NCPA - National Center for Policy Analysis


September 14, 2006

Mark McClellan's announcement that he'll resign as head of the Centers for Medicare and Medicaid Services (CMS) in early October, after two grueling years, presents a perfect opportunity: He can tell us what to do about Medicare, says columnist Robert J. Samuelson.

The CMS spent $515 billion in 2005 -- 21 percent of the federal budget and about $21 billion more than all defense spending.  Consider what the aging baby boom does to government:

  • Federal spending on the elderly is plausibly projected to double from 2000 to 2030 as a share of national income.
  • About three-quarters of that increase will be health spending -- mostly Medicare but also Medicaid (70 percent of Medicaid spending goes to the old and disabled).
  • The projected increase in health spending exceeds all of today's discretionary domestic spending on schools, the FBI, the environment and much more.

The present explosion in health spending is increasingly wasteful and socially corrosive, says Samuelson.  It may ultimately lower economic growth -- a side effect of the high taxes needed to pay for Medicare and Medicaid -- and already depresses take-home pay, squeezes other public services and redistributes income from the young to the old.  Meanwhile, the extra health benefits are dwindling.

We should overhaul Medicare, but just how is unclear.  To know, we need to answer three questions, says Samuelson:

  • How much health spending can the economy absorb without having higher taxes or depressed wages reduce economic growth?
  • Who should pay for Medicare -- that is, should older people pay more (lessening the burden on the young)?
  • How can we pay physicians and hospitals for better outcomes and not just for more tests, hospitalizations and visits?

Source: Robert J. Samuelson, "The Medicare Monster," Washington Post, September 14, 2006.

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