Every day millions of Americans reap the benefits of having the best health system in the world. We have the most skilled specialists, doctors, nurses, and medical technicians available to us, usually within a short distance. Americans are living longer, healthier lives as a result of the sophisticated, patient-focused, competition-based health system that has emerged in our country since the advent of medical science and technology. Yet with all of its success, there are clear threats to the system’s long term financial sustainability and the health care freedom Americans enjoy. The federal government faces a tsunami of debt and deficit caused by the explosion of promised benefits that—if left unchecked—will swallow up all other government spending. The time for dealing with these threats is upon us. The solutions need to start now.
The Medicare ‘Entitlement’
A quarter of health spending in the United States, about $420 billion this year, is by the Medicare program established by the government in 1965 to ensure people 65 years old and older have access to health care. Medicare is an entitlement covering 44 million older Americans (or 14 percent of all Americans) and pays hospitals, doctors, suppliers, drug plans, and a variety of other providers. Medicare is financed by a mix of premium payments by beneficiaries, payments directly from federal revenues, and a payroll tax on workers and employers.
Entitlement programs, usually established by Washington policy makers with noble intentions, are programs literally on auto-pilot. Like all entitlement programs, Medicare spending automatically increases by significant amounts every year. The yearly increases for Medicare have been skyrocketing for many years, averaging 8 percent every year from 2000 to 2005, well ahead of the pace of overall economic growth.
Medicare spending has doubled since the mid-1990s and is expected to continue growing at about 8 percent every year for the next decade. According to the nonpartisan Congressional Budget Office (CBO), by 2017, Medicare spending is projected to more than double to $853 billion. As a share of the total economy, Medicare expenditures currently stand at 3 percent, growing to 6.5 percent by 2030. As a comparison, we will spend 4 percent of the economy this year on national defense.