Medicare & Medicaid Reform: Ensuring Long-Term Solvency
Nathan Punwani
Department: Department of Economics
College: College of Arts and Sciences
Abstract
Health care in the United States annually consumes over $2 trillion, 16 percent of the nation's gross domestic product (GDP). Medical spending per person is growing two times faster than the growth rate in per capita GDP. These ballooning expenditures known as excess cost growth will be compounded even further by a demographic wave as 78 million baby-boomers age, retire, and become eligible for entitlement programs like Medicare and Medicaid. In fact, spending on these two programs is expected to account for 13 percent of national income by 2040.
Tax increases alone will be unable to close the liabilities of Medicare and Medicaid. To sustain the increase in Medicare outlays expected by 2030, the federal government would need an across-the-board income tax hike of 36 percent. The resulting tax rates would reduce incentives to work and invest, dampen purchasing power, and affect the nation's economic growth rate and standard of living.
Maintaining the long-term solvency of entitlement programs represents the greatest intergenerational challenge for the United States in the 21st century. Fundamental reforms are necessary to address the underlying cause of Medicare and Medicaid insolvency: excess cost growth in health care. Current budgetary decisions must be made against the backdrop of the unfunded liabilities of entitlement programs. Budget rules should be more comprehensive by including projections of future budgets and forcing Congress to vote on them; such maneuvers can create a political mindset for spending restraints, revenue increases, and other reforms.
A multifaceted policy regime can ameliorate the situation of fast-growing mandatory spending. The Centers for Medicare & Medicaid Services (CMS) could develop a premium support model in health care to control medical costs. Tax incentives should be given so low-income workers can save for their post-retirement health care expenses. In addition, the government's legislative and executive branches should empower CMS to implement controversial reforms like the certification of cost-effective medical interventions and incentives for evidence-based medicine. Since such actions can be politically sensitive, CMS should be permitted to operate free of excessive political influence. A measure of autonomy would also facilitate improvements in the health agency's administrative decision-making.
Bio: Nathan Punwani is a graduate of Lehigh University. He is currently a first-year medical student at Drexel University College of Medicine. His research interests include medicine and health care policy.
