Study Claims Medicare Debt Will Rise $32.4 Trillion

According to a report released by the National Center for Policy Analysis, the cost of the Medicare program is rising at such a rapid rate that program cuts, tax increases or both will be necessary to keep the public insurance program solvent.

The report, authored by Andrew J. Rettenmaier, the Executive Associate Director for Texas A & M's Private Enterprise Research Center and Thomas R. Saving, the Director, notes that Medicare has six times the unfunded liability of Social Security. the rise in Medicare costs are attributable to the increase in per capita healthcare spending. According to the report, healthcare spending is growing at a rate of two to three times faster than the gross domestic product.

Rettenmaier and Saving note that if health care spending outpaces real per capita growth by two percent, healthcare spending will eat up almost 80 percent of the nation's GDP by 2075. If the rate of growth continues, it could mean a 500 percent increase in healthcare's share of the economy, and would severely impact the consumption of other goods.

Over the next 75 years, the Medicare Trustees estimate that the unfunded liability will reach $32.4 trillion, and when estimates are done indefinitely, the figure reaches $70.8 trillion.

While millions of seniors depend on Medicare, it spends more money than it is allocated each year. As Baby Boomers enter retirement, program costs are expected to keep rising. Right now, Medicare receives 11 percent of federal non-entitlement tax dollars, and by 2020, the program will receive one in five tax dollars. By 2030, Medicare will claim one in three dollars and by 2050, that number rises to one in every two tax dollars.

Current suggestions for changing the future projections include raising taxes, making citizens more responsible for the cost of their health care and reducing benefits for high income seniors. Critics of these measures point out that these suggestions would not lower healthcare spending, but would change the amount that tax payers and seniors were expected to pay for healthcare.

Suggestions for lowering the cost of healthcare include changes in supply and demand, government or insurance resource rationing and imposing a global budget on healthcare providers. Even these ideas will not completely eliminate the unfunded liability. Only 52 percent of the growth of the program debt is attributable to increased spending. 48 percent is related to the aging of the U.S. population. Instead of rationing or government controls, the Medicare trustees suggest Health Savings Account and point to studies that show healthcare costs decrease when people spend their own money on treatment.

Source:Andrew J. Rettenmaier and Thomas R. Saving Medicare Past, Present and Future Private Enterprise Research Center, http://www.ncpa.org/pub/st/st299/st299.pdf