Are the Elderly Committing Generational Theft?

May 7, 2009— -- At La Posada Retirement Community in Palm Beach Gardens, Fla., people live a pretty good life. With manicured grounds, an elegant swimming pool, a fine dining room, and beautiful lakeside property, La Posada made Forbes' list of "America's Top 10 Ritzy Retirement Communities."

"We have a wonderful life here," said resident Joy Turner.

And how much does it cost to buy in?

"Anywhere between $350,000 to half a million dollars," said another resident, Sam Bath.

And that's only the initial entrance fee! But even though these elderly people are doing quite well, they get a bonus: Thanks to Medicare, the taxpayer covers most of their health care costs.

"Medicare, I think it's the most wonderful thing," said resident Marilyn Herron.

Henry Becker, another La Posada resident, believes that Medicare is "one of the best things this country has ever done."

It's no surprise that these elderly residents like Medicare. Everyone likes getting things for free, and Medicare often makes going to the doctor just about free. With medical costs that cheap, some of these elderly residents go all the time.

"That's our social life," Herron joked.

But Regina Herzlinger, a professor at Harvard Business School, said Medicare cheats the young.

"What kind of legacy are we leaving for them?" she asked. "We're really stealing from them. It's not right."

"20/20" interviewed three high school students in Dayton, Ohio who said they are eager to help the needy -- in fact, they volunteer at their local food bank. But these teens are angry that Medicare forces them to pay for even wealthy seniors.

"How do they feel, morally, that they're living in these $300,000, $500,000 homes and they're still not paying for their own health care?" asked student Patti Arnold.

"This program is essentially ripping my generation off!" exclaimed student Zach Hardaway.

Medicare Causes 'Fiscal Tidal Wave'

Policy experts like Andrew Biggs of the American Enterprise Institute say these teenagers have a point.

"The government spends around $6 on seniors for every dollar it spends on children, and yet the poverty rate among children is far higher than it is among seniors," he said.

That's true -- the government takes from the young to give to the old, even though the elderly's median net worth is much higher.

It amounts to "helping people who don't need help and taking from those who need it," as student Nathan Constable described it.

So how do residents of La Posada respond to these teenagers essentially calling them greedy geezers?

"It's kids. I mean, they don't think. They don't think the problem through," said resident Walt McCarthy.

Many seniors believe that after having money deducted from every paycheck for years on end, they've paid their dues.

"I paid in for 40 years," said resident Henry Pearl.

"Our lifestyle now is our deserving," added Herron.

It's true they paid into the system for many years, but today the average Medicare beneficiary collects two to three times more than he paid in.

Retired investor and billionaire Pete Peterson argues that it is "not only unfair, it's downright immoral."

For Peterson it's not just about fairness -- it's about affordability. The Peter G. Peterson Foundation, a nonpartisan philanthropic organization advocating fiscal reform, has been vocal in sounding the alarms about Medicare's coming bankruptcy.

"Medicare is already a fiscal tidal wave," he says.

When the government created Medicare in 1965, there were around six working age Americans to pay for one Medicare recipient. Today, because there are so many older people and our life expectancy has increased, around four working age Americans shoulder the burden of one recipient. As the Baby Boomer generation retires, that ratio will only get worse.

The numbers are chilling. The government has promised $34 trillion dollars more for Medicare than it has actually funded -- roughly the equivalent of 30 Iraq Wars. This looming fiscal disaster dwarfs everything we're currently dealing with.

Medicare May Be World's Largest Ponzi Scheme

With the current system doomed to go bust before today's teenagers retire, Medicare is essentially the world's largest Ponzi scheme. Bernie Madoff's scam is pocket change by comparison.

"Medicare is no longer able to guarantee my generation anything in return," Constable said.

And yet the residents of La Posada believe Medicare should cover more, even though Medicare has covered seemingly inessential things like Viagra.

It may seem dumb, but seniors want it. And what seniors want, they usually get, because they vote in large numbers.

So what if a politician campaigned on cutting Medicare?

"Well, then you pay for your campaign, and don't ask me for any!" exclaimed senior Carol Gessner.

But Herzlinger and Petersen said seniors just have to make some sacrifices: Medicare must raise the eligibility age or cut off benefits for wealthy seniors.

"We need to get some personal responsibility in Medicare," said Herzlinger. "If you're poor, OK, you get Medicare. If you can afford to pay for [health insurance] yourself, please, go ahead and do it."

AARP, the giant lobbying group for seniors, opposes those ideas. It claims Medicare's deficits can be solved largely by eliminating waste and reforming health care.

AARP Director of Legislative Policy David Certner said, "We need to do things like make better use of health information technology and health records. We need to do a better job."

So then, computers are going to solve all the problems?

"Well, they certainly won't solve them all," he replied. "They will help make health care more efficient."

But the Congressional Budget Office says the reforms Certner advocates won't really save much money. They're not going to truly make a difference.

"Well, they're going to have to make a difference," he said.

This past decade AARP spent more than $150 million lobbying. The group runs ads reminding lawmakers: we're watching you.

"Well, AARP doesn't want to see people go without insurance," said Certner.

"But ultimately somebody's going to have to give up some medical treatment they'd been getting," countered Peterson.

Peterson has been fighting a lonely battle because many seniors don't know the ugly truth. But once the La Posada residents learned more about the issue, some began to express second thoughts.

"I hear what the kids are saying, and talking strictly from a monetary point of view, they are right," admitted Pearl. "When they get to be our age, there may not be any Medicare."

They understand Medicare's oncoming fiscal crisis and they don't actually want to rip off younger generations.

"Tell them to change the law. If the kids can get the votes then they can get it done," said McCarthy.

Of course, that's not likely to happen soon.

"Who said life is fair?" said Herron.