Will spending on health care for the elderly bankrupt the United States?

To follow is an excerpt from the CQ Researcher report "Aging Population" by Alan Greenblatt on July 15, 2011.


Health care costs already consume more than double the share of the economy that they did 30 years ago. They are expected to consume $2.8 trillion this year, or 17.9 percent of gross domestic product (GDP), according to the federal Centers on Medicare and Medicaid Services (CMS). That's up from 8.1 percent of the economy in 1975. [Footnote 16]

Medicare and Medicaid spending have grown at a similar pace. The two programs, which provide coverage for seniors and the poor and disabled, respectively, are on course to grow from about 4 percent of GDP in 2008 to nearly 7 percent by 2035. [Footnote 17]

The 2010 federal health-care law, known as the Affordable Care Act, was designed to cut Medicare costs by nearly $120 billion over the next five years. [Footnote 18] But Medicare's actuaries worry that savings from the 2010 law can't all be relied upon. That's because Congress has frequently canceled plans to lower Medicare fees for hospitals and physicians. [Footnote 19] As a result, the Medicare trust fund is on course to run out of money in 2024 — five years earlier than previously predicted — according to Richard Foster, the chief actuary at CMS.

Rising health care costs are a burden not just for the government but for individuals as well. “We're spending about $8,000 more annually for insurance for a family of four than we did in 2000,” says Paul Hewitt, vice president of research at the Coalition for Affordable Health Coverage, an advocacy group in Washington.

Experts say aging trends are a significant reason for the climb in health care costs and an important source of pressure on the federal budget. “It's worth keeping in mind that a significant share of health care growth is demographically based,” says Jackson of the Center for Strategic and International Studies. “You're looking at a steep rise in cost just because of the rise in the average age of the beneficiaries — the aging of the aged.”

But health economists say aging trends are far from the whole story. Medical costs are rising largely because of the ever-increasing availability of expensive treatments in the health care system — a system that treats young and old alike. “The real problem is not the aging of the population, but the rise of health care costs,” says Case Western's Binstock, a former president of the Gerontological Society of America. “We don't look at the elephant in the room here, which is the enormous profits of the medical-industrial complex.”

Most experts agree that major alterations are in order. Some are discouraged that the two major parties seem worlds apart on health care issues. “Both parties have to recognize the need to compromise,” says the Urban Institute's Johnson.

That does not appear imminent. Republicans have pledged to repeal the 2010 health care law, considered one of Obama's signature achievements, while Democrats intend to use the GOP's controversial plan to turn Medicare into something resembling a voucher program against them in the 2012 elections.

Even as congressional Republicans seek to slash Medicare and other entitlements, they oppose the Independent Payment Advisory Board, established by the 2010 health care law, which is meant to make recommendations for Medicare spending cuts when its growth exceeds GDP growth by more than 1 percent.

“Cutting providers eventually cuts benefits because they are less available,” said Sen. Jon Kyl, R-Ariz., the minority whip. “You don't have as many physicians, for example, to take care of Medicare patients, so either people have to wait a lot longer or they never get to see the physician they'd like to.” [Footnote 20]

But if a political deal is not reached, the consequences could be dire, experts warn. The Congressional Budget Office (CBO) says health care costs, on their current course, could swallow all of GDP by 2082. [Footnote 21]

The risk of bankruptcy from health costs in particular, says Hewitt, are exactly what bond rating agencies have warned about when they have threatened recently to downgrade U.S. debt — meaning the federal government may not be able to borrow money as cheaply because there's more risk that it won't be able to cover its interest payments.

“Three-quarters of the projected deficits over the next 10 years are new health care spending, according to CBO,” Hewitt says. “If you could hold health costs at 2011 levels, you wouldn't have any deficit of note in 2021.”

“There's no question that we're on course for health care costs to bankrupt the country,” says the New America Foundation's MacGuineas. “You can't have anything growing faster than GDP forever, because it consumes more and more of the economy.”

That may be the greatest danger. MacGuineas, like other budget experts, predicts that some sort of change will be made in health care spending, because present trends are not sustainable. But the changes won't come without pain and political difficulty. In the meantime, rising health costs may continue to squeeze spending on other programs.

The Issues:

  • Should Americans work longer?
  • Will spending on health care for the elderly bankrupt the United States?
  • Will the young and old fight over resources?
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[16] See Annual Report of the Medicare Trustees, Center for Medicare and Medicaid Services, May 13, 2011, www.cms.gov/ReportsTrustFunds/downloads/tr2011.pdf.

[17] “Choosing The Nation's Fiscal Future,” National Academies Press (2010), p. 79, available at www.ourfiscalfuture.org/wp-content/uploads/fiscalfuture_full_report.pdf.

[18] “Strengthening Medicare: Better Health, Better Care, Lower Costs,” Centers for Medicare and Medicaid Services, www.cms.gov/apps/files/medicare-savings-report.pdf.

[19] Matthew DoBias, “Medicare's Actuary Paints a Darker Picture Than Trustees,” National Journal.com , May 23, 2011, www.nationaljournal.com/healthcare/medicare-s-actuary-paints-a-darker-picture-than-trustees-20110523.

[20] Emily Ethridge, “Republicans Decry Medicare Cost-Control Panel While Seeking Broad Cuts,” CQ HealthBeat, June 8, 2011.

[21] “CBO'S 2011 Long-Term Budget Outlook,” Congressional Budget Office, www.cbo.gov/doc.cfm?index=12212.