The Ripon Forum

Volume 41, No. 3

June - July 2007 Issue

Hoping for a Medicare Miracle

By on November 3, 2015 with 0 Comments

by MATT MOORE

In May, the U.S. Treasury department published the annual reports for Social Security and Medicare. The two volumes — all 460 pages, five pounds worth — were once again largely ignored by the national media and Congressional leaders.   

Not much changed since last year, so what’s the big deal, right?   

Social Security and Medicare are hurtling toward a cliff like lemmings. $88 trillion in unfunded promises. Disaster, death, destruction. We’ve heard it all before.    

But this time, just maybe, it will turn out different. This time the President and Congress have to do something about it.   

Secretaries Leavitt, Chao, and Paulson, at the release of the Social Security and Medicare Trustees Report this past April.

Secretaries Leavitt, Chao, and Paulson, at the release of the Social Security and Medicare Trustees Report this past April.

An obscure provision in the 2003 law that added prescription drugs to Medicare (which came, by the way, with a $17 trillion price tag) requires the Medicare trustees to raise a flag if two consecutive reports predict Medicare will draw excessive revenues from the general budget within the next seven years. The measure is generally referred to as a “general revenue trigger.”  

In short, if Medicare is projected to drain too much income tax money from the federal government within the next seven years, the trustees have to alert Congress. The 2006 report was the first to cross the threshold, and this year’s report required the trustees to officially sound the alarm.  

Now what? Under the trigger rule, President Bush must propose a plan to deal with the imbalance as part of his next budget, for 2009. Congress is required to “fast track” consideration of the president’s plan.  

Both the president and congressional leaders should take the warning to heart: Medicare is growing really fast. Due to the retirement of the 77 million Baby Boomers — and the soaring costs of medical care — Medicare will start sucking big bucks away from other treasured federal programs.  

In just five years, Medicare will drain the equivalent of one in every ten income tax dollars from the federal government’s general fund. Within the next fifteen years, Medicare will drain almost a quarter of federal income tax revenue. By 2030, about the midpoint of the baby boomer retirement years, Medicare will take more than a third. That means the government will have to raise income taxes by a third or stop doing about a third of what it does today.             

Maybe we won’t miss NASA or federal education funding or subsidies for farmers. But maybe your favorite program will be the one on the chopping block.  

Under the trigger rule, President Bush must propose a plan to deal with the imbalance as part of this next budget for 2009.

Eventually, Medicare spending will drain nearly every tax dollar the government raises. In all, we’re talking about an unfunded liability somewhere in the neighborhood of $75 trillion. (That is the amount we would need on hand today, invested and earning interest outside Congress’ reach.) Throw in Social Security and the total soars to more than $88 trillion. And that doesn’t even include the impact of the retiring baby boomers on Medicaid, which is almost as big as Medicare.   

According to Tom Saving, one of the Medicare trustees, we could fully fund Medicare for the foreseeable future by siphoning off 60 percent of all federal income tax revenue — starting today and continuing forever — and setting it aside for Medicare benefits.  But that’s just not going to happen.   

So, what should we do?  First, our leaders should take the hint: Reform is needed. Traditional piecemeal “solutions” like raising the retirement age, bumping up the tax rate and so forth might alleviate the current crunch for a couple years, but won’t do nearly enough to plug the long-term drain.  

We need to rethink how Medicare works. For one thing, people should be allowed and encouraged to save money while working to fund future elderly health care benefits. In addition, we could combine all the parts of Medicare, including the prescription drug benefit and individually-purchased Medigap policies, into a single plan with a single premium, which would help hold down some of the soaring costs. 

Sadly, there is a caveat to this whole story. We know it is vital that we address Medicare’s unsustainable growth — and we know the Medicare trigger will at least force Congress to talk about it. But, the Medicare trigger doesn’t actually force Congress to do anything real about these very real problems. It requires that a debate take place, yes, but conveniently it doesn’t require Congress to actually pass anything.  

Thus, instead of embracing a real solution that prevents the indentured servitude of an entire generation, Congress may well pass something painless — for themselves and for the retiring Baby Boomers — but also something that will do nothing to alleviate the plight of today’s younger workers. After all, with a few notable exceptions, neither Republicans nor Democrats seem to have the stomach for — or much interest in — getting the job done.            

Medicare’s soaring costs constitute the single biggest domestic policy issue facing the nation today. We can pretend the problem doesn’t exist, or pretend that we can wait for the next president or the next Congress to fix it. But very soon, as Medicare draws increasing sums of money away from other federal programs, the pet projects of the next president and Members of the next Congress will have to compete with Medicare for scarce dollars. Maybe then our policy makers will notice the problem we have seen brewing for decades. Maybe then they will finally fix it.   RF

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Matt Moore is a senior policy analyst with the National Center for Policy Analysis.

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