Heritage’s new chart series, “Medicare at Risk: Visualizing the Need for Reform,” shows that, without the necessary structural reform, Medicare’s finances will have devastating consequences on the federal budget, not to mention taxpayers and seniors alike.
Medicare’s Impact on the Budget. Medicare spending is rising faster than any other part of the federal budget, and it’s a major driver of runaway deficit spending in the not-so-distant future. Retiring baby boomers and rising health care costs will cause Medicare’s shortfall to contribute to 81 percent of federal deficits by 2040. Clearly, the federal deficit cannot be contained without addressing Medicare’s structural problems.
Medicare’s Impact on Taxpayers. Medicare spending isn’t just busting the federal budget; its also consuming more of household budgets. In 1970, average Medicare spending per American household was $129. In 2021—just nine years from now—spending per household will be a whopping $7,987. Unless there is significant reform to deal with these rising costs, Americans will be faced with automatic benefit cuts or steep tax increases. The Medicare Part A payroll tax would have to increase by 84 percent just to make Part A alone solvent.
A common misconception is that seniors pay for their own benefits, but actually Medicare is structured so that current workers pay for current retirees’ benefits. Meanwhile, the ratio of workers to beneficiaries is decreasing. In 1965, there were 4.6 workers per beneficiary, but by 2030, the ratio will have fallen to 2.3. The increase in beneficiaries and decrease in workers is one major cause of Medicare’s insolvency.
Medicare’s Impact on Seniors. Obamacare did nothing to improve Medicare’s fiscal crisis. Even though Medicare spending falls by $421 billion under the health care law, the savings offset the cost of other provisions in Obamacare instead of shoring up Medicare’s deficits. Worse yet, Obamacare’s flawed method of controlling Medicare’s costs by cutting provider payments will significantly reduce seniors’ access to care. As the charts show, these profound cuts put 40 percent of providers in danger of closing their doors by 2050. As the number of beneficiaries rise, the number of providers cannot decrease without causing serious access issues.
Medicare reform is vital if the program is going to be ready to handle what’s to come. To read Heritage’s plan to save Medicare, click here.