Welcome to 2008! We're in Debt Up to Our Eyeballs!

Philip Betbeze, Senior Editor, Finance, January 7, 2008

I was minding my own business, digging out of the lethargy, weight gain and e-mails that accompany a very rare full week off from work to celebrate the holidays. While I was catching up on the news I missed, I ran across this comforting story with the headline: "$45 trillion gap seen in U.S. benefits." That means the U.S. government is promising $45 trillion more than it can deliver, based on the government's projected revenue stream over the next 75 years. Most of that shortfall comes from promised Medicare and Social Security benefits.

Let me say that it's no surprise to me (and probably isn't to you either) that the federal government isn't able to meet its financial obligations, especially when it comes to these two entitlement programs. Many people in my generation already have written off Social Security as a guarantee. The track record for deficit spending in the U.S. over the last half-century or so isn't good. But what staggered me is the magnitude of the shortfall. The total U.S. budget was about $2.3 trillion in 2006, if that gives you any indication of how much of a deficit we're facing in promised social benefits over the next 75 years. That's a long time, and the $45 trillion number is governed by a lot of assumptions that may change, but it's a best unbiased guess. So what does that piece of bad news mean for society as a whole? My guess is we'd better get used to either getting a lot less help from the federal government in all areas or we'll be paying a much higher tax bill.

But I wonder whether that information causes a chill to run down your spine as a healthcare finance professional, or does it elicit only a simple shrug of the shoulders? Certainly, it looks as though the feds are going to have to cut back in coming years. I know, cutbacks in such popular programs are difficult, if not impossible, to get through Congress. Until you try to pass the alternative: tax increases. So the choices are bad and worse. Does that mean the inevitable belt-tightening will filter down to hospitals and physician practices, or is the problem simply too big, governed by too many variables, and too far off to worry about?

Drop me a line and let me know your feelings on this subject. Clearly, most healthcare providers are depending on the federal government's ability to fully fund the commitments it has made to its citizens as far as Medicare is concerned. According to most estimates, healthcare providers depend on Medicare and Medicaid for as much as half of their revenue. As Medicare slowly works more pay-for-performance incentives into its payment structure for healthcare service providers--and commercial insurers do the same thing on a much larger and faster scale--the writing seems to be on the wall that smart healthcare providers are going to have to work to be more entrepreneurial and customer service-oriented in how they conduct their business. If Medicare funding is on the long-term wane, (and that's a big if, I'll grant you) getting cash in the door seems to take on ever greater importance to the long-term success of hospitals and physician practices.

Meanwhile, as for me, I think I'd better increase that 401(k) contribution rate and fully fund my Roth IRA. Meanwhile, maybe I should look into funding an HSA. I'll get right on that--tomorrow.

Philip Betbeze is finance editor with HealthLeaders magazine. He can be reached at pbetbeze@healthleadersmedia.com.

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