A primer on Medicare, Medicaid and Social Security

May 4, 2011
What’s the difference between Medicare and Medicaid?

Medicare is a health insurance program managed by the U.S. government for people 65 or older and for younger people with certain disabilities. More than 47 million people are covered by Medicare. Medicaid is a joint federal-state health program for certain categories of people with lower incomes such as children, pregnant women and those with disabilities. More than 50 million people are now estimated to be on Medicaid, and 100 million Americans are forecast to be on Medicaid by 2021.

Who gets Social Security?

Signed into law in 1935 by President Franklin D. Roosevelt during the Great Depression. Social Security collects money through payroll taxes and distributes it to eligible retired workers, eligible disabled workers and beneficiaries of both groups. In March, 51.7 million people received Social Security benefits. The average payout was $1,077 a month.

What do these programs have to do with the debate over the federal budget?

Spending on Medicare, Medicaid and Social Security has been rising dramatically, consuming an increasingly larger share of the federal budget; if left unchecked, the programs will become an even bigger financial burden. Currently, $2 out of every $5 in the budget goes to these insurance programs.

What happens if we don’t do anything?

By 2020, spending on Medicare, Medicaid and Social Security and interest on the debt will usurp much of the revenue from federal taxes, leaving other government expenditures such as education and transportation to be paid for with borrowed funds, according to a report by the nonpartisan Government Accountability Office. Medicare is expected to run out of money by 2029, according to a Medicare Trustees report released last year. Social Security paid out more in benefits than it received from payroll taxes for the first time last year — meaning the program will now begin drawing down savings in its trust fund. That money is forecast to be drained by 2037, when the program will have only enough revenue to pay 75 percent of scheduled benefits. Social Security, however, will begin to affect the broader budget picture long before then, as Congress is forced to raise taxes or cut spending to pay off its debt to the trust fund and cover the full cost of benefits.

What are the solutionson the table for Medicare?

House Budget Chairman Paul Ryan (R-Wis.) proposes to end Medicare as an open-ended entitlement starting in 2022, converting it into a system of premium supports that would pay part of the cost of private insurance for new retirees. President Obama and congressional Democrats have attacked this plan, citing a Congressional Budget Office analysis that it would sharply increase health costs for most people 65 or older.

For Medicaid?

Republicans have proposed turning Medicaid into a program that provides block grants to states and capping the federal contribution to the program at the growth rate of inflation. Because health-care costs are expected to grow far faster than inflation, this is estimated to save the country a significant amount of money. But opponents say it would force states to dramatically scale back the program, pushing as many as 11 million people off coverage by 2021.

What about proposals to change Social Security?

Neither Obama nor House Republicans have been willing to embrace significant reforms to the program. But the Senate’s bipartisan “Gang of Six” is discussing a plan to make Social Security solvent. In a recent town hall, Obama referenced raising the maximum taxable earnings limit, the income over which you will not be subject to Social Security taxes. The limit is now set at $106,800.

Haven’t we tried to make reforms to Social Security before?

In 2005, Democrats blocked President George W. Bush’s effort to partly privatize Social Security, in part because Bush had not convinced the public of the increasing fiscal problem the program presented. The last major change to Social Security happened in 1984, when President Ronald Reagan raised the Social Security tax rate (the percentage of income under the maximum taxable earnings limit that is subject to tax) and the full retirement age from 65 to 67.

How does what the U.S. government spends on these programs compare with what other countries spend?

When looking at public spending on old-age and survivors’ pensions in high-income countries, a GAO report found that total government health-care spending in the United States is somewhere in the middle. In the United States, spending on public health was 6.9 percent of gross domestic product in 2005, while it was 8.9 percent in France, 8.2 percent in Germany and 7.2 percent in the United Kingdom. On the lower end of the spectrum, Australia spent 6.4 percent of GDP on health care and Canada spent 6.9 percent. Some of the countries that spend more have had a demographic shift to an older population sooner than the United States.

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