September 16, 2014

Key Medicare Factors: Aging Population, More Beneficiaries

  • The American health care system is a patchwork of public and private programs that serve citizens in different ways, depending on their age, military...

Among budget wonks, there is something of a consensus that the projected upward trajectory of our debt is caused primarily by projected growth in federal health care programs. The short-hand version: The nation’s fiscal challenge is really “just a health care problem.”

Yet Concord Coalition Policy Director Joshua Gordon says in a recent blog post that this shorthand is misleading because over the next 20 years, inflation from an inefficient and poorly incentivised health care system is not a big problem for Medicare. Instead, recent reports from the CBO, HHS and the GAO show that nearly three-quarters of Medicare’s spending increases can be attributed to the aging of the population and the growing number of beneficiaries.

In some ways this is good news for those who want to put the nation on a more sustainable fiscal course; it means the solutions are technically easier to figure out. We need to simply lower promised benefits, increase cost-sharing, or increase government revenues to account for the new ratio of workers to retirees.

In a political sense, however, Gordon says this makes solutions harder because we are no longer aiming to cut the amorphous “waste” in health care spending, but talking about benefit cuts or tax increases. It also cuts off “delay” as a political tactic because the sooner we act, the less dramatic steps need to be undertaken.

It is possible, even likely, that current projections for slower-than-normal growth in health care inflation are far too optimistic. Yet this doesn’t change the basic budgetary case for tackling the aging problem as soon as possible.