The National Institute for Health Care Management has just issued a report, “Health Entitlement Spending: A Story in Six Charts”, which describes in great detail why federal health care spending is such an enormous fiscal problem. First of all, health care spending is already 21% of total federal spending in 2012. This spending will more than double in the next ten years. Annual Medicare expenditures are already double the revenue received from the Medicare Part A Payroll Tax and premiums paid by Medicare recipients. This gap will continue to steadily widen in the coming years because recent retirees will only pay in total a small fraction of their lifetime benefits.
Every year since 2006, the Medicare Trustees have issued a determination of “excess general revenue Medicare funding”. By law the President must respond by submitting legislation to correct the problem and Congress must likewise respond on an expedited basis. But no corrective action has been taken so far.
All federal programs should operate efficiently and much can and should be done to achieve greater efficiency across the whole spectrum of federal programs. But Medicare is the “sine qua non”, (without which, nothing) for spending reform. Nothing else matters unless we can get Medicare spending under control.
One way would be to raise Medicare Part A taxes for everyone and also raise premiums for well-to-do Medicare recipients. And then we’d still have to severely restrict Medicare benefits. This would be drastic action indeed.
Another way is to give (refundable) tax credits to everyone who applies for Medicare and let them find their own insurance coverage on the private market. This would create a huge incentive for recipients and their families to pay close attention to health care costs.
Each of the above alternatives would bring radical changes to our Medicare system. But either we act now in a deliberate, and hopefully rational, manner or else our national debt will grow so rapidly that there will be a new fiscal crisis much worse than what happened in 2008.
Which of these three scenarios do we prefer? Right now we have a choice!