People often claim that entitlements like Social Security, Medicare, and Medicaid will bankrupt the country through rising spending on them. That’s not true for Social Security, but it is true for Medicare and Medicaid, whose costs are skyrocketing. Social security spending as a percentage of the economy will rise from 4.7% in 2023 to 5.4% in 2034. That increased cost could be paid for by cutting wasteful and harmful government spending and getting rid of a few tax loopholes.
But Medicare and Medicaid spending are rising much faster, and will more than double by 2035, consuming 10% of the economy. These programs used to cost much less than Social Security, but by the mid-2030’s, they will cost twice as much as Social Security. We will either have to cut them, or raise taxes by a vast amount, to avoid national bankruptcy.
As the Cato Institute notes, Medicare spending is already a substantial chunk of the federal budget, and will be roughly as costly as Social Security by the mid-2030’s:
- Medicare is the second largest federal government program, spending $1 trillion in 2023, or an amount equal to 3.8 percent of gross domestic product (GDP).
- Medicare spending will double to $2 trillion or 5.1 percent of GDP by 2033. That’s twice what the U.S. government will spend on defense that year.
- 65 million Americans receive Medicare at an average cost for taxpayers of $12,100 per beneficiary.
- Studies estimate that one‐third of Medicare spending provides no value: it makes patients no healthier or happier.
- Studies have found Medicare increased total hospital spending by 37 percent over five years.
- Medicare is already contributing to federal deficits and facing increasing budget shortfalls.
- Medicare will be responsible for $446 billion in deficits, or one third of the entire 2023 federal budget deficit of 5.3 percent of GDP.
- Medicare’s trust funds hold no real assets and only Medicare Part A is funded by payroll taxes. The majority (64 percent) of Medicare spending is financed by other taxes and borrowing.
- When the Medicare Hospital Insurance (Part A) trust fund ledger goes to 0 by 2031, inpatient providers will face a reimbursement cut of 11 percent.
- $48.4 trillion or 60 percent of the $78.4 trillion in 75‐year unfunded obligations for Medicare and Social Security is due to spending on Medicare Parts B and D, with taxpayers on the hook for the difference between what beneficiaries pay in premiums and the benefits they receive.
- If Congress raised payroll taxes to cover Medicare Part A’s 75‐year unfunded obligation, a median wage earner ($44,000/year) would face an additional $700 in annual taxes.
The country could also increase revenue to pay for Medicare and Social Security through non-tax methods. It could make it easier to have kids, which would increase the birth rate, soon resulting in more young adults paying into social security and medicare. It could do that by tying federal funding to states repealing laws that make parenting a pain. In many places, if you are a parent, you have to constantly watch your kids rather than letting them play outside on their own, because unsupervised play is considered criminal child neglect, even though 50 years ago, unsupervised play for kids was considered normal parenting and a normal stage of child development. Unsupervised play makes kids grow up to be healthier and less easily-offended people. Some people avoid having kids to avoid the hassle of constant supervision. State and local governments should not be allowed to require helicopter parenting, which intrudes on parental rights.
The country could also try to increase revenue by allowing more foreign college students, doctors, and researchers to immigrate. More high-skilled workers in the U.S. means more social security and medicare tax revenue. Visa restrictions can make it difficult for foreign students to stay in the country after they get their degree from a U.S. college.
