President Donald Trump’s new willingness to deal with Democratic leaders of Congress has conservatives worried. Is the president really with us anymore? Is he going to help his fellow partisans in Congress hold the line of spending, or is he going to become a Rockefeller-style Republican, cutting bipartisan deals and spending federal tax dollars on his way to reelection?
Unfortunately, President Trump signaled his lack of interest in conservative fiscal policy long ago—when, during last year’s presidential nominating campaign, he promised not to reform our entitlement system, especially Medicare. For in truth, bringing federal spending back to sustainable levels requires politicians to do precisely that, and Trump has categorically sworn off doing so.
Fights in Congress about spending cover a very tiny swath of federal obligations. The overwhelming majority of the federal budget is spent automatically, through entitlements. Social Security makes up about 24 percent of federal spending; Medicare accounts for 15 percent; Obamacare, Medicaid, and other health programs make up another 11 percent; various safety net programs, like unemployment insurance and food stamps, account for 10 percent; benefits for veterans and retirees make up about 8 percent. In the realm of discretionary spending, defense accounts for about 16 percent—and conservatives in Congress want to increase, not decrease, spending there. When interest on the debt (another 6 percent) is accounted for, that leaves about 10 percent of the total budget for Congress to fight over. That tiny fraction is usually what the two sides are squabbling over—and even then their disagreements, a couple of hundred billion dollars, are trivial when compared with the $4 trillion Uncle Sam will spend this year.
Social Security is still more expensive than Medicare, but not for long. According to the Congressional Budget Office, Medicare cost 3.7 percent of gross domestic product in 2017, but over the next 25 years, it will balloon to 7 percent of GDP, making it the single most expensive federal program. Meanwhile, revenues taken in by the Medicare program (through taxes on wages) will not keep up—the result being an explosion in public debt.
Trump’s solution to this problem? Smoke and mirrors. During the campaign, he talked about eliminating “waste, fraud, and abuse,” as well as promoting economic growth to increase revenue. But this will not be sufficient. The unfortunate truth is that the program needs to be not so much cut as reformed.
When Medicare was passed in 1965, it was premised on several assumptions that no longer hold. First, life expectancy has increased markedly. People who turned 65 in 1970 could expect to live another 15 years, but those who turn 65 this year can expect about 21 more years. That creates a greater burden on the program responsible for their care.
Second, the cost of medical care has increased dramatically. The Consumer Price Index for all goods and services has increased by roughly 650 percent since 1970, but for medical care it has grown by 1,450 percent. Not only are people living longer, their care is becoming more expensive—relative to the cost of other things in society. Relatedly, the lines between different types of care have grown more complex. Medicare originally divided itself between Part A, hospital service, and Part B, doctor care. But that kind of clean dichotomy makes little sense in this age of integrated care.
Third, the balance between those who are eligible for Medicare and those who are paying into the system has changed. In 1970, the over-65 cohort was a little less than 10 percent of the total population, while today it is more than 15 percent. Meanwhile, the percentage of the working-age population that is employed hit a peak of 65 percent in 2000 but has since tapered off. Even though the Great Recession has been over for nearly a decade, workforce participation now stands at just 60 percent—about where it stood in 1980. This means fewer people are paying into the system to fund the growing number who are receiving benefits from it.
Fourth, the economic condition of the elderly has improved dramatically. In 1965, seniors were the least well-off cohort; now they are the most prosperous. This stands to reason. People born in 1900, who had just reached retirement age when Medicare was passed, lived through two world wars and a major economic depression—all of which hampered their prospects for upward mobility. On the other hand, those born in 1952, who reached retirement age this year, hit their peak earning years in the ’80s and ’90s, amidst unprecedented prosperity.
And yet for all these changes, Medicare has remained basically static. It has been tweaked over the years, no doubt. The government has imposed some cost containment measures on a program that was initially laissez faire in how it remunerated medical service providers. Moreover, Medicare Advantage offers seniors a chance to get care through HMO-style providers, while Medicare Part D provides coverage for prescription drugs. But the program is remarkably similar to the one created in 1965.
It is desperately in need of reform—of some kind. There are various ideas on the table. Paul Ryan, for instance, has long campaigned to transform it from a defined benefit program (whereby the government guarantees seniors certain treatments) to a defined contribution plan (in which the government provides seniors with a certain amount of money). Liberals staunchly oppose this, but there are other directions we could go in: We might limit eligibility to the needy and require wealthier seniors to pay their own way; raise the eligibility age; change the financing structure of the system to better reflect the reality of 21st-century America; or take a firmer hand in structuring payments to providers.
These are all hard choices, with no easy answers. Somebody is going to end up paying more or receiving less—for the current trajectory of the Medicare program is unsustainable.
In the meantime, quibbling over the small portion of the budget that makes up domestic discretionary spending—money for transportation, the arts and sciences, education, and so on—only diverts public attention from the bigger problem of Medicare.
Unfortunately, neither party is prepared to deal with this issue. Credit is certainly owed to Ryan for calling attention to it, but last year GOP voters supported Trump and his pie-in-the-sky pledge to sustain Medicare with mere tweaks. Indeed, the Republican coalition is not disposed to deal with Medicare, seeing as how it depends so heavily on middle-aged and elderly voters who would bear the brunt of any benefit cuts.
Meanwhile, the Democrats—whose younger coalition stands the most to gain from reforms—are deluding their voters into thinking the program is just fine. In fact, Democratic aspirants for the presidency are lining up to endorse Bernie Sanders’s plan to expand Medicare to all Americans.
And many voters operate under the false impression that they have paid for all the benefits they receive. That is simply not true. The wage taxes only cover benefits under Medicare Part A, and on net seniors can expect to take out much more than they put in.
While it no doubt is engrossing, any fight over spending that ignores entitlements is little more than pantomime. It is not a real conflict over the proper scope of government in modern society. Such a debate would require the political class to deal with Medicare—which, despite a few admirable exceptions, neither side is prepared to do. By signaling his willingness to work with spendthrift Democrats, President Trump is simply reaffirming his lack of interest in budgetary reform.
Jay Cost is a contributing editor to The Weekly Standard.
