Monday, August 3, 2009

Medicare: You Can Thank Ponzi

A Ponzi scheme (similar to a pyramid scheme) is a scheme in which new investors are used to pay back previous investors. There is no actual investment. This was named after Charles Ponzi, the first person to orchestrate such a scheme back in 1919. Many people can make lots of money in these undertakings; but, in the end, they always unravel. They are unsustainable. And so it is with Medicare. Many of the elderly today paid into Medicare for decades. And now they benefit greatly from free health care. Many elderly feel entitled to their free health care, and as much of it as they can get. They did pay for it after all, right? But the fact is that the average Medicare recipient uses 2 to 3 times more money in health care than they ever paid into the system.

When Medicare began in 1965, six workers were paying into the system for every Medicare recipient. This number is now down to four and is decreasing. This is why the system is unsustainable. The money paid into Medicare was never put into a trust fund; it was immediately spent. This is why there is currently a $34-trillion unfunded liability in Medicare. Ponzi schemes rely on an ever increasing supply of investors. With Medicare, the investors are continually decreasing. This is why today's younger workers will never see Medicare benefits. The system will collapse as do all Ponzi schemes. This deficit can be covered with increased taxes on workers and reduced benefits on recipients - but only temporarily and with an unfairness to all involved.

Ponzi schemes always ultimately end up taking money from some investors that can never be paid back. This is why they are illegal. This is why Bernie Madoff is in trouble. Only in government will you find a bigger Ponzi scheme than the one Madoff ran that is legal. You find this in Medicare. (I haven't even mentioned social security yet!) The last thing we need is our Medicare Ponzi scheme extended into universal health care coverage under Obama's plan. (John Stossel)

As a side note about Medicare that most likely applies to all government entitlement programs, Medicare spending on fraudulent claims is estimated to be anywhere from 3% to 10% of Medicare spending. This amounts to $60 to $72 billion on the low estimate. It has become a big target for organized crime. To compare this to the private sector, credit card companies (not controlled by the government) see 0.03% of their spending in fraud. (Dennis Jay)

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