A Birthday Wish For Medicare And Medicaid: Less Waste And Better Care


This Saturday, July 30, marked 57 years since President Lyndon B. Johnson signed Medicare and Medicaid into law as part of his “Great Society.”

For almost six decades, the healthcare entitlements have grown increasingly costly and expansive while delivering subpar care to beneficiaries.

Consider Medicare, the health plan for Americans 65 and older as well as some people with disabilities. Many seniors believe that Medicare is “free” once they retire. They paid thousands in taxes to Medicare over the course of their careers. Now they get the payoff, right?

Wrong. Each year, the average beneficiary spends more than $6,000 on premiums, out-of-pocket costs, and supplemental insurance that covers various services Medicare doesn’t.

Those costs have steadily increased in recent years. According to the Kaiser Family Foundation, the combined cost of Medicare deductibles and premiums is equal to nearly 20% of the average Social Security benefit — up from just 15% 20 years ago.

Taxpayers are paying more for Medicare, too. Spending on the entitlement increased more than two percentage points faster than GDP between 1980 and 2010. Today, Medicare accounts for one of every five dollars the United States spends on health care — roughly $830 billion in 2020.

That bill is only slated to go up. According to U.S. Census Bureau projections, roughly 20% of Americans will be older than 65 in 2030. By 2034, seniors will account for a greater share of the population than kids under 18.

This demographic shift is expected to add about 26 million people to Medicare’s rolls and send yearly spending on the program to nearly $1.4 trillion.

The entitlement can barely afford to cover its current enrollees. Medicare’s trustees estimate that the program’s hospital insurance fund, Part A, will be exhausted by 2028.

To keep the program solvent, Medicare may be forced to cut payments to healthcare providers, which are already lower than those for private insurance. The program reimburses hospitals at just 86.8% of the cost of caring for a Medicare enrollee. Cutting rates further could cause providers to opt out of the program — and thereby reduce patient access to care.

The nearly 88 million Americans on Medicaid, the healthcare entitlement for low-income people, already struggle to find doctors who will see them. Just seven in 10 physicians accept new Medicaid patients, according to a 2019 report from the Medicaid and CHIP Payment and Access Commission, or MACPAC.

As a result, beneficiaries must compete for scarce appointments. A review of more than 30 studies concluded that having Medicaid was associated with a three times lower likelihood of successfully scheduling a specialty appointment compared with private insurance.

And the supply-demand mismatch is only growing worse. As part of Obamacare, Democrats opened Medicaid to able-bodied adults making up to 138% of the poverty level — just under $18,800 in 2022Thirty-eight states and the District of Columbia have embraced this expansion, adding 21 million Americans to the program’s rolls.

That has sent costs ballooning. In 2019, spending on enrollees in the expansion population alone totaled $80 billion, according to MACPAC. That same year, roughly one of every three dollars states spent went to Medicaid.

Much of that money is lost to waste, fraud, and abuse. In 2021, more than one-fifth of Medicaid payments were “improper,” according to the Centers for Medicare & Medicaid Services.

Over half of improper payments stemmed from instances in which a beneficiary’s eligibility for Medicaid was never verified — meaning that many enrollees are benefiting from coverage to which they’re not entitled. Cases of fraud, administrative oversight, or other insufficient documentation accounted for much of the rest of the error rate.

On their 57th birthdays, Medicare and Medicaid are wasting more taxpayer dollars on inadequate health care and bureaucratic blunders than ever before. Nearly six decades on, it’s long past time to rein in the programs.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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