July 18, 2012

An Actuarial Ombudsman for the Public

Jason J. Fichtner

Former Senior Research Fellow

Frederick W. Kilbourne


Jason J. Fichtner and Frederick W. Kilbourne make the case for an actuarial ombudsman.

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Although the Supreme Court upheld the Affordable Care Act (ACA), it’s still unclear whether we can truly afford the provisions in the law. Congress passed, and the President signed, the ACA with the promise that it wouldn't add to the federal deficit. Even after the Supreme Court decision, however, the only true debate now is over how much it will add to the deficit.

 The buck doesn’t stop there, unfortunately. Given the ever-increasing costs of Social Security, Medicare and Medicaid, how do we know if we can afford to keep any of the other entitlement promises Congress has made?Depending on which set of assumptions you look at, there are three, in the Social Security Trustees Report the trust funds may go bankrupt in 2027, 2033, or never. That’s a wide range of predictions. If the public had its own actuarial ombudsman, a source of unbiased information, we could have better policy discussions about the true costs of our legislative promises and the necessity of entitlement reform. Perhaps then the public could find answers as to where the trust funds are headed, and what could be done to avoid insolvency.

A credentialed American actuary, an actuarial ombudsman should be an independent individual, or at most a troika, and certainly not an organization or a committee. They should have the freedom to select support staff, to choose the major legislation to be analyzed, and to draw upon the analysis of others organizations like the Congressional Budget Office, Office of Management and Budget, Social Security Administration, Centers for Medicare and Medicaid Services, policy groups, universities, and more. The point would be to prepare an annual report to the public, submitted to the Congress and the President, laying out in plain English the future fiscal challenges facing the nation based on the promises we’ve made and the funding required.  

$100 trillion: that staggering sum is a lowball estimate of the amount needed to be placed in a bank account today, right now, to cover promises already made by our federal government. These promises are the scheduled payments to be made in the future to bondholders, social insurance trust funds, Social Security recipients, Medicare providers, federal employees and retirees, and a host of others. The $100 trillion is over and above taxes already scheduled to be collected under current laws.

$1 million: another staggering amount that is the cash required from each U.S. federal income taxpayer immediately, in order to set up the $100 trillion account. It presumably could be financed with more federal debt and thereby pushed off to future generations -- but that’s how we got in this mess in the first place. We’re mortgaging our kids and grandkids futures. Who’s to say that they will be willing or even able to meet the payments that we have bequeathed to them? It surely isn’t fair!

$500,000: the $1 million due from each taxpayer could theoretically be cut in half if we first confiscated the entire net worth of the top 1% of Americans and applied that money to the $100 trillion bank account. But that’s a silly idea. Any proposed confiscation will surely have some adverse effect on capital formation and job creation, likely leading to lower revenue collection and increased federal expenditures. As large as $100 trillion sounds, it’s actually based on the underlying premise that federal deficit spending will cease immediately and permanently, and that is currently not in the cards. As we continue to fund our priorities with even more debt, the $100 trillion amount will be that much larger. Not to mention, we have made no provision for state and local government debt. The $100 trillion is based on promises made at the federal level only. Add in state and local pensions and other debts and the amount increases by $10 trillion.

How did we get in this mess? The inescapable answer is that our politicians have been successful at buying votes by means of promising benefits in excess of taxes. They found it easier to get elected by promising benefits today and putting off paying the bill -- hoping that tomorrow will not show up while they’re still in office.

The United States faces yet another $1 trillion deficit and the acknowledged conventional national debt is now well over $15 trillion. The true national debt, including unfunded but real liabilities, is $100 trillion and growing. At some point, entitlement reform will be necessary. Deficit financing can’t go on forever. Where will the public turn for unbiased information? We think the time has come for an actuarial ombudsman.