps toward making the healthcare system solvent for the longer term.
But the other party would have none of it. And the most hysterical howls of protest came from the country’s most anti-reform institution: the mainstream media.
The New York Times, The Washington Post, CNN and others charged - not in the op-ed sections but in their headlines - that Republicans were trying to pay for tax cuts for the rich by denying healthcare to millions.
In reality, the bill contained per capita caps that would do little to alter the program’s existing commitments and would help put it on a path to long-term solvency.
(Plus, who knew that keeping a little more of what you make is now viewed by the national media as a government expenditure?)
With the press, of course, it’s always sob stories, never a sober discussion of costs and benefits.
And while anti-reform advocates claim to care deeply about the sick and the elderly, they remain unconcerned about dramatic cutbacks for future generations... or about taxpayers stuck with the tab.
(As for “soaking the rich” to solve this, dream on. Uncle Sam could confiscate the fortune of every billionaire in the country and it wouldn’t cover 3% of $107 trillion.)
Where is this leading us? To a bad place, I’m afraid.
Dispassionate observers are no longer wondering how the U.S. entitlement system will be reformed. It is becoming increasingly evident that - politically - it can’t be.
In short, Washington is pushing us toward the most predictable financial crisis in our nation’s history, one that is beyond solving with higher taxes, modest reforms or stronger economic growth.
Investors who wave this off as “old news” are in for a rude awakening.
And, sadly, Mike Lee, one of the most reform-minded senators in Washington, didn’t do anything to alleviate my concerns last week. In fact, he worsened them.
When I asked him how - with angry voters, the polarized political climate and the anti-reform rhetoric of the media - we could possibly reform the U.S. entitlement system, he shrugged.
He didn’t have a clue either. He offered only that as these unfunded liabilities cause the $19 trillion federal debt to metastasize, the calls for action will get louder.
Translation: It will take another full-fledged financial crisis - or the serious threat of one - to get our elected misrepresentatives to act.
No, things aren’t likely to start coming apart in the next few weeks or months. But the next few years?
It’s entirely possible. I’ll have more to say about this important topic - and its likely impact on your investment portfolio - in my next column.
Thoughts on this article? Leave a comment below.