The Medicare tsunami – Pacific Research Institute

The Medicare tsunami

In a recent news conference, President Obama said: “The biggest driving force behind our federal deficit is the skyrocketing cost of Medicare and Medicaid. So let me be clear: If we do not control these costs, we will not be able to control our deficits.” He is absolutely right.

The truth of the president’s words, however, is lost in the falsehoods implied in his proposed solution — to dramatically expand Medicaid, create a Medicare-like “public option” and heavily regulate private insurers. You can’t get people to take seriously your claim that government-run health care is jeopardizing our country’s financial future when your solution is to launch a new era of expanded government-run care.

Therefore, despite all the talk about health reform, the American people are not fully aware of how difficult it’s going to be to pay for Medicaid and Medicare in the near future. As former Health and Human Services Secretary Mike Leavitt has warned, “Medicare is drifting toward disaster.”

This is no less true simply because Mr. Obama’s strange solution is to paddle harder toward the falls.

Even without Obamacare, the future financial burden of government-run health care is the 800-pound gorilla in the room. With Obamacare, it would become an 8,000-pound gorilla and would no longer be caged.

The president is trying to expand government-run health care because he mistakenly believes its skyrocketing costs have been driven by the growth in private-sector health costs. However, since 1970, the costs of Medicare and Medicaid have risen one-third more each, per patient, than the combined costs of all other health care in America — the vast majority of which is purchased privately. Government-run health care is the horse, not the cart, on the road to higher costs.

Medicaid is the largest portion of total state spending and is a major cause of the budgetary crises seen in many states. But Medicare, its sister program, is the bigger problem. Let’s take a brief journey through Medicare’s past, present and future.

By 1970, Medicare had been up and running for several years and was well-established. That year, it enrolled 10 percent of the U.S. population and cost $7.5 billion.

It now enrolls 15 percent of the population and costs $432.1 billion — 57 times what it cost in 1970. And that’s without counting the Medicare prescription drug benefit. Since 1970, Medicare’s costs have quadrupled versus the gross domestic product.

If anyone had been able to buy stock in Medicare when it was created — rather than merely buying the rights to finance it — they would have received an incredible return on their investment.

But now definitely would not be the time to sell.

In inflation-adjusted dollars, the average American spends 7 times as much on Medicare as in 1970. But it’s the baby boomers’ impending retirement that magnifies the roar of the falls. There are now almost four American workers for every Medicare beneficiary. Within the next two decades, that number will drop to just 2 1/2. For those still in the work force, the financial burden will rise tremendously.

Meanwhile, Medicare’s budget will double within 10 years, to $1 trillion annually, while the Medicare Hospital Trust Fund is projected to become insolvent by 2017 — two years earlier than last year’s projection.

Additionally, the United States now has $55 trillion in projected unfunded federal liabilities over the next 75 years — money we’ve already pledged but have no plans for raising — $34 trillion of which is for Medicare.

Ambitious government planners have a track record of underestimating government-run health care’s future costs. In the 1960s, the Johnson administration and Congress projected that Medicare would cost $12 billion in 1990 — an estimate that took inflation into account. In 1990, Medicare’s actual cost was $111 billion — more than nine times the original estimate.

This time, the estimates aren’t pretty — more than $1 trillion in additional spending over 10 years and $239 billion in additional deficits, according to the Congressional Budget Office.

All this points to two lessons: One, the challenges of paying for Medicare and Medicaid are profound, and avoiding financial disaster will require sensible action — including gradually raising Medicare’s entry-level age. Two, the last thing we should want the rest of our health care system to look like is these two programs, with their lack of consumer freedom and their skyrocketing costs.

Stopping our drift toward disaster will require genuine leadership, and reasonable people can debate the best way to get to the shore. But we’ll never get there by paddling toward the falls.

Jeffrey H. Anderson is a senior fellow in health care studies at the Pacific Research Institute and was the senior speechwriter for Mike Leavitt, former secretary of the Department of Health and Human Services.

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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