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Some Perspective on Entitlements



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Rick Perry has set off a little debate about whether we should call Social Security a Ponzi scheme and, more importantly, about how aggressive Republicans ought to be about entitlement reform given the political risks involved. In discussions of the latter question—this time, as has been happening over the past few years—a lot of people tend to treat Medicare and Social Security together, as though both are similarly in need of similarly significant reform. It’s important to understand that this is not the case.
 
Oddly, Social Security reform seems to be more politically explosive and difficult. But in fact, Medicare is in far more trouble, is going to be a far larger drain on the federal budget in the long run, and requires significantly more profound structural reform. Here is how the Congressional Budget Office views the future of the two programs (CBO doesn’t actually produce this chart, but I made it using the figures the agency made available with its latest Long-Term Budget Outlook):
 
 
Social Security certainly requires reform to remain solvent, because the aging of our society means that the program’s funding and benefit formulas are no longer in line with demographic realities. Its problems are real and large. But Medicare’s long-term problems are on a wholly different scale. The program is utterly unsustainable and stands to swallow up the federal budget and balloon the debt, and the source of its woes is not only demographic but is to a very significant extent a function of an explosion of health-care costs that is actually severely exacerbated by the design of Medicare itself. It urgently needs major reform that would use market forces to contain the growth of costs, and such reform of Medicare (coupled with a repeal of Obamacare and its replacement with a market-based alternative) is also essential to the future of the broader health-care sector.
 
To their great credit, House Republicans proposed exactly that kind of reform this year, designed by House Budget Committee chairman Paul Ryan. The ultimate answer to Medicare’s woes need not be that precise plan, but it would need to be something like it—a reform that transforms Medicare from a fee-for-service government insurer that grossly distorts the economics of American health care to a premium-support system that encourages efficiency and innovation through private-sector competition.
 
Medicare’s fiscal collapse is like no fiscal problem our political system has ever faced, and is at the very core of our unprecedented debt projections. The program absolutely has to be reformed, and soon, and the case for such reform simply has to be part of the agenda of the Republican presidential candidate next year.


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