America’s national debt now easily exceeds $33 trillion. That jaw-dropping total amounts to more than $100,000 per American, and that frightening figure has prompted the new House Speaker Mike Johnson (R-LA) to propose the creation of a 16-member bipartisan debt commission.
This is a tall order. The giant federal entitlements, Medicare and Social Security, are the main drivers of America’s debt. In fact, according to former Congressional Budget Office (CBO) Director Douglas Holtz-Eakin, spending for Medicare — the federal program that provides health coverage for senior and disabled citizens — alone accounted for 34 percent of all outstanding federal debt between 1966 and the end of 2019.
Given the enormous popularity of this huge federal entitlement, any serious effort to address federal deficits and debt is thus fraught with political peril, and perennially ripe for low-minded demagoguery. What The Washington Post terms “Mediscare”: cynical political rhetoric designed to frighten seniors into opposing any rational entitlement reforms.
For some reason, policymakers are under the impression that they can mostly leave Medicare well enough alone and continue blithely along the well-trodden paths of the status quo. Reporters for The New York Times, for example, recently penned an intriguing piece: titled “Huge Threat to the U.S. Budget Has Receded. And No One is Sure Why”. The piece focuses in on the fact that per capita Medicare spending has slowed and flattened since 2011, resulting in $3.9 trillion less spending than the CBO had projected. Since that change is not attributable to any “obvious policy shifts,” the danger is that Washington politicians could conclude, based on the Times’ report, that the worsening condition of our entitlement programs will simply resolve itself.
That would be exactly the wrong conclusion. For starters, CBO is always quick to warn that its health care projections are highly uncertain. And in any case, CBO’s past predictive failures provide no current comfort in the face of future fiscal realities.
While lawmakers should not ignore the causes of Medicare’s past per capita spending slowdown, Congressional leadership should also focus laser-like on the implications of current Medicare spending projections. Today, the Medicare Board of Trustees project a rapid acceleration of ten-year Medicare enrollment, accompanied by a doubling of Medicare spending from roughly $1 trillion to nearly $2 trillion, or about $6200 for every person in the country.
Medicare spending will impose higher financial burdens on beneficiaries and taxpayers alike, while aggravating record federal deficits and our already dangerously high debt. By 2040, the Trustees report Medicare spending will consume nearly 27 percent of all federal business and income taxes, while accumulating trillions of dollars in higher unfunded obligations. Baby Boomers living longer in retirement, while benefiting from advanced medical technologies, are bound to increase the program’s per capita cost. So, any notion that Medicare’s financial issues are somehow a thing of the past is akin to breaking diplomatic relations with reality.
Given that the giant federal entitlements, Social Security and Medicare, cost $2.7 trillion — or almost half of the entire federal budget — Speaker Johnson and likeminded colleagues must work to bring Democrats and Republicans together and find common ground and take specific steps to preserve these programs for the next generation of retirees.
That is another tall order. Progressive Democrats and conservative Republicans not only disagree on the nature of Medicare’s problems but also on the best means to secure Medicare’s future. During a Senate Budget Committee hearing in September, Senator Sheldon Whitehouse (D-RI), sponsor of the Medicare and Social Security Fair Share Act, was characteristically blunt about this difference: “Republicans want to maintain the massive exemption for inheritances to wealthy heirs. They want to keep tax breaks for multinational corporations that send profits and jobs offshore. And they want to hamstring the IRS from catching wealthy tax cheats.”
Whitehouse’s prescription to shore up Medicare, meanwhile, aren’t particularly reassuring. He wants to raise hundreds of billions of dollars in new revenues by closing various “tax loopholes” and ending the “rigging” of the federal tax code that favors the wealthy. Never mind that the top 10 percent of earners already pay about 74 percent of all federal income taxes.
Thankfully, Senators Mike Braun (R-IN) and Ron Johnson (R-WI) took a vastly different tack. Acknowledging that America’s overly complicated federal tax code contains loopholes, they emphasized that closing the gap between Medicare’s costs and spending will require a deft combination of spending reforms and creative policymaking. Simply soaking the rich, Braun noted, will not be enough, while Johnson warned that heavy taxation, including new taxation on business income, would further harm economic growth, thus further attenuating Medicare’s financial supply lines.
As the members of Speaker Johnson’s proposed debt commission come together, they should follow Braun and Johnson’s example by focusing on ways to slow the growth in Medicare spending and recommend structural changes to improve the program, including more flexibility in benefit offerings and greater transparency of provider prices and performance.
They should also examine past efforts to reform Medicare. The Medicare Advantage program, the competing system of private health plans created in 2003, can provide the platform for reform. The program’s evident flaws, such as inefficient plan payment, are easily fixable.
Medicare Advantage already provides the standard Medicare benefits at an average of 17 percent less than the cost of traditional (fee-for-service) Medicare itself. So, the fact that it now enrolls half of all Medicare patients should not be surprising. With a strong emphasis on preventive services, case management, and care coordination, the private plans have not only increased seniors’ quality of care, but demonstrated repeatedly an ability to provide that care to beneficiaries at an affordable premium cost. With more transparent pricing and efficient plan payment, Speaker Johnson’s commission could build on what seniors already know and like, potentially secure greater beneficiary savings, and maybe even help to alleviate our mounting debt.
