Before a discussion of entitlements and welfare programs is started, a primer on the fiscal situation of the country seems appropriate. Service on the national debt is now second only to Social Security as a government expenditure. The debt is now about $36 trillion. Government revenues are 18 percent of GDP. Spending is 25 percent of GDP. Seventy-six percent of spending has been mandatory, leaving 24 percent as discretionary. The Biden administration converted a significant portion of what was discretionary spending to mandatory spending via the COVID-19 Relief Bill and the Inflation Reduction Act. The result is that any significant stabilization in spending now seems necessary to include not only discretionary spending but also mandatory spending. Medicare, Social Security, and Medicaid, of course, are included in mandatory spending.
To deal with accelerated inflation that has occurred over the last four years, the Federal Reserve is now attempting to take excess liquidity (dollars) out of the market. This is called quantitative tightening. Please recall that at its core, inflation is a monetary phenomenon. It is a decrease in the value of the dollar. Hence, quantitative tightening means fewer dollars chasing scarce goods and services, resulting in inflation moderation. Further, by increasing interest rates, borrowing slows, further decreasing available dollars in the economy. This slows the economy by decreasing purchasing power for both businesses and individuals. This is also anti-inflationary but painful. Increasing production (productivity) of goods and services is anti-inflationary but without the pain.
But therein lies the rub. It is now estimated that in the next ten years, government spending will be $89 trillion, with revenue of only $68 trillion. If the federal debt is presently $36 trillion and the $21 trillion deficit ($89 – $68) is added, the debt becomes an untenable and astronomical $57 trillion. To fund only the interest on this debt, the dollars can be secured from the private sector by taxation while at the same time the Federal Reserve keeps interest rates low together with printing money (quantitative easing). If interest rates increase, the interest cost of servicing the debt increases. Since the debt is so high, the cost of financing it will increase because the risk of default and/or monetizing the debt is increased. Therefore, the Federal Reserve must print money to buy our debt in order to keep the interest rate low. By being a purchaser of our debt, this keeps demand higher, thus lowering the interest rate. So we have increased taxes, which will slow the economy, with low interest rates and money printing that will cause inflation. What a mess.
Now that there is some clarity regarding the fiscal situation of the country, the health care entitlements, welfare programs, and overall costs take on a dire perspective.
The Medicare Board of Trustees has announced that the Medicare Part A/Hospital trust fund will be exhausted in 2036. They again issued the mandatory “trigger” warning since general revenues needed to support Medicare Part B (physician and outpatient services) and Part D (prescription drug coverage) would again exceed 45 percent of total Medicare expenditures within seven years. These unfunded obligations are the responsibility of taxpayers. They are calculated to be $58 trillion over the next 75 years. The $1 trillion annual Medicare expenditures today are expected to reach $2 trillion by 2033. For seniors, this means rising Medicare costs. The amount deducted from their Social Security benefits, which now averages $164.90 (with an annual deductible of $240), will rise to $299.80 (with an annual deductible of $421) in 2033. Add to this the much higher taxes for taxpayers needed to cover Medicare’s increasing costs. In 2022, annual government contributions to Medicare via automatic withdrawals from the Treasury consumed 13.3 percent of all federal income taxes. By 2040, the amount will be 26.7 percent. Medicare presently pays hospitals 60 percent of private rates and doctors 72 percent as determined by bureaucratic price controls. The estimate is that one-third of hospitals will have negative revenue by 2040. The trustees have stated: “Absent a change in the delivery system or level of update by subsequent legislation, the Trustees expect access to Medicare-participating physicians to become a significant issue in the long term.” Given the 2.8 percent decrease to physicians for 2025, this is more likely to become a significant issue in the short term.
Now comes the Inflation Reduction Act. For Medicare stand-alone Part D plans, there will be an estimated $30 billion decrease from the current total of $110 billion. The result is an insufficient amount to finance prescriptions. Since only a premium increase of 6 percent is allowed, it will not be possible for revenue to cover expenses. These companies will have to leave the market. This will encourage movement from traditional Medicare to Part C plans (Medicare Advantage). These plans can fill the void of increased costs by raising premiums, reducing benefits, and further constricting their formularies. Then there was the warning that the price controls on drugs in the Inflation Reduction Act would diminish pharmaceutical innovation. And that is what has happened. So far, biotech firms have stopped 40 research projects and 22 experimental drugs because of the IRA. Scholars at the University of Chicago predict that 331.5 million life years will be lost by 2039 with the 135 fewer drugs released. Not only was the IRA not an IRA (having little to do with inflation), but it has increased the cost of drug benefits for seniors while reducing the development of new pharmaceuticals.
The Affordable Care Act, lauded as an accomplishment by the Democrats, has generally failed. It has not reduced insurance costs, increased choice, or reduced the cost of health care. “If you like your insurance plan, you can keep it; if you like your doctors, you can keep them.” President Obama stated: “Nothing in our plan requires you to change what you have.” But millions of Americans were subsequently notified that their plans would no longer be offered. This resulted in these millions having higher premiums, less choice, and overall higher health care costs. Deductibles increased, and the number of insurers offering individual market coverage decreased by half. Enrollment in the ACA lagged far behind predictions.
The ACA reduced the availability of private coverage in the individual markets through the decreased number of insurers as well as pricing increases beyond affordability. But it did enroll millions in Medicaid. Medicaid was a government welfare program initially designed for the truly needy and poor. Medicaid continues as a program that fewer doctors are willing to accept because of ridiculously low reimbursements. There remains poor access to timely care with compromised outcomes. The ACA’s networks of providers remain narrow. Many of the premier medical institutions have been unavailable. The ACA Medicaid expansion prioritizes able-bodied adults, many of whom are actually working, over the elderly, the disabled, poor women, and poor children. Obamacare finances 90 percent of this new class of Medicaid enrollees, as opposed to the 60 percent for the traditional recipients. The incentive for the states to enroll the higher subsidized new ACA Medicaid enrollees while neglecting the truly needy is clear. The schemes devised for health care savings, such as accountable care organizations, “value-based purchasing,” and pay-for-performance, did not deliver the predicted improved outcomes at lower cost.
The damage done to Medicare, health care and pharmaceutical innovation, and the Medicaid welfare program with increasing costs and an increasing unwillingness by physicians to see costly Medicaid and Medicare patients as reimbursements continue to diminish below costs now seems clear. To suggest that these programs should be expanded at an increased expense to taxpayers in an economy that has been growing poorly while mired in inflation, with a debt that seems to be rapidly becoming unmanageable, accompanied by the expansion of government bureaucracies, seems a fantasy. Not understanding how we have arrived at our fiscally precarious circumstances as a country and the relationship of health care to the complexities of this huge economy makes it unlikely there will be a downward bending of the cost curve, improvement in outcomes, and increased access to care. Also needed is a renaissance in the health care professions. Becoming a physician, nurse, or other member of the health care delivery team should be a rewarding and desirable vocation.
Allan Dobzyniak is an internal medicine physician.
