Medicare—on its current path—cannot be sustained. At a recent hearing held by the Senate Special Committee on Aging, Ranking Member Senator Bob Corker (R–TN) stressed the importance of Medicare reform. According to Corker, in 2011, “The U.S. spent $572 billion on Medicare, and spending is projected to increase to $1 trillion in 2021.”
The relationship between the amount citizens pay in to Medicare and the benefits they receive presents another losing equation for taxpayers. If an average couple combined makes $87,000 a year, they will pay $119,000 (including their employers’ contributions) into Medicare in their lifetimes but receive $357,000 in benefits. This disparity points to a clear structural flaw that must be addressed. As Joseph Antos of the American Enterprise Institute pointed out, “Business as usual with a few tweaks will not be effective in preserving Medicare for the long term.”
Saving Medicare will require transitioning the program to a premium-support system, which would allow seniors to choose a private health plan that works best for them, using a government contribution and requiring insurers to compete for their business like they currently do in Medicare Advantage and Medicare Part D. Heritage’s Saving the American Dream plan outlines how to achieve this.
The first step is to fix the current Medicare program, as Heritage expert Robert Moffit details in breaking research on fixing Medicare. He writes:
…during the five-year transition to premium support, Congress should change the existing Medicare program by adding a catastrophic benefit, gradually and modestly increasing beneficiary premium payments, expanding Medicare’s policy of tying taxpayer subsidies to income, raising the age of eligibility, and taking steps to preserve patient access to physician care.
At the Senate hearing, Antos emphasized that only structural reforms will succeed at reversing Medicare’s serious problems. He explained that, currently, “Neither patients nor providers have incentive to hold costs down…and the reason for that is the basic structure of the entitlement.”
In contrast, reforms like those in Saving the American Dream would encourage doctors and hospitals to provide high-quality, more efficient care. They would also encourage patients to seek out providers who succeed at these objectives.
Still, some argue—like AARP does in its latest ad against Medicare reform—that instead of having an honest discussion about Medicare’s future, Congress should turn its attention to things like cutting government waste. Heritage has reported previously that Congress is free to and should reduce waste, but such action falls drastically short of what is needed to eliminate federal deficit spending. As this Budget Chart Book chart shows, spending on entitlements is so large that just cutting discretionary spending—much less eliminating government waste—without reforms to entitlements will not close the deficit. [Continued below chart.]
AARP threatens that Congress will hear from its 50 million members if Congress touches Medicare. Ironically, pointing out the size of its membership only highlights Medicare’s growing problem. Right now, 47 million Americans are enrolled in Medicare, but as the baby-boom population enters retirement, the number of enrollees will grow to 80 million by 2030. Current workers pay for current seniors’ benefits—a scheme which cannot be sustained as the worker-to-beneficiary ratio drops significantly. That ratio has fallen from five workers to one beneficiary 50 years ago to three to one today, and it will be only two to one in 20 years.
It is misguided to think that simply reducing government waste will solve America’s short-term or long-term debt and deficit problems. Members of Congress, the AARP, and other advocacy groups should be clear to the American people on this point and should work to make Medicare sustainable for both current and future retirees, rather than insisting on preserving the failing status quo.
Alyene Senger co-authored this blog and is a member of the Young Leaders Program at The Heritage Foundation. Click here for more information on interning at Heritage.
