Shortly after he was reelected, President Bush pushed for a reorganization of the Social Security system. He claimed that Social Security was on the verge of bankruptcy, both because it was under-funded and because the aging of the "Baby Boom" generation would create a massive imbalance between the number of workers paying in and the number of dollars paid out to retirees. Bush's political opponents, along with many of the nation's governors, responded that it was health care entitlements — Medicaid and Medicare — that were really in trouble, and for some of the same reasons.
Today, Social Security reform is dead in the water, but the Baby Boomers are a few years older and sicker, and Medicaid and Medicare do appear to be approaching the brink of crisis. This presidential election year is the right time to ask how the three major candidates plan on saving or reforming these cherished federal entitlements.
The Growing Medicare and Medicaid Crisis
Let's look at a few facts.
Taken together, Medicare and Medicaid form the nation's largest health insurance program, covering 40 million Americans. Medicare serves people 65 years of age and older, some disabled people under 65 years of age, and people with End-Stage Renal Disease (kidney failure treated with dialysis or transplant). Medicaid is the major source of funding for medical and health-related services for people with low incomes. It is jointly funded by the Federal and State governments and provides long-term care to people who meet the eligibility criteria. There are several trends that threaten the ability of these programs to continue to serve their respective populations. One is demographics: the number of people using them is growing while as the Baby Boomers reach retirement age the number of taxpayers will decrease sharply.
Possibly the greatest contributor to the Medicare and Medicaid crisis, however, is the rapid growth of health care costs. Health care spending has been growing by about 10% per person per year since the early 2000s. It currently accounts for over 14% of U.S. Gross Domestic Product (GDP). By the year 2025, projections indicate that this will reach 19%. In other words, 1 out of every 5 dollars spent in America will pass through the hands of a doctor or medical staff, hospital, health industry investor or administrator.
A Politically Unpopular — and Divisive — Issue
Traditionally, Republicans claim that greedy trial lawyers are the blame, because they drive up malpractice insurance awards and therefore costs. These are then passed on in increased fees to doctors.
The Democrats blame greedy insurance companies, which deny services to maintain their profit margins and add a layer of cost and bureaucracy to health care that doesn't need to be there.
Unfortunately, addressing either or both of these issues would not come close to solving the problem of Medicare/Medicaid's runaway growth and cost. Should the federal government deny or limit end-of-life care, restrict eligibility, ration treatments or raise taxes? No one believes that any of these stand a chance politically.
"Society is not likely to tolerate large discrepancies in health care for different groups," says William Gale, an economist at the Brookings Institution. "We're not going to stick seniors with year 2000 health care quality while the rest of us are enjoying 2050 health care quality."
On the contrary, in 2003 Congress made things worse by adding prescription-drug coverage to Medicare, at a further cost of some $700 billion over 10 years.
The Candidates: Between a Rock and a Hard Place
So what do the current presidential candidates propose? The answer, for the most part, is two parts wishful thinking and one part denial. While they pay lip service to controlling costs, all three come up woefully short on specifics.
Republican Senator John McCain proposes a combination of tax credits, and increased competition and privatization, saying that Medicaid and Medicare "should lead the way" toward increased choice and more efficiency while somehow maintaining the high quality of American health care.
As for the Democrats, they offer few details about how they would slow the growth of Medicare and Medicaid or about how they would defeat the perfect lobbying record of the health care industry, which has consistently blocked reductions in Medicare payment rates.
According to Peter R. Orszag, director of the Congressional Budget Office, "The bulk of the projected increase in spending on Medicare and Medicaid is due not to demographic changes, but rather is associated with the use of new medical technologies." In order to cut costs, candidates would have to advocate for reducing payments to providers or limiting services to consumers. These are, needless to say, politically very unpopular ideas and candidates are unwilling to damage their chances by recommending them.
Clinton and Obama both say they would roll back the "Bush tax cuts" for the wealthiest Americans. But major provisions of the tax cuts, adopted in 2001 and 2003, are already scheduled to expire at the end of 2010. These same alleged savings, meanwhile, have been widely proposed by other Democrats to fund other social programs.
Some experts say the only real way to tame health care costs is by limiting access to expensive treatments or by requiring affluent Americans to pay for more of their health care. Research "suggests that about 20 percent of Medicare spending could be eliminated with no adverse effects on health," says Prof. David M. Cutler of Harvard, an adviser to the Obama campaign. What is very difficult, he said, is identifying the 20 percent to cut.