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Medicare Under Attack

In our last article, we talked about a cynical aspect of the Social Security "Cost of Living Adjustment." The 2% increase is actually fully offset by a simultaneous increase in Medicare premiums. We have seen other "give with one hand, take with the other" strategies in the new tax law. For example, the increase in the Standard Deduction is cancelled out by the repeal of the Personal Exemption. 

However, these shell games pale in comparison to the overall impact of the new tax law. The main beneficiaries of the tax law are mega-corporations. Not only did they receive a "tax holiday" on $620 billion of tax-free profits sheltered overseas, but they were granted a massive tax cut from 35% down to 21%. Unfortunately, only 6% of this windfall has gone towards employee raises and bonuses.¹

Back in 2008, the government bailed out banks with taxpayer money during the recession. In a similar way, the new tax law gifts mega-corporations but leaves taxpayers to pay for the resulting $1.5 trillion federal budget deficit. Lawmakers have been somewhat vague about what they will do to reduce the federal debt, but deficits have consequences, and what they have already said is telling --

House Speaker Paul Ryan said, "We're going to get back to entitlement reform, which is how you tackle the debt and the deficit."²  Senator Marco Rubio (R-Fla), after voting to create the gigantic deficit, announced, "The driver of our debt is Social Security and Medicare."² It seems likely that Congress will use the pretext of higher deficits to attack Medicaid (Medi-Cal in California), Medicare, Social Security and anti-hunger programs.

Medicare began in 1965 when seniors were unable to go out and buy health insurance on their own. Insurance companies did not want to sell affordable policies to older people because they were more expensive to insure. We have now come full circle -- Republicans are proposing that seniors get a voucher in place of Medicare. The voucher would defray some of the cost of buying a health insurance plan, but once again, elderly Americans would be on their own to try to get coverage.³

Before he resigned last September, Secretary of Health and Human Services, Tom Price, wanted to replace the Federal Medical Assistance Percentage, which is the federal government's commitment to fund Medicaid. Instead, he proposed block grants given to states. Block grants are typically small and fixed, and shift the healthcare burden to states. In the event of an economic downturn or emergency health crisis, states would find it difficult to fund necessary services. Price is gone, but Congress continues to promote his policies.

The existing cost of Medicare is already a significant burden to many people. The National Committee to Preserve Social Security and Medicare reports that, "45% of retirees spend more than 1/3 of their Social Security benefits on health care, from co-pays, to premiums, deductibles, and out-of-pocket fees for services -- such as going to the eye doctor, dentist or audiologist -- that are not provided."³

Indicative of things to come, Trump signed into law a dismantling of Medicare's Independent Payment Advisory Board. This board was authorized to serve as a check to prevent higher Medicare premiums.

It's fairly certain that cuts to Medicare and Social Security will be the next target for Trump and the Republican leadership. It's only a question of when. It will be difficult for Republicans to press for these cutbacks ahead of the 2018 midterm elections. There is an anti-Trump wave building in many of the swing states and districts that Republicans want to hold onto, and there is a growing contingent of well-funded Democratic challengers, many of them women. Republicans recognize that Medicare is a very popular program to the very people that voted for Trump. After the midterm elections, however, GOP representatives won't have to worry about retribution from angry voters and can proceed with, "entitlement reform."

If the 2018 midterms result in a Democratic surge, the soon-to-be replaced Republican majorities may try to push through cuts to Medicare and Social Security during a lame duck session after the November elections, but before the next Congress is sworn in in January 2019. 

[1] http://money.cnn.com/2018/03/05/investing/stock-buybacks-inequality-tax-law/index.html

² https://www.washingtonpost.com/news/wonk/wp/2017/12/01/gop-eyes-post-tax-cut-changes-to-welfare-medicare-and-social-security/?utm_term=.754575565af9

³ http://www.truth-out.org/news/item/39715-you-re-on-your-own-republicans-plan-attack-on-medicaid-medicare-and-social-security

https://www.washingtonpost.com/news/monkey-cage/wp/2017/01/18/republicans-want-to-fund-medicaid-through-block-grants-thats-a-problem/?utm_term=.ca16b768bde8

 

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Kondo Wealth Advisors, Inc.  employees providing such comments, and should not be regarded as a description of advisory services provided by Kondo Wealth Advisors, Inc.  or performance returns of any Kondo Wealth Advisors, Inc.  Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Kondo Wealth Advisors, Inc. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

 

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