Entitlement Reform Means Fixing the Broader Health System Medicare and Medicaid’s Budget Challenges

Discussing long-term budget challenges earlier this year, President Barack Obama remarked, “Social Security, we can solve…. The big problem is Medicare, which is unsustainable.... We can’t solve Medicare in isolation from the broader problems of the health-care system.”

The president is right. Medicare, the entitlement program that provides health coverage for seniors, presents some of the country’s most serious budget challenges. Medicare enrollment, like Social Security, will grow substantially as baby boomers start to become eligible for retirement in 2011. This demographic shift will also strain Medicaid, Medicare’s sister program for low-income families, because much of the program’s budget goes to cover seniors made destitute by the cost of long-term care.

But the far bigger challenge facing both programs is the same one that is making private insurance unaffordable for more and more businesses and individuals: rising health care costs.

Thanks largely to the introduction of new technologies, health care costs have grown an average of 9.8 percent each year—2.5 percentage points faster than the economy as a whole. This cost growth is not only putting health care increasingly out of reach for many Americans; it is a threat to our long-term economic prosperity. The Congressional Budget Office has predicted that unless we take action, health care spending could consume 49 percent of our GDP by 2082, causing wages to stagnate and depressing non-health care sectors of our economy.

Budget hawks in both parties are laying the groundwork to address Medicare and Medicaid’s fiscal problems by limiting spending on these programs. But this “solution” fails to address any of the issues that caused the dramatic increases in health costs in the first place. The vulnerable populations served by these programs are those who will be least able to find affordable coverage in the private market if federal support is taken away. More fundamentally, trimming entitlements without fixing the broader system does nothing to fix the underlying problem that jeopardizes Americans’ access to care and our nation’s long-term prosperity.

Overhauling the health care system will be both a political and fiscal challenge, but there is good news: measures such as health information technology, comparative effectiveness research, and payment structures that encourage doctors to prioritize outcomes over volume can save Americans money and improve the quality of care delivered.

Some have suggested since the election that budget constraints may force the new president to shelve his plans for health reform. It is clear, however, that addressing our largest budget problems will have to begin with fixing our health care system.