John C. Goodman, PhD, President, NCPA

Executive Summary

Health care is the most serious domestic policy problem we have, and Medicare is the most important component of that problem. Every federal agency that has examined the issue has affirmed that we are on a dangerous, unsustainable spending path:

• According to the Medicare Trustees, by 2012 the deficits in Social Security and Medicare will require one out of every 10 income tax dollars.
• They will claim one in every four general revenue dollars by 2020 and almost one in two by 2030.
• Of the two programs, Medicare is by far the most burdensome — with an unfunded liability five times that of Social Security.
• On the current path, health care spending (mainly Medicare and Medicaid) will crowd out every other activity of the federal government by mid-century.

There are three underlying reasons for this dilemma:

• Since Medicare beneficiaries are participating in a use-it-or-lose-it system, patients can realize benefits only by consuming more care; they receive no personal benefit from consuming care prudently and they bear no personal cost if they are wasteful.
• Since Medicare providers are trapped in a system in which they are paid predetermined fees for prescribed tasks, they have no financial incentives to improve outcomes, and physicians often receive less take-home pay if they provide low-cost, high-quality care.
• Since Medicare is funded on a pay-as-you-go basis, many of today’s taxpayers are not saving and investing to fund their own post-retirement care; thus, today’s young workers will receive benefits only if future workers are willing to pay exorbitantly high tax rates.

Ideas Changing the World, National Center for Policy Analysis, John Goodman, PhD, President

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Government is not the solution to our problems, government is the problem.

– Ronald Reagan