Financial Reality Part IV: Reforming Medicare and Medicaid

Wake up America. We are heading head long into a brick wall and we are ignoring it. While our elected officials debate spending cuts in the range of $50 billion to $100 billion, our nation is facing trillion dollar deficits for years to come. The new ten year forecast by the Congressional Budget Office (CBO), scrubbed by The Heritage Foundation of unrealistic assumptions the CBO is required to use, predicts an additional $13.6 trillion will be added to the national debt over the next ten years. Simply put, by 2021 our debt will climb to $27.9 trillion and will require nearly half of all federal income tax revenues just to pay the interest.

The major reason for this crisis is clear, but there is little courage in Washington, D.C. to address it. Here it is. Medicare expenditures have grown 81% since 2000 and Medicaid expenditures have grown 87% since 2000. It gets worse. Today there are 39 million Americans over the age of 65, but that number has been growing at the average rate of 10,000 per day since January 1^st of this year and will continue to grow at this rate for the next ten years. Why? Baby Boomers born between 1946 and 1955, approximately 36 million, will turn 65 over that period of time and become eligible for Medicare. With life expectancy at 78 for men and 80 for women, we can safely assume that there will be almost twice as many Americans over the age of 65 by 2021.

Persistent slow growth in the economy due the drag of massive federal debt combined with heavily restrictive regulations on business will continue to suppress job growth and force more citizens on Medicaid. By 2021 the other half of all federal income tax revenue will be required to pay for Medicare and Medicaid. Even if we assume that Social Security will pay for itself, which will require substantial tax and benefit reform, where will we find the money to fund all other government expenses – including defense and other entitlement programs such as food stamps? There is not enough rich, middle-class, corporate or any other income that can be taxed more in order to solve this problem.

The only answer is Medicare and Medicaid reform.

Ignoring this fact or falsely believing that there is some hidden pool of income that can be taxed to pay for the sharply increasing costs, will lead to a financial collapse of our entire economy. For those who think that our Gross Domestic Product (GDP) will grow enough to provide the additional income, recognize that without significant reform of these programs the U.S. economy would have to grow faster than the economy of China to simply maintain a GDP equal to our debt over the next ten years. This is not remotely possible for a country as developed as we are.

There are several areas of reform we should be debating in order to intelligently avert the crisis we are definitely facing. We need to begin by recognizing that we are living longer and with a higher quality of life. We need to increase the eligibility age for Medicare, but without any changes for those in the program or about to become eligible for the program.

With regard to Medicaid, income level eligibility needs to be reviewed on a state by state basis in order to adhere to the original intent of the program to help the most disadvantaged of our citizens. Since age eligibility is also a factor for Medicaid, reform of this requirement should be the same for Medicaid as for Medicare.

In order to reduce the massive administrative costs for both Medicare and Medicaid, the federal bureaucracy should be eliminated and block grants provided to the states. Each state can then establish a leaner more effective administrative structure closer to the source of need.

Another important issue we need to consider is serious tort reform across our entire health care system in order to reduce costly defensive medicine, which is comprised of tests that are not medically necessary but help defend medical mal-practice cases.

Rigorous reform is necessary to target the estimated $48 billion in fraud and abuse that is present in both programs today. The size of this number will grow in proportion to the overall growth of the programs and will worsen the crisis each year. The use of block grants will help by localizing administration of the programs at the state level, allowing for smaller amounts of money to be more effectively managed and making it more difficult to hide fraudulent practices. This idea and the previous suggestions are practical ways of successfully reforming Medicare and Medicaid without impacting those relying on these programs today.

This essay concludes my series on Financial Reality. My purpose was to encourage common sense debate on the role of government in our lives, the size of the central government and on reforming Social Security, Medicare and Medicaid. The fiscal crisis our nation is facing is real. It threatens the liberty of our generation and that of generations to come.

Robert Allen Bonelli is the author of “Liberty Rising,” an accomplished business executive, public speaker and involved citizen.