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May 18, 2011

You Can’t Save Medicare Just by Raising Taxes. But You Could Save Medicaid That Way.

Harold Pollack

(Cross-posted at the Reality Based Community)

Ezra Klein notes today 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. As TCF's Greg Anrig has often observed, 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.


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Ben Leet

Reading Jeff Madrick's report for the Citizen's Commission on the Deficit, a Demos project, he says, "The United States spent 16 percent of its GDP on health care in 2007, far higher than the average of 8.9 percent spent by other developing countries, . . . If the U.S. spent the same percentage of it GDP as the typical developed country with universal coverage, it would have no long-term deficit problem." And "These [health care] costs if unchecked, are a long-term financial catastrophe that threatens both government solvency and the entire U.S. economy." If the U.S. had "average" health care cost, then 7.1% of consumer spending would be devoted to other needs, that's about a trillion bucks in a GDP of $14.5 trillion. Medicare comprised 13.5% of the federal budget and Medicaid 7% in 2008, per Tax Policy Center figures. That is $486 bn for Medicare and $252 bn for Medicaid in 2010. Just some background. I enjoyed your article about your brother-in-law who receives Medicaid and has a toe infection. My mother, a retired school teacher with 21 years experience) passed away at age 98 recently, for the last 18 months she received MediCal (in California), otherwise she would have lived briefly in my apartment and died rather quickly.

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