The Medicare financial crisis
What the candidates aren't saying much about
The effects of the baby Boom are clear - the number of Americans aged 65 and up will almost double over the next 25 years, from 12% of the population to 20%, while the working age population will grow by only about 10%. During this time, the ratio of workers paying into Medicare and Social Security compared to the number of beneficiaries will fall by about 30%. And aging Baby Boomers becoming eligible for Medicare at 65 will require more health care, adding to the cost pressures already present in the Medicare system.
But aging Baby Boomers are only part of the Medicare financial problem. Health care costs have consistently grown faster than inflation for several decades, with an average annual increase since 1970 of 9.8%, about 2.5 percentage points faster than increases in the nominal Gross Domestic Product (GDP). Annual spending on health care was over $2.0 trillion in 2006 and is estimated to double to $4 trillion by 2015, only six years away. Assuming that this growth rate does not slow down, Medicare and Medicaid will grow by nearly five times as a share of the economy (GDP) by 2050, representing as much of our nation's economy as the entire federal budget does today. These programs will continue to crowd out money for other important programs like education, national defense, infrastructure, social services, and other important programs.
The options for addressing this problem include scaling back health care benefits for future retirees (raising the Medicare eligibility age or increasing cost sharing with beneficiaries), raising taxes, reforming the health care system to slow the rate of inflation in medical costs, or some combination of all of these. But the magnitude of the changes that are necessary is huge, and it’s clear that small, incremental changes will not fix the problem.
The Presidential candidates are not saying much about how they would address the issue of financing Medicare over the next few decades. This is not surprising, since any meaningful changes will be perceived as negative by certain important stakeholder groups. But citizens should expect the candidates hoping to lead our country to provide more details about their proposed strategies and actions, especially for an issue that will affect us, our children, and our grandchildren in such a profound way. The Health Care Solutions Group is working with the candidates and their staffs to encourage them to provide more information about what they would propose to do about Medicare spending.
For more information about the Medicare crisis, a good source is The Fiscal Wake-Up Tour, a joint public engagement initiative by The Concord Coalition, the Budgeting for National Priorities Project at the Brookings Institution, the Heritage Foundation, and Comptroller General of the United States David Walker.
The Health Care Solutions Group is a non-partisan health institute focused on supporting improvement in the health care system. This site will provide health care reform plan information proposed by the presidential candidates and will include analysis, related news, commentary from health policy experts and additional voter resources.