Is Medicare 'Too Big to Fail'?

Posted: Nov 24, 2009 10:01 AM
Guest post from Americans for Prosperity

During the financial disaster on Wall Street a year ago, politicians, economists, and pundits became obsessed with the term “moral hazard,” which occurs when a person, corporation, or other entity makes riskier choices because the consequences have been artificially manipulated. The Wall Street bailout created a moral hazard because it shielded financial institutions from the consequences of their actions. If a corporation knows it would be rescued by the government after making bad decisions, it has fewer incentives to change behavior or learn from mistakes.

The government takeover of the health care industry will institutionalize moral hazards as “too big to fail” could become a registered trademark. Before government mandates that its citizens buy insurance and expands coverage to millions, we should consider the current outlook of health care spending for the American taxpayer.

Let’s start by looking at Medicare in 1966, when costs were around $3 billion and projected to reach $12 billion (allowing for inflation) by 1990, according to the House Ways and Means Committee at the time. However, the actual cost by the projected date was $107 billion, almost nine times the original estimate. In 2008, Medicare’s cost grew to almost $450 billion.

These figures are striking, but only tell part of the story.

Last year’s figures still count baby boomers among those paying into the system. Once this enormous sector of the population begins to retire, there will be a dramatic shift from taxpayers to tax-consumers. The original plan was based on a substantial sector of the population paying into the system. Yet birth rates have never caught up to the historic numbers of the post-World War II generation. This is the Medicare financial disaster that has been predicted for decades. However, due to the political suicide of addressing an issue that affects the country’s largest voting block, the answer has been to wait for another Congress or another administration to handle the problem.

Why should the American people believe that universal health care will be any different? In order for this new system to survive, it will depend on two things: how much funding it can raise through taxes and how many loans it can muster despite a growing federal deficit.

For more on the health reform burdens being placed on the youth, see Robert J. Samuelson’s column in yesterday’s Washington Post.