NCPA - National Center for Policy Analysis

The Real Deficit is in Medicare

September 18, 2003

This year's record-setting $400 billion federal deficit is not the country's most serious financial problem, says Investor's Business Daily. In fact, as a percentage of U.S. Gross Domestic Product (GDP), it is just 4 percent, compared to the deficit of 4.7 percent of GDP in 1992.

More important, as detailed in a recent NCPA study by economists Jagadeesh Gokhale and Kent Smetters, are the long-term unfunded liabilities flowing from just two entitlement programs:

  • Today, Medicare Part a faces a shortfall of $20.5 trillion; Medicare Part B, $16.1 trillion; and Social Security, $7 trillion.
  • By contrast, the rest of the federal budget, including publicly held debt, faces a long-term funding shortfall of only $500 billion, net of taxes and fund surpluses.
  • Medicare and Social Security make up almost of all of the $44.1 trillion today fiscal imbalance.
  • Furthermore, the economists say, prescription drug benefits for Medicare could add as much as $12 trillion to this total.

Yesterday, Comptroller General David M. Walker issued what he termed a "wake-up call" about the nation's long-term finances: The cost of Medicare and Social Security are spinning out of control. And a group of Republican conservatives in the U.S. House of Representatives, led by Rep. Patrick Toomey (Penn.), announced that it will only support a Medicare bill if caps prescription drug benefit spending at $400 billion over the next 10 years, includes health savings accounts, requires Medicare to compete with private insurers and prevents Medicare from imposing price controls (rationing) on drugs.

Source: Editorials, "A Deficit of Growth," and "Putting a Lid on It," both Investor's Business Daily, September 18, 2003.

For NCPA Gokhale-Smetters brief analysis

For David M. Walker's National Press Club speech


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