The Wonk Room

Fixing Medicare’s Insolvency Problem

A new Medicare/Social Security trustees report concludes that Social Security will start paying out more in benefits than it collects in taxes in 2016, while the Medicare trust fund for hospital expenses “will pay out more in benefits than it collects this year and will be insolvent by 2017.” The New York Times observes:

The two programs, which serve more than 50 million people, are caught in a difficult dynamic linked largely to the recession: Millions fewer people are working and paying the taxes that support the programs; yet health care costs are continuing to soar, millions of baby boomers have begun receiving Social Security retirement benefits, and Americans are living longer.

Employers have shed 5.7 million jobs since December 2007, leading a growing number of Americans to rely on safety net programs for food, health care and other basic services. The worsening economy is certainly a contributing factor, but, the real cause of Medicare insolvency is “the ever-escalating cost of health care. Unless we can do something to reign in system-wide health care cost-growth, the continuing financing problems highlighted in this report will only worsen.” Reforming our patchwork health care system and lowering health care costs is the only way to set the nation on a sustainable fiscal path.

One reason why we’re spending too much money on hospital care is because we don’t invest enough in preventive care — catching a disease early and preventing the need for hospitalization in the first place. Baby boomers, for instance — who make up 17 percent of non-elderly adults but account for 26 percent of those with at least one chronic illness — have a hard time finding affordable/continuous health coverage and contribute to increasing Medicare costs. A recent study found that “chronically ill people turning age 65 who were previously uninsured had lower spending than insured people prior to Medicare. Yet once on Medicare, these uninsured Americans spent 50 percent more than previously insured Medicare beneficiaries who also had chronic disease.” If, as one study suggests, being uninsured increases spending by 50 percent, “having 2.4 million more chronically ill Americans join Medicare as uninsured rather than previously insured could raise its costs by $2.4 billion per year in 2005 dollars.”