Last year, the oldest members of the baby-boom generation turned 65, leading the demographic bulge that will come to dominate the nation’s entitlement programs, federal budgets, and political debates for years to come. Every day until 2030, 10,000 Americans will age into Medicare and Social Security, even as the proportion of young working people paying into the programs shrinks.
The graying of the population presents some difficult math, and it is complicated even more by the economic downturn’s hit on income-based entitlement programs, including Medicaid and food stamps, that have seen their enrollments surge. The Congressional Budget Office estimates that Social Security will grow from 5 percent of gross domestic product to 6.2 percent in 25 years, while Medicare will rise from 3.7 percent of GDP to 6 percent. Recent updates from the Medicare and Social Security trustees estimate that the retirement fund will be insolvent in 2033 and that Medicare will go broke even sooner; the hospital trust fund is expected to start owing more than it collects in 2024.
Mitt Romney sees those numbers and concludes that Washington must overhaul the entitlement programs to prevent a fiscal calamity. Taking his lead from House Budget Committee Chairman Paul Ryan, R-Wis., the presumptive GOP nominee proposes big changes in Medicare and Medicaid that he says will improve the budget picture without robbing the country of a crucial safety net.
President Obama’s reform proposals sidestep sweeping change. He would retain the basic structure of the entitlement programs but hope, in the case of Medicare, that changes already enacted will reduce health care costs. His 2010 Affordable Care Act actually expands benefits for seniors and offers tax credits to middle-income Americans to buy health insurance. But it also commences a series of behind-the-scenes initiatives designed to hold down spending.
On their face, the two candidates’ visions for entitlement reform look quite different. And they would likely feel very different for beneficiaries. But both are based on the notion that Medicare spending, at least, can no longer be open-ended. Obama plans to use government oversight to enforce new budget targets in the program. Romney would use consumer choice and market pressure to achieve quite similar goals.
“The on-the-ground differences between the two approaches are quite profound,” said James Capretta, a fellow at the Ethics and Public Policy Center who focuses on entitlement policy. “What happens as a result of the two approaches of moving Medicare toward a more moderated spending rate is likely to be really different.”
Both candidates are mindful of the political risks involved in suggesting changes to entitlement programs, particularly those affecting the elderly. Regardless of their political leanings, older Americans are typically wary of changes to the benefits they have come to rely on—or expect to receive when they retire. A recent poll by the Kaiser Family Foundation, which tracks attitudes on health care issues, found that 70 percent of seniors—including 53 percent of Republicans—would reject any change to Medicare’s benefit structure. They are similarly unenthusiastic about cuts to Social Security.
Democrats from Obama on down the ballot hope to win in November by decrying the Ryan budget as “ending Medicare as we know it.” (Indeed, Rep. Steve Israel of New York, chairman of the Democratic Congressional Campaign Committee, has said that the top three issues in the 2012 election will be “Medicare, Medicare, Medicare.”) Meanwhile, Republicans are fond of pointing out that Obama’s health care law cuts Medicare spending by $500 billion and gives an unelected panel of experts the authority to change payments to doctors.
It’s worth noting that, despite the attacks and counterattacks, neither candidate’s plan completely addresses the demographic pressure facing entitlements. On Social Security, Obama and Romney have remained fuzzy, despite widespread agreement among experts that the long-term viability of the program will likely require reduced benefits and higher taxes for some recipients, as well as increases in the eligibility age. When it comes to Medicare, both men have focused their policies on reducing spending per beneficiary, a strategy that will lower costs but probably not enough to compensate for all of the program’s coming enrollees.
The president has already chosen his main path for entitlement reform. It’s called the Affordable Care Act. The health care law included Medicare and Medicaid reforms that Obama believes will transform the medical system, driving down spending without reducing benefits to seniors. The concept behind the law is that by making the health care system nationwide more efficient, the government can moderate spending on seniors, whose consumption of health care has consistently risen faster than the growth of the economy, even before their numbers swelled.
This article appears in the June 23, 2012 edition of National Journal Magazine.