Are the major government health care programs sustainable for future generations? At one level, this is a budget question: Will revenues meet costs? The answer is yes, with important caveats.
At another level, it’s a political question. These programs, similar to those that exist in every advanced economy, are essential forms of social insurance (Medicare) and the safety net for the poor (Medicaid). America would be a lesser country without them. Instead of asking if Medicare and Medicaid are sustainable, we should be asking what we need to do to sustain them.
The two sources of budget pressure on health programs are aging demographics and growing health care costs. Due to these pressures, the Congressional Budget Office expects the costs of our major health care programs to increase from about 5 percent of gross domestic product now to about 11 percent in 2065.
These are not insurmountable increases, and the demographic pressures start to level out in about 20 years. But unless we slow their cost growth, they will present sustainability problems. The new report from the Medicare trustees points out that unless we offset these pressures, by 2030, Medicare’s trust fund will only be able to cover 86 percent of the program’s costs.
The good news is that we’re finally taking actions — some through the Affordable Care Act — to squeeze inefficiencies out of our health care system, and the resultslook promising. Most of these savings come from incentives to emphasize quality (over quantity) of care, prevention and reforms of payment systems.
The trustees noted that 165 provisions of the A.C.A. help Medicare “by reducing costs, increasing revenues, improving benefits, combating fraud and abuse, and initiating a major program [to] identify alternative provider payment mechanisms [and] health care delivery systems.” In fact, the solvency of the trust fund has increased by 13 years since the A.C.A. took hold.
Continued reductions of the rate at which health care inflation exceeds overall growth will put our public health programs on a sustainable budget path and stabilize health spending as a share of the economy. The cost controls are helping but we may need to consider more revenues as well. One way to close the 75-year shortfall in Medicare would be a relatively small bump up in the payroll tax that supports the program from its current 1.45 percent each for employees and their employers to 1.8 percent.
For the record, these same cost pressures not only apply to the private side of the health care system, they’re worse there, as Medicare and Medicaid have a better cost control record than the private sector.
Budgets are ultimately expressions of priorities. Thus, the right question is “do we want Medicare and Medicaid to continue to thrive?” I suspect the answer for most Americans would be a resounding yes.