NCPA - National Center for Policy Analysis

Medicare's Pressing Problems

December 14, 1998

While the future of Social Security has grabbed recent headlines, policy analysts note that more pressing -- and immediate -- problems face the second pillar of support for the elderly: Medicare.

Social Security will default in 2030. But Medicare is expected to go bankrupt in 2008.

  • When Medicare was enacted in 1965, there were four or more workers to support each retiree.
  • Today there are 3.3 workers.
  • By 2030, when the last of the baby boomers retire, there will be two.
  • And as the population ages, workers will have to pay more for the medical care of the elderly.

At the same time, expectations for Medicare coverage have also expanded as medical innovations proliferate. We could easily spend the country's entire gross domestic product on legitimate senior health care, experts say. But with the Medicare trust fund going bankrupt in ten years, the costs will have to be covered somehow -- and that means higher taxes.

  • By 2030, to cover the costs of the current system, would mean being taxed at an estimated 24 percent of our earnings.
  • Throw in Social Security, and we face a 40-plus percent tax burden.
  • The only two options are to let the government cut benefits and programs or go to a system of private accounts.

One proposal for the latter is Medical Individual Retirement Accounts, which would function as a tax-free savings account for medical coverage after retirement. A possible approach would be to expand existing Roth IRAs to allow tax-free medical disbursements so patients could decide how much they want to spend on health care and which treatments they want to receive.

Source: Matt Moore (NCPA Intern), "Medicare Overhaul Necessary," Dallas Morning News, Sunday December 13, 1998.


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