You, The Deficit, and Medicare Costs: Serious Stuff!

The anticipated growth of Medicare costs is the largest contributor to our country’s long-term budget deficit issues.  Few of us will pay sufficient taxes and premiums to cover our eventual Medicare costs. 

All of this spells big trouble.  Here’s a quick Medicare primer that explains why.

Is Medicare truly a bigger long-term problem than Social Security or defense spending?   Yes!  The Congressional Budget Office projects that Medicare spending will rise to 6.7% of Gross Domestic Product (GDP) over the next 25 years…from 3.7% this year.  Some believe that is a conservative estimate.

Why is Medicare so problematic?  While rising Social Security costs are driven primarily by the ‘number’ of elderly people, Medicare costs are driven by two factors:  the number of elderly AND rapidly rising medical costs. 

Don’t most Americans cover their Medicare expenses via payroll taxes during their working lives?  Not even close!  According to a study by the Urban Institute, a married couple (both 66) with average earnings will pay roughly $122,000 in dedicated Medicare taxes through the payroll tax (including their employers’ share).  That couple is likely to receive nearly $390,000 in benefits, adjusted for inflation, during their lifetimes.

 Why are healthcare costs rising so quickly?  This is a “Good News/Bad News” story.  The good news is that our medical system has developed more sophisticated and successful means of treating serious illnesses like cancer, heart disease, and other maladies.  These means are expensive!  The bad news is that our system wastes enormous sums of money without enough bang for the buck.  Countries like Canada, Britain, Australia, Germany, France, and Japan all enjoy higher life expectancies…while spending less per capita!

 What are possible solutions?  Here’s where it gets complicated.  We could pay more in taxes;  however, higher taxes alone will not suffice unless the increases are much higher than anything currently being debated.  Other options include raising the eligibility age, more competition, restricting payments on treatments not proven to be more effective than less costly alternatives, and reducing benefits for the affluent. 

 Fixing Medicare will not be easy!  Let’s hope that Congress and the President take seriously every budget negotiation as an opportunity to fix a problem that promises to get much worse over time!




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