Nearly three-quarters of the spending increases in Medicare over the next two decades can be attributed to aging alone. And, as I will explain, the remaining increase in costs due to health care inflation will be very difficult to avoid because even that amount of projected growth is lower than anyone realistically believes we can sustainably achieve. Thus, the major problem in Medicare really is one of an aging population. In this case, the Medicare problem is no different than the Social Security problem.
Kudos to Mark Thoma for providing the pointer. The essay contradicts the world view of many of those with whom Thoma usually sides.
This is the result of the lack of any incentive to reduce costs and even the incentive to increase them. What other areas do we not seek higher productivity but lower? If you assume no better alternative exists, don’t be surprised when none does.
My own article on this subject is not quite ready for prime time, but let me endorse what Mr Gordon is saying:
1. If we were hold health care inflation to zero per cent, not too likely, but if we did, the cost of Medicare in 2020 will be about $775 billion — just due to demographics.
2. If we have 2-3 per cent increases in the cost of Medicare per beneficiary, then the budget hit of Medicare will be about $1 trillion a year.
3. Do not forget to add the money that Medicaid now spends on senior citizens, at least $65 a year today.
4. Do not forget that about 8 million persons are on Social Security disability today. Once they have been disabled for 2 years, they get Medicare also.
There is a financial storm brewing. If tax revenues grow at 2% a year, then almost half of federal revenues will go to health care in 2020.
Bob Hertz, The Health Care Crusade