“Get the Feds Out of My Life! But Dang It, Hands Off My Medicare!”
Stanford University’s John E. Cogan has been writing brilliantly for decades about how federal entitlement spending has a nasty habit of growing a lot bigger and a lot faster than advocates originally predict. He continued this theme the other day (Wall Street Journal, September 5) in arguing against a proposal by Sen. Marco Rubio (R-FL) to finance a federal family leave program by requiring recipients to forgo their first three to six months of Social Security checks years down the road
Cogan acknowledged that the proposal is well-intentioned and meant to be a “small, carefully targeted benefit” which would not add to long-term public debt. “But history demonstrates,” he warned, “that is how costly entitlement programs begin.” And that for “more than 200 years, no entitlement program has been immune from the expansionary pressures that inexorably drive entitlement liberalizations, and there is no earthly reason to think that Mr. Rubio’s plan will prove the exception.”
I must admit I was reasonably enthused by the plan, at least until reading Cogan’s op-ed, though my aim here is not beating up on it. Rather, it’s to employ, and once again expand on, something I wrote early in the Obama administration about the explosive growth of Medicare from the 1960s onward, as those numbers provide perfect evidence of Cogan’s rule.
What possessed anyone to have any faith whatsoever, I first asked in 2009, in any of the projections then coming out of the White House and the rest of Washington about how much assorted health care proposals might eventually cost? Looking further back, what might otherwise smart people – maybe even brilliant ones – have said about Medicare’s future costs back in the 1960s when it got started?
Let’s start three years prior to its 1965 adoption, with what employees and employers were predicted to pay for Medicare via increased payroll taxes. In a Newsweek column in April 1962, columnist Kenneth Crawford reported that Medicare would be financed initially by a one-fourth of 1 percent increase in the Social Security payroll tax, shared equally by employees and employers – meaning that each would ante up one-eighth of 1 percent more.
A year later, the chief actuary for the Social Security Administration, Robert Myers, acknowledged that if hospital costs continued to rise as they had, the combined payroll tax for funding Medicare would total a full 1 percent by the early 1980s. That is, 1 percent instead of the half of 1 percent that Medicare partisans had come to estimate would be adequate instead of the quarter of 1 percent spoken of two years earlier in 1963.
But it took, not upwards of two decades, but a grand total of two years for the full 1 percent to come about, when President Johnson signed Medicare legislation in 1965.
Still, according to Steve Hayward and Erik Peterson, writing in Reason magazine in 1993, framers of the program had assumed that a 1 percent tax would be sufficient through 1990, aided by only slight increases in the taxable income base.
Yet by the time Hayward and Peterson wrote, the combined Medicare portion of payroll taxes had already grown to 2.9 percent and (with a caveat) has been there since. This is a disparity of 290 percent over Medicare’s original payroll tax. It’s more than 1,100 percent increase over the one-quarter of one percent combined payroll tax presumed in Newsweek in 1962.
As for taxable income bases, officials just missed again. What originally had been $6,600 had grown, by 1993, to $135,000.
So much for payroll taxes for the most part. What about total Medicare spending?
Medicare cost $3 billion in 1966. That was it, total. The House Ways and Means Committee at the time estimated it would cost only $12 billion in 1990, a projection that took the committee’s best guess about inflation into account. Sure, inflation proved steeper than most anyone likely feared at the time. Still, Medicare wound up costing $107 billion in 1990, which was 890 percent more than predicted a short generation earlier.
Where might Medicare numbers have stood, two years after the 2006 start of Medicare Part D, the prescription drug benefit? Two quick sets of numbers:
Compared to $3 billion in 1966 and $107 billion in 1990, total Medicare benefits in 2008 came to $462 billion.
And while the Part A payroll tax had held steady for an extended period at a combined 2.9 percent, it came to apply not just to the first $135,000 of income, but to all earned income.
As for the just mentioned caveat, the tax increased by 0.9 percent in 2013, albeit only for individuals earning more than $200,000 annually, or $250,000 for married couples filing jointly.
So where does Medicare spending stand now? According to the Henry J. Kaiser Family Foundation, Medicare payments in 2017 totaled $702 billion. Yes, of course, the nation’s population has grown by more than 125 million since 1965. Yes, there has been inflation, sometimes a lot of it. Yes, miraculous and expensive high-tech machines, devices, and procedures are invented ceaselessly. And while none of the numbers above compare apples to oranges, some possibly involve McIntoshes and Honey Crisps. All granted, but here’s the progression of Medicare spending, projected and actual since 1966: $3 billion to $12 billion to $107 billion to $462 billion to $702 billion.
Personally, let the record show I’ve been covered by Medicare for five years and have no complaints. Quite the opposite, though it did take me about two years to figure out some bureaucratic requirements. Putting matters politically, I sometimes think about the Tea Partier who, at a rally several years ago aimed at getting Washington OUT OF OUR LIVES! militantly held a placard demanding, “DON’T TOUCH MY MEDICARE!
As contradictions and seeming impossibilities go, I know of none better than that poster for spotlighting how supremely difficult it is, and increasingly will be, to get Medicare and other entitlements under sufficient control to spare the United States from truly scary depths of debt. Not that we have a choice but to somehow succeed.