NCPA - National Center for Policy Analysis


June 12, 2007

Although Social Security reform has received considerable attention in recent years, Medicare is the far-bigger problem.  Medicare is growing at a faster rate and has an unfunded liability six times the size of Social Security, say economists Andrew J. Rettenmaier and Thomas R. Saving.

Medicare is also on a spending path that will be difficult to sustain without unprecedented boosts in revenues.  The reason: Per capita health care spending over the past half century has been rising at a rate two to three times faster than per capita gross domestic product (GDP).  If this trend continues, health care's share of the economy will grow considerably:

  • If the growth of real per capita health care spending exceeds the rate of growth of real per capita gross domestic product by 2 percentage points, health care spending will consume almost 80 percent of GDP by 2075.
  • Continuation of these past growth rates indefinitely would imply a five-fold increase in health care's share of the economy from present levels, crowding out the consumption of most other goods.

It is evident that the federal government has far more in projected benefit costs than it expects to receive in payroll taxes, premiums and other revenues dedicated to Medicare, says Rettenmaier and Saving:

  • The last Trustees report estimated Medicare's unfunded liability over the next 75 years at $32.4 trillion. 
  • Looking indefinitely into the future, the unfunded liability is $70.8 trillion.
  • This is 14 times the amount of outstanding federal debt.

Source: Andrew J. Rettenmaier and Thomas R. Saving, "Medicare: Past, Present and Future," National Center for Policy Analysis, Policy Report No. 299, June 2007.

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