The Burden Of Entitlement Programs on the Future Funding of Health Care

Kevin R. Loughlin, MD, MBA

Our country is facing present and future fiscal challenges that have never been encountered before in our nation’s history. Our major entitlement programs are not new. The Social Security bill was passed in 1935 and Medicare was established in 1965. However, in the ensuing decades, the entitlement programs have grown far beyond what anyone could have imagined at the time of their inception. Let’s analyze the current status of the three major entitlement programs—Social Security, Medicare, and Medicaid—their future growth, and how that will impact the funding of health care.

Social Security

Fundamental to the financial problems faced by the Social Security Administration is the aging of the baby boomers, which has dramatically altered the worker-to-retiree ratio. Table 1 summarizes the trend of workers to beneficiaries over the years.¹ As can be seen, the number of workers supporting a beneficiary has decreased from 159.4 to 2.9 in the past 70 years. It is projected to decrease even further to 2.1 by 2030.

Medicare

Similar to Social Security, Medicare costs and enrollment increase as the population ages. The number of people enrolled in Medicare is expected to increase from 47 million in 2010 to 80 million by 2030. Total Medicare spending is projected to increase from $523 billion in 2010 to $932 billion in 2020.² The Congressional Budget Office (CBO) has written that “future growth in spending per beneficiary for Medicare and Medicaid— the federal government’s major health care programs—will be the most important determinant of long-term trends in federal spending.”

Table 1. Ratio of Social Security-Covered Workers to Beneficiaries

Year

Ratio

1940

159.4

1945

41.9

1950

16.5

1955

8.6

1960

5.1

1965

4.0

1970

3.7

1975

3.2

1980

3.2

1985

3.3

1990

3.4

1995

3.3

2000

3.4

2005

3.3

2010

2.9

Medicaid

President Johnson signed the Medicaid program into law on July 30, 1965. Started as a health coverage program for welfare recipients, it has evolved into a public health insurance program for America’s low-income population, and is also the primary program that provides long-term care to the elderly and people with disabilities.³

Total Medicaid outlays in fiscal year 2011 were $432.4 billion, with $275.1 billion, or 64%, representing federal spending and $157.3, or 36%, representing state spending. Medicaid provided healthcare services to an average of 55.7 million people in 2011. About one of every five Americans, or 70.4 million people, were enrolled in Medicaid for at least 1 month in 2011.⁴ Medicaid enrollment grew by 3.8% between 2010 and 2011.

The Entitlement Programs and the National Debt

As the entitlement programs have grown over the past decades, they have consumed a larger and larger portion of the federal budget. Simply stated, the federal budget can be divided into mandatory spending and discretionary spending. Discretionary spending is the part of the budget that Congress approves each year. Social Security, Medicare, and Medicaid account for 82% of the mandatory budget program and have no budget limits.⁵ All three of the major entitlement programs are growing rapidly. It is estimated that, from 2013 to 2023, Social Security expenditures will rise from $809 billion to $1414 billion (+75%), Medicare expenditures will increase from $586 billion to $1,064 billion (+82%), and Medicaid expenditures will rise from $265 billion to $554 billion (+109%). Over the next 3 decades, the number of Americans 65 and above will increase from 13% to 20% of the population.⁶ This will significantly impact the economic burden of all the entitlement programs. This entitlement expansion will exacerbate the dilemma of our national debt, which now exceeds $17 trillion.

The Obamacare Conundrum

The economic consequences of Obamacare cannot be calculated with certainty at this time. It has been estimated that annual federal spending on Obamacare will reach $250 billion in 2023.⁵ The unknown long-term effects of Obamacare include the cost of employee insurance on small businesses and the impact of Medicaid expansion on the states.

The Consequences of Debt

Many economists consider a 90% debt-to-gross domestic product (GDP) ratio as a benchmark beyond which a national economy’s future growth is jeopardized. The current US debt-to-GDP ratio is 101.6%.⁷ This dilemma is compounded further as an increasing amount of our debt is owed to foreign sources. From 1970 to 2011, the percentage of our national debt owned by foreigners has increased from 5% to 46%.⁸ As an increasing amount of our budget is devoted to interest payments, the stability of our national economic underpinning will be compromised further.

The unanswered question is: How strong is our national resolve to confront and solve this gathering storm? Further delays by Congress to make hard choices will only make the inevitable consequences that much more severe.

References

1. Social Security Administration. Frequently Asked Questions: Ratio of Covered Workers to Beneficiaries. Social Security Online. http://tinyurl.com/mylkhbw. Accessed March 25, 2014.
2. Wikipedia. Medicare (United States). Wikipedia: The Free Encyclopedia. http:// en.wikipedia.org/wiki/Medicare_(United_States). Accessed March 25, 2014.
3. The Henry J. Kaiser Family Foundation. Medicaid: a timeline of key developments. Kaiser Foundation website. http://kff.org/medicaid/timeline/medicaid-a-timeline-ofkey- developments. Accessed March 25, 2014.
4. US Department of Health & Human Services. 2012 Actuarial Report On The Financial Outlook For Medicaid. Medicaid website. http://tinyurl.com/ard9vev. Accessed March 28, 2014.
5. The Heritage Foundation. Federal spending by the numbers, 2013: government spending trends in graphics, tables and key points. Heritage Foundation website. http://www.heritage.org/research/reports/2013/08/federal-spending-by-thenumbers- 2013. Accessed March 25, 2014.
6. Loughlin KR: The gathering storm: Medicare and the unsustainable entitlements. AUANews. 2014;19(1):21-22.
7. Trading Economics. United States Government Debt to GDP. Trading Economics website. http://www.tradingeconomics.com/united-states/government-debt-to-gdp. Accessed March 27, 2014.
8. Wessel D. Red Ink: Inside the High-Stakes Politics of the Federal Budget. New York: Crown Business; 2012.