America's Real "Entitlement" Problem

Is health care, not social security

The Social Security and Medicare Trustees have released their 2007 annual report. As the summary makes clear, the more serious long-term financial problems are in medicare (officially known as "Hospital Insurance (HI)" and "Supplementary Medical Insurance (SMI)"), not social security.

The annual cost of Social Security benefits represented 4.2 percent of Gross Domestic Product (GDP) in 2006, is projected to increase to 6.2 percent of GDP in 2030, and then rise slowly to 6.3 percent of GDP in 2081...

Medicare's financial difficulties come sooner-and are much more severe-than those confronting Social Security. While both programs face demographic challenges, the impact is greater for Medicare because health care costs increase at older ages. Moreover, underlying health care costs per enrollee are projected to rise faster than the wages per worker on which payroll taxes and Social Security benefits are based. As a result, while Medicare's annual costs were 3.1 percent of GDP in 2006... are projected to surpass Social Security expenditures in 2028 and exceed 11 percent of GDP in 2081...Part B of the Supplementary Medical Insurance (SMI) Trust Fund, which pays doctors' bills and other outpatient expenses, and Part D, which pays for access to prescription drug coverage, are both projected to remain adequately financed into the indefinite future because current law automatically provides financing each year to meet next year's expected costs. However, expected steep cost increases will result in rapidly growing general revenue financing needs-projected to rise from 1.3 percent of GDP in 2006 to 4.7 percent in 2081-as well as substantial increases over time in beneficiary premium charges.

There's a nice assesment at Kash Mansouri's Street Light Blog.

So if we really want to deal with the future cost of entitlement programs, we need to take a hard look at our health care system. Perhaps a comparative perspective might help. As the World Baseball Classic reminded us, sometimes other countries get things right, and we might actually be able to learn from them. Or at least that's the message of this fascinating article, "The Health of Nations" by Ezra Klein in The American Prospect on the health care systems of Canada, France, England, Germany and the US Veterans Administration.