In the past 12 months the Bush Administration, the Obama Administration, and the Democrat controlled Congress have laid out $1.2 trillion in the name of stimulus, $700 billion for the Troubled Assets Relief Program, and over $400 billion for the Omnibus spending bill in debt on future generations of America. As big a hole as all that deficit spending has already put us in, the long term entitlement spending explosion is just as much of a fiscal threat, if not worse. As President Barack Obama said Tuesday, “The biggest problem we have long term is Medicare and Medicaid.”
Just how bad is just the Medicare problem? In 1985, Medicare drew only 0.4 percent of GDP ($17.9 billion) from the general fund to cover its excess costs. Ten years later, this had increased slightly to 0.5 percent of GDP ($37.0 billion). By 2007, Medicare’s draw had more than doubled to 1.3 percent of GDP ($179 billion). Going forward, Medicare costs are projected to more than triple from today’s 2.7 percent of GDP to 9.4 percent by 2050. In current terms, a cost increase of 6.7 percent of GDP would equal $916 billion, or $7,930 per household annually. According to CBO, if the entitlement growth was funded by issuing debt, the debt-to-GDP ratio would rise from about 37 percent today to more than 290 percent in 2050. If entitlement growth was funded by raising taxes, CBO analysis indicates that income tax rates would nearly double from current levels.
To his credit, President Obama did include some minor Medicare cost containment measures in his budget, including “competitive bidding” for Medicare Part D, “pay for performance” for health care providers, and increased premiums for prescription drugs. But as Heritage scholar Bob Moffit explains, the devil is in the details for all of these containment measures and similar efforts by President Bill Clinton in 1993 had little success. This Congress in particular has a terrible track record of following through on Medicare cost containment measures.
Minor modifications to Medicare’s administrative payment system will fail to save future generations from an avalanche of Medicare debt. Only fundamental reform of Medicare can contain costs and avoid economy killing debt and taxes. Conservatives have strong ideas on how best to achieve these savings including: 1) leveling the health care playing field by removing or capping the subsidy for employer-sponsored insurance; 2) changing Medicare financing from defined benefit to defined contribution; and 3) phasing out the Medicare subsidy for upper-income seniors.
These are some of our ideas, but we do not have a monopoly on them. Today, at 11:15 AM, Senator John McCain (R-AZ) will speak at Heritage about his ideas for reigning in runaway federal spending. You can watch this event, “Generational Theft: The Fleecing of America’s Children” here.
- Treasury Secretary Timothy Geithner sent the dollar tumbling with comments about China’s ideas for overhauling the global monetary system, only to drive it back up by affirming that it should remain the world’s reserve currency.
- According to letter obtained by The Hill, liberal advocacy groups and lawmakers want more defense spending left behind.
- Of the eight issues Gallup tested for their annual environmental issues survey, not only did global warming come in last, but “global warming is the only issue for which more Americans say they have little to no concern than say they have a great deal of concern.“
- Despite almost no experience in the car business, the Obama Administration’s Auto Task Force is set to back more bailout loans for the U.S. auto industry.
- Chanting “OPD you can’t hide – we charge you with genocide” 60 people marched to condemn the Oakland Police and to honor cop killer Lovelle Mixon yesterday.