Many observers have noted that Medicare expenditures will significantly outstrip projected revenues over the course of the next 25 years. This paper examines the economic and demographic assumptions behind forecasts of Medicare hospital insurance and supplementary medical insurance expenditures and revenues and analyzes various strategies for closing the impending gap. It is argued that the present forecasts already assume considerable success in controlling hospital costs and physician payments, making substantial further savings unlikely. Shifting more of the burden onto the elderly through increased cost sharing or higher premiums also will not solve the program's fiscal problems over the long term. The remaining alternative--imposing higher income or payroll taxes on the under-65 population--is also unlikely to be a welcome solution. The authors argue that, eventually, the nation must choose between some form of a two-tier system of benefits or a Canadian-style national health insurance system.
The paper describes the current fiscal problems of the United States showing that without significant changes in revenue and spending policies, the country is headed for a sovereign debt crisis similar to that afflicting countries in Southern Europe. Numerous committees and commissions have offered policy options that would stabilize the debt–GDP ratio in the long run. The proposals of the President's National Commission on Fiscal Responsibility and Reform and the Bipartisan Policy Center's Deficit Reduction Task Force are described in detail. Elected politicians have not been enthusiastic about the work of these bodies. Only the House has passed a budget that would stabilize the debt and that proposal is analyzed as is the president's response. The paper goes on to describe the Budget Control Act that was passed after the debt limit debate in the summer of 2011.
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