The Problem is Not Medicare and Medicaid—The Problem is Health Care
Table of Contents
Uwe E. Reinhardt, a noted health economist at Princeton University, has concluded that, "although it is not a trivial matter, population is nowhere near the strongest driver of demand for health care in the United States."25
Many of the factors that contribute to the growth in the costs of Medicare and Medicaid—growth in population and utilization, growth in costs of new technology and drugs, and inflation of medical prices—also drive up the cost of health care nationally, affecting all payers, both public and private, including individuals, employers, and both state and federal governments.
Given that Medicare and Medicaid are not the driving factors behind health care costs, a focus on containing public sector health costs alone, as a public policy, will be ineffective.
Medicaid is the nation's largest health insurance program, providing necessary care for one in every six people. It is the safety net for children in poverty, for aging parents and grandparents needing long-term care, for those with disabilities, and for other vulnerable people. It helps pay the bills for two-thirds of the 1.4 million people in nursing homes.26
Medicaid spending grew by about a third between 2000 and 2003. Much of this growth, however, reflects a shift from private to public spending, not additional dollars being spent on health care overall.27 As many employers drop health insurance—or it becomes too expensive for employees to pay—people turn to Medicaid as a last resort.
There are ways to make Medicaid more efficient and reduce costs, but simply cutting federal spending only shifts the burden to the states or increases the amount of uncompensated care among doctors, hospitals, and providers of other medical services. These costs would inevitably be shifted to employers and employees as higher premiums. The solution lies not in shifting costs, but in taking a long-range view and attacking the problem at its source: our health care system. After all, the growth in Medicaid spending is also a result of costs not unique to Medicaid, such as rising prescription drug and hospital costs.
Given that Medicare and Medicaid are not the driving factors behind rising health care costs, a focus on containing public-sector health costs alone, as a public policy, will be ineffective. Moreover, Medicare's successes in containing costs can be broadened to the health care system as a whole. But that, of course, requires a systemic approach that recognizes the need for comprehensive reform.
Overall rising health care costs pose a serious threat to individuals and private enterprise—both of which struggle to pay for health care—and to the nation's long-term fiscal status, including the sustainability of Medicare and Medicaid. However, CBO's projection that between 2004 and 2030, federal spending for Social Security, Medicare, and Medicaid will grow from 8 percent of GDP to between 12 and 17 percent of GDP, presents an incomplete picture.28 Because Medicare and Medicaid are inextricably tied up with many of the same factors responsible for the growth in overall health care costs, it is necessary to address system-wide issues in order to succeed in containing public-sector health care costs. Simply put, the problem is not Medicare and Medicaid—it is our entire health care system, which requires reform and our immediate attention.