The 47th Anniversary of Medicare and Our Growing Aging Problem

Today is the 47th anniversary of the Medicare program, reminding us of the great challenge we face from our growing entitlement spending. If you've seen our long-term projections, it is pretty clear than any long-term debt reduction plan will have to address Social Security, and even more importantly the rising health care costs of Medicare and Medicaid. The population of the United States will be aging rapidly in the next couple decades, with baby boom generation already begining to retire. Bill Keller of The New York Times makes the case that the baby boomers must be part of the solution.

Some have argued that these entitlement programs cannot be touched, but a bipartisan solution is not realistic without some changes. Revenues would have to skyrocket, or more likely the rising cost of entitlement programs would be financed with debt—which will quickly become unsustainable. Keller argues that preservation of entitlement programs may even have the effect of reducing our long-term competitiveness, citing a study from the Third Way:

This brings me to a soon-to-be released study by the incorrigible pragmatists at Third Way, the centrist Democratic think tank. The study takes a familiar refrain and presents it with a graphic wallop. Though it was intended as a wake-up call, not an indictment of a generation, it can be read as both.

In 1962, we were laying down the foundations of prosperity. About 32 cents of every federal dollar, excluding interest payments, was spent on investments, only 14 percent on entitlements. In the mid-70s the lines crossed. Today we spend less than 15 cents on investment and 46 cents on entitlements. And it gets worse. By 2030, when the last of us boomers have surged onto the Social Security rolls, entitlements will consume 61 cents of every federal dollar, starving our already neglected investment and leaving us, in the words of the study, with “a less-skilled work force, lower rates of job creation, and an infrastructure unfit for a 21st-century economy.”

Fortunately, plans like Domenici-Rivlin and Simpson-Bowles have already provided a guide of what it will take: 

Centrists like those at Third Way and the bipartisan authors of the Simpson-Bowles report endorse a menu of incremental cuts and reforms that would bring down costs without hitting the needy or snatching away the security blanket from those nearing retirement. They include gradually raising the retirement age to compensate for the fact that we now live, on average, 14 years longer than when F.D.R. signed Social Security into law. They include obliging those of us who can really afford it to pay a larger share. They also include technical fixes like aligning the automatic cost-of-living formula with reality. To curtail the raging inflation of health costs, the government could better use its market clout to hasten electronic record-keeping, replace the fee-for-service model, reform medical malpractice laws and promote living wills.

Boomers will have a tough choice to make. The combination of mandatory programs and interest payments on the federal debt will equal revenues possibly as soon as 2024, leaving little room for discretionary spending. Without action, we have little room for investments that will pay off over the long run. Reform is never easy, but we cannot afford to place all of the burden on the next generation. Each generation will need to make a contribution to fix this problem, and that includes the baby boomers. 

The full New York Times piece can be found here.