Vol. 41, No. 3

A Note from the Chairman Emeritus

Two hundred and twenty years ago this summer, fifty five delegates from America’s thirteen states locked themselves in a room in Philadelphia to hammer out a new Constitution for our Nation.

The Search for Common Ground – A Q&A with Howard Baker

The former Tennessee Senator discusses a bipartisan effort he is leading to break the political logjam and forge a consensus on some of the key challenges facing our Nation.

The Truth about Congressional Gridlock

He spent 40 years in Congress. Now, the former House Republican Leader writes the institution is suffering from neglect and proposes some reforms that, he says, are long overdue.

The Making of the President’s Health Plan 2008

Recent calls for universal health coverage remind some of similar proposals made during the 1992 presidential campaign. But differences exist in today’s debate, and the chances for sweeping reform are slim.

Bloomberg Tackles Poverty

The Mayor of New York establishes a public-private partnership to help his city’s less fortunate. His plan is bipartisan and innovative. But will it work?

Finding Consensus on an International Counter-Narcotics Strategy

According to the Ranking Republican of the House Foreign Affairs Committee, politics is standing in the way of a plan to stem the flow of drugs into America.

The AMT: Not Such a Minimal Tax

The Alternative Minimum Tax is affecting more and more moderate income taxpayers. The solution does not lie in raising taxes on others, but rather in broader reform of the tax code itself.

The Road to Fundamental Immigration Reform

Congress is on the verge of reforming an immigration system that is 40 years old. An assessment of the legislation, from the politics of the measure to what it will achieve.

Hoping for a Medicare Miracle

This year’s Medicare Trustees’ Report once again found the system in trouble. Because of a new law, however, the President now has to do something about it.

Making Government Work

In an excerpt from a speech delivered this past April, America’s Comptroller General discusses the need to transform the federal bureaucracy so it better meets the demands of 21st century life.

Form Follows Function

Senator Joe Lieberman’s decision to change the seating chart on his Committee drew chuckles. But it also served a purpose.

Ripon Profile of M. Jodi Rell

The party must move to the center – cease polarizing every issue – and listen more closely to everyday people.

Hoping for a Medicare Miracle

In May, the U.S. Treasury department published the annual reports for Social Security and Medicare. The two volumes — all 460 pages, five pounds worth — were once again largely ignored by the national media and Congressional leaders.   

Not much changed since last year, so what’s the big deal, right?   

Social Security and Medicare are hurtling toward a cliff like lemmings. $88 trillion in unfunded promises. Disaster, death, destruction. We’ve heard it all before.    

But this time, just maybe, it will turn out different. This time the President and Congress have to do something about it.   

Secretaries Leavitt, Chao, and Paulson, at the release of the Social Security and Medicare Trustees Report this past April.
Secretaries Leavitt, Chao, and Paulson, at the release of the Social Security and Medicare Trustees Report this past April.

An obscure provision in the 2003 law that added prescription drugs to Medicare (which came, by the way, with a $17 trillion price tag) requires the Medicare trustees to raise a flag if two consecutive reports predict Medicare will draw excessive revenues from the general budget within the next seven years. The measure is generally referred to as a “general revenue trigger.”  

In short, if Medicare is projected to drain too much income tax money from the federal government within the next seven years, the trustees have to alert Congress. The 2006 report was the first to cross the threshold, and this year’s report required the trustees to officially sound the alarm.  

Now what? Under the trigger rule, President Bush must propose a plan to deal with the imbalance as part of his next budget, for 2009. Congress is required to “fast track” consideration of the president’s plan.  

Both the president and congressional leaders should take the warning to heart: Medicare is growing really fast. Due to the retirement of the 77 million Baby Boomers — and the soaring costs of medical care — Medicare will start sucking big bucks away from other treasured federal programs.  

In just five years, Medicare will drain the equivalent of one in every ten income tax dollars from the federal government’s general fund. Within the next fifteen years, Medicare will drain almost a quarter of federal income tax revenue. By 2030, about the midpoint of the baby boomer retirement years, Medicare will take more than a third. That means the government will have to raise income taxes by a third or stop doing about a third of what it does today.             

Maybe we won’t miss NASA or federal education funding or subsidies for farmers. But maybe your favorite program will be the one on the chopping block.  

Under the trigger rule, President Bush must propose a plan to deal with the imbalance as part of this next budget for 2009.

Eventually, Medicare spending will drain nearly every tax dollar the government raises. In all, we’re talking about an unfunded liability somewhere in the neighborhood of $75 trillion. (That is the amount we would need on hand today, invested and earning interest outside Congress’ reach.) Throw in Social Security and the total soars to more than $88 trillion. And that doesn’t even include the impact of the retiring baby boomers on Medicaid, which is almost as big as Medicare.   

According to Tom Saving, one of the Medicare trustees, we could fully fund Medicare for the foreseeable future by siphoning off 60 percent of all federal income tax revenue — starting today and continuing forever — and setting it aside for Medicare benefits.  But that’s just not going to happen.   

So, what should we do?  First, our leaders should take the hint: Reform is needed. Traditional piecemeal “solutions” like raising the retirement age, bumping up the tax rate and so forth might alleviate the current crunch for a couple years, but won’t do nearly enough to plug the long-term drain.  

We need to rethink how Medicare works. For one thing, people should be allowed and encouraged to save money while working to fund future elderly health care benefits. In addition, we could combine all the parts of Medicare, including the prescription drug benefit and individually-purchased Medigap policies, into a single plan with a single premium, which would help hold down some of the soaring costs.  

Sadly, there is a caveat to this whole story. We know it is vital that we address Medicare’s unsustainable growth — and we know the Medicare trigger will at least force Congress to talk about it. But, the Medicare trigger doesn’t actually force Congress to do anything real about these very real problems. It requires that a debate take place, yes, but conveniently it doesn’t require Congress to actually pass anything.  

Thus, instead of embracing a real solution that prevents the indentured servitude of an entire generation, Congress may well pass something painless — for themselves and for the retiring Baby Boomers — but also something that will do nothing to alleviate the plight of today’s younger workers. After all, with a few notable exceptions, neither Republicans nor Democrats seem to have the stomach for — or much interest in — getting the job done. 

Medicare’s soaring costs constitute the single biggest domestic policy issue facing the nation today. We can pretend the problem doesn’t exist, or pretend that we can wait for the next president or the next Congress to fix it. But very soon, as Medicare draws increasing sums of money away from other federal programs, the pet projects of the next president and Members of the next Congress will have to compete with Medicare for scarce dollars. Maybe then our policy makers will notice the problem we have seen brewing for decades. Maybe then they will finally fix it.

Matt Moore is a senior policy analyst with the National Center for Policy Analysis.