Government Spending for Health Entitlement Programs

Key Points From This Brief:

• Spending through the two principal health entitlement programs — Medicare and Medicaid — accounts for well over a third of U.S. health care spending and for one-fifth of all federal spending. On average, states spend almost 25 percent of their budgets on Medicaid.
  
  
• Health entitlement spending is projected to grow quickly in the next decade as the baby boom generation ages onto Medicare in very large numbers, costs per enrollee continue to rise, and if more people become eligible for Medicaid as currently expected under national health reform.
  
  
• Despite receiving beneficiary contributions through dedicated payroll taxes, increasing premium payments, and beneficiary cost sharing — and despite the existence of the Part A Trust Fund — Medicare is heavily reliant on general revenue financing. Such financing crowds out other uses of general revenue, contributes significantly to annual deficits and cumulating debt, and places upward pressure on taxes.
  
  
• The Medicare Trustees have issued a Medicare “fund warning” for each of the past six years, signaling consistent near-term projections that more than 45 percent of the program’s annual outlays will be financed from general revenues. Congress has failed to take corrective action in response to these warnings.
  
  
• The average person retiring today can expect to receive significantly more in Medicare benefits during retirement than he paid into the program via payroll taxes while working and will pay in annual premiums once retired.
  
  
• Based on legislation currently on the books, the Congressional Budget Office projects an improving but still very challenging fiscal outlook for the next decade. More realistic assumptions that result in higher Medicare spending and lower tax revenue yield an even more sobering picture of our future fiscal situation.
  
  
• Over the longer term, if federal health entitlement spending grows as it has in the past instead of as projected under current law, our deficits and debt will grow exponentially.