June 18, 2004

June 18, 2004 | WebMemo on Health Care

Can Congress Contain Explosive Medicare Costs?

The real cost of the Medicare drug benefit is unknown, but it will probably be higher than official projections, whether those are made by CBO or the White House. Ten-year projections, or even the status of the Medicare trust funds, are only symptomatic of the larger Medicare problem: explosive spending. Indeed, the emerging Medicare crisis is reflective of the larger problem, failure by Congress to reform and restructure federal entitlement programs.

 

Recently, David Walker, Comptroller General of the United States, told an audience at the National Press Club that the official debt of the United States is $7 trillion, which is about $24,000 for every man, woman, and child in the United States. But as Walker notes, this figure does not count the promises the Congress has made to those who will receive federal benefits that are not paid for. These are the unfunded obligations of the big entitlement programs, including Social Security, Medicare, and Medicaid. With these items included, the real debt is $42 trillion-including a brand new unfunded liability of $8 trillion for the Medicare drug benefit alone. This total obligation, says Walker, is roughly 18 times the current federal budget, or three-and-one-half the size of the current Gross Domestic Product. This obligation amounts to over $140,000 for every person in America.

 

Medicare is the toughest problem. Can Congress contain these costs and reduce the burden of debt that's now on future generations' shoulders? If so, how?

 

The Heritage Foundation asked three leading health care policy analysts to put these questions in context. Their presentations follow.

 

Joseph R. Antos, Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute, explains why the cost-containment measures in the Medicare Modernization Act will not work and how flat spending caps-one proposed solution-will do more harm than good. Antos concludes that Medicare will have to be restructured. The best way to restructure Medicare is to adopt the financing system similar to that governing the Federal Employees Health Benefit Program (FEHBP). If costs are to be contained without negatively impacting the quality of health care-now or in the future-Congress will have to revisit these financial and structural issues.

 

View " Can Congress Contain Medicare's Explosive Costs?" by Joseph R. Antos (Requires Microsoft PowerPoint)

 

For further background on Antos's observation on the weaknesses of the cost containment provisions of the recently enacted Medicare Modernization Act of 2003, see "How To Promote Real Medicare Cost Containment" by Joseph R. Antos.

 

Jeff Lemieux, founder and executive director of Centrists.Org and former senior economist at the Progressive Policy Institute, looks at the effect of entitlement spending on the federal budget and sees red ink mounting in coming years. After 2020, Medicare spending surpasses Social Security-itself growing steeply-and both consume ever-larger shares of the economy as the years wear on.

 

View " Can Congress Contain Medicare's Explosive Costs?" by Jeff Lemieux (Requires Microsoft PowerPoint)

 

Dan Crippen, former director of the Congressional Budget Office, shows that the situation may be even worse than it appears. CBO's baseline spending estimates have grown by leaps and bounds since 1997 and continue to charge upwards, driven by ballooning entitlement spending. Federal spending on retirees is set to grow, as a share of the economy, every year for decades into the future, and Medicare is a key driver of this expansion. Crippen, too, believes that Congress should undertake serious structural reform of the program, with two different approaches for the two very different populations enrolled in Medicare: the healthy elderly and the chronically ill. Congress will have to target resources better, recognizing that the bulk of Medicare spending is directed to only a few beneficiaries, with the top 5 percent of spenders accounting for nearly half of Medicare spending.

 

View " Can Congress Contain Medicare's Explosive Costs?" by Dan Crippen (Requires Microsoft PowerPoint)

 

Robert H. Moffit is Director of the Center for Health Policy Studies at The Heritage Foundation.

About the Author

Robert E. Moffit, Ph.D. Senior Fellow
Center for Health Policy Studies