You can’t save Medicare by raising taxes. You could save Medicaid that way

We can’t address Medicare’s problems through revenue alone. We can, however, largely address Medicaid’s problems that way.

Ezra Klein notes that one can’t save Medicare through revenue alone. Although I support selected tax increases to address Medicare costs, we must actually confront the program’s unsustainable cost growth in the coming decades. That won’t be easy from any perspective, but it must be done.

Ezra quotes me as saying: “One unintentional benefit of health-care reform would be that if we get health-care financing on a better footing, we would stop killing all sorts of social programs that do more on the margins for health than health care does but are being starved for resources.” I strongly endorse that view. Current and future Medicare recipients should accept reasonable cost controls as part of needed health reforms.

Medicaid, though, is another story. Per-recipient, Medicaid costs have been growing more slowly than costs have been rising elsewhere in the medical economy. The Congressional Budget Office forecasts relatively disciplined Medicaid cost growth for decades to come. One implicit reason for Medicaid’s relatively modest projected cost growth is the realization that recipients lack the political heft to resist painful measures that constrain spending.

Cost control is not the most important challenge facing Medicaid. Indeed I would like to see the program spend more, for example by paying competitive rates to medical providers. I would also like to see expanded services for long-term care. The key Medicaid budget challenge is to provide the federal supports and the additional tax revenue required to put the program on a better financial footing.

We often lump Medicare and Medicaid into a single bucket of “health entitlements.” We shouldn’t do that. Both programs face serious challenges, but the challenges are very different.

Author: Harold Pollack

Harold Pollack is Helen Ross Professor of Social Service Administration at the University of Chicago. He has served on three expert committees of the National Academies of Science. His recent research appears in such journals as Addiction, Journal of the American Medical Association, and American Journal of Public Health. He writes regularly on HIV prevention, crime and drug policy, health reform, and disability policy for American Prospect, tnr.com, and other news outlets. His essay, "Lessons from an Emergency Room Nightmare" was selected for the collection The Best American Medical Writing, 2009. He recently participated, with zero critical acclaim, in the University of Chicago's annual Latke-Hamentaschen debate.

3 thoughts on “You can’t save Medicare by raising taxes. You could save Medicaid that way”

  1. This is an important post. Actually I tend to lump Medicaid in with welfare (TANF). But I do that in the secrecy of my skull. Medicare is very popular and it is useful to Medicaid to be linked to Medicare. But they aren’t similar and serious policy wonks shouldn’t lump them together.

    I have been making a nuisance of myself in various comment threads noting that we could pay for Medicare for the forecastable future if we were willing to raise taxes to Danish levels. Forecasting a century out is like reading palms.

    I don’t think the word “can’t” is correct. We might not be able to save Medicare with huge tax increases. We certainly won’t save Medicare with huge tax increases. Also we shouldn’t and we shouldn’t try. But the claim that we can’t, if taken literally, implies absolute confidence in forecasts so far into the future that they are basically guesses.

  2. “One unintentional benefit of health-care reform would be that if we get health-care financing on a better footing, we would stop killing all sorts of social programs that do more on the margins for health than health care does but are being starved for resources.”

    I think this misstates the problem. We aren’t killing social programs because we are starved for resources. Rather, the entire Republican Party and a not insignificant portion of the Democratic Party (at the elite level) has decided that those programs should be killed. Starving us of resources is a means towards that end.

    Getting health care costs under control is important, and it would reduce the pressure to cut social programs. But the fundamental problem here is a political one, not an economic one. Articulating a vision of government that makes sense of Medicare beyond ‘old people will get mad if we cut it’ is an essential task here.

    On another note, why is it that cost controls are an issues with Medicare but not Medicaid? Is it simply the difference in the political power of their constituencies, or are there institutional design differences that play a role?

  3. Almost one-third of Medicaid dollars are actually spent on senior citizens…..so to that extent the programs must be discussed together.

    For years I have been reading the complaints by individual states that Medicaid was crushing their budgets. I became less sympathetic when I discovered that some of the loudest complainers have no state income tax (i.e. Texas). This backs up Greg Anrig’s view that Medicaid should be federalized.

    Medicare taxes do have to go up out of sheer demographics. There are 33 million persons in America today between ages 55 and 65. They are not a secret, they have all been here a while. If we performed a major miracle and held the cost of health care to zero percent inflation, even then the cost of Medicare to the federal budget would go up faster than federal revenues are likely to go up.

    If we also let the cost of Medicare per-enrollee go up by 6 to 8 per cent a year, then by 2020 we will be spending about $1.3 trillion on Medicare alone. If federal tax revenues from all sources grow by 2% a year,
    then total revenues will be a little less than $3 trillion. At that point I guess we will have to choose between higher taxes, slashing Medicare, or slashing the defense budget — or all three.

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