Medicare Will Be Bankrupt in 8 years: Why Don’t Republicans Care?

On June 5, Medicare’s trustees published a report warning that the health insurance program will be unable to pay scheduled benefits, not in 2029 as previous thought, but in 2026. The same report maintained the previous year’s estimate that Social Security will become insolvent by 2034. These two programs, Medicare and Social Security, together with their correlative for low-income Americans, Medicaid, are far and away the largest recipients of public money in the federal budget. They bear overwhelming responsibility for the federal government’s $20 trillion debt and nearly $700 yearly deficit.

But who cares?

We ask the question literally. Who actually cares? Left unchecked, these programs will swallow the federal budget and require dramatic tax increases to sustain them, leading in turn to permanent economic lethargy. But almost no one cares. For elected officials in Washington, the problem is never sufficiently urgent actually to do anything about it, and in any case, the assumption holds that tampering with benefits is a pretty certain way to lose your next election. For Americans outside Washington, the problem is too abstruse and too complicated to get exercised about. If no one was alarmed by the prospect of an insolvent Medicare in 2029, no one will care about its insolvency in 2026.

Meanwhile the cost of the programs keeps rising—partly because more and more people qualify as beneficiaries, partly because benefits are set by federal statute and rise automatically (hence the apt term “entitlement”). If lawmakers do nothing, taxpayers will have to bail the programs out, and do so again and again, until entitlement programs eat almost the entire non-defense federal budget. That means discretionary spending on infrastructure, research and development, and a vast array of grants to state governments and other institutions—they all get axed or deleted in order to keep paying for retirement benefits and health insurance for the elderly.

The American economy just can’t keep up with our entitlement programs. The Democrats’ answer to this problem, on the rare occasion they offer one, is always the same: Raise taxes. After all, Europeans have partially succeeded in paying for their burgeoning welfare states; why not here? Leave aside the political question of whether Americans, accustomed to greater political freedom and less intrusive government than their European counterparts, are prepared to pay higher taxes to pay for an entitlement state. Americans also have to pay for a superpower military to counter the global foes of Russia, Iran, China, North Korea, et al. Europeans are not thus burdened.

American liberals regard last year’s individual and corporate tax cuts with incomprehending rage. Republicans, they complain, fashion themselves as the part of fiscal responsibility, and yet they’re starving the government of revenue at a time when our largest entitlement programs are about to go bust. It’s a reasonable, if misguided, question. Entitlement programs were racing towards disaster long before the tax cuts. Why? In part, because of huge demographic shifts and the programs’ poor structure. But also because the American economy had hobbled along at 2 or 3 percent growth for a decade. Productivity has fallen for even longer than decade. To put it plainly: The Obama-era economy, shackled by punitive corporate taxes and stultifying regulation, was never going to rise to the challenge.

It’s not clear yet that tax reform will escalate growth in the long term. But it has a better chance than the status quo ante.

The bigger question is whether Republicans any longer have the will to make entitlement programs sustainable. The reform ideas are well known on Capitol Hill: raising the eligibility age for Medicare recipients, reducing Medicare subsidies for beneficiaries with higher incomes, altering the formula for Social Security’s cost-of-living adjustments. George W. Bush bravely tried to allow Americans to privatize part of their Social Security savings. (He failed at that effort, but succeeded, alas, at adding a prescription drug benefit to Medicare.) Paul Ryan proposed an ambitious plan that would have replaced Medicare’s absurdly inefficient direct-payment system with one that supports insurance premiums of plans chosen by beneficiaries.

But Ryan is retiring, and Capitol Hill lawmakers no longer seems interested, if indeed they ever were. President Donald Trump has repeatedly expressed fierce opposition to anything resembling “cuts” to Social Security, Medicare, or Medicaid. It’s a hopeful sign, perhaps, that Howard Schultz, retiring CEO of Starbucks and likely Democratic presidential candidate, called the debt the most pressing domestic policy challenge facing the country. But candidates have often shown interest in such reforms—then lost it as officeholders.

One thing is guaranteed to spur reform: the collapse of one, two, or all three of our major entitlement programs. When 62 million people don’t get their Social Security checks in the mail, we may be sure that major changes will take place—along with a great deal of governmental upheaval and political chaos. If you’re reading this, you’ll likely see it happen. Two thousand twenty-six is just eight years away.

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