The Economics of Health Care

It's Going to Cost a Lot More

Everyone knows about Social Security’s financial problems. At some point in the future, payroll taxes and trust-fund surpluses will be insufficient to cover benefits, so absent other action, benefits will have to be cut (see “Just the Facts,” February 11).

What about Medicare? Is there a similar crisis looming there? Actually, it’s already happened. And the crisis is much, much bigger. Tax receipts for the major Medicare trust fund, the one that finances hospital care, or “Part A,” fell short of claims payments for the first time last year, and the Medicare Trustees project estimates that the trust fund’s savings will run out by 2019.

Unlike Part A, Medicare “Part B,” which pays for doctors’ fees, cannot technically run a deficit: it is financed by participant contributions, which cover about 25 percent of costs, with the balance coming from general tax revenues. In other words, whatever the government has to spend, it spends. Part B spending is growing very rapidly, though, and spending will grow even faster once the new prescription-drug program (“Part D”) kicks in next year. The projected cost of the prescription-drug benefit by itself-$8.1 trillion over the standard seventy-five-year forecasting period-is more than twice as big as the Social Security deficit. Total Medicare spending will eventually rise to be twice as large as Social Security payments.

Oddly, the Bush administration has...

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About the Author

Charles R. Morris, a Commonweal columnist, is the author of The Two Trillion Dollar Meltdown (Public Affairs), among other books, and is a fellow at the Century Foundation.