Entitlement spending grabbed headlines last week, with the news that Medicare’s Hospital Insurance Trust Fund will become insolvent by 2026, three years earlier than previously projected. Social Security, meanwhile, is expected to remain solvent until 2034, keeping in line with previous projections. Driving the insolvency is the unsustainable spending that has come to characterize America’s entitlement programs. Over the coming decade, the government will have to borrow $2.8 trillion dollars to keep these programs afloat.
None of this should come as a surprise to anyone. This is not the first wake-up call to emanate from a Medicare Trustee’s Report — in 2011, they predicted the trust fund could have become insolvent by 2016 — and it won’t be the last. Despite this, the folks Washington will continue to abdicate responsibility, try to pass the buck to their political rivals, and refuse to cut a single cent from our bloated entitlement programs, or raise revenue to pay for them. All the while, they will keep condoning trillion dollar deficits without even attempting to address the hundreds of billions of dollars we lose annually in waste, duplication and fraud. No wonder we are where we are.
{mosads}In 2016, Medicare alone comprised around 15 percent of federal spending, while Social Security made up another 24 percent. Toss in Medicaid, CHIP, and ObamaCare subsidies, and you’ve got half of the federal budget. In other words, a majority of entitlement spending goes to health care, which means our entitlement problem is really health spending problem. So the key to solving our entitlement problem — and ultimately, our debt problem — is to fix the way we pay for health care in America. The best way to do this is with a combination of competition and transparency currently absent from health care.
Before we turn to the problem, let’s consider a few facts. In 2020, the average couple turning 65 will have paid about $160,000 in Medicare taxes over the course of their working life, but will receive a $486,000 payout. Now, certain economists will be quick to point out the problems with a direct comparison like this, but any hardworking American who’s had to run a household or balance a checkbook can see the problem here. With payouts like these, it’s no wonder that Medicare spending is expected to grow 28 percent from 2017 to 2027, consuming 4.7 percent of our GDP. This is bad enough by itself, but gets worse when you consider the fact that Medicare alone wasted $60 billion on improper payments in 2016. Our entitlement spending isn’t just reckless — it’s going to the wrong people!
The lethal combination of poor leadership and reckless entitlement spending has put us on the road to disaster. If we don’t take action now, in addition to bankrupt social programs, we’ll soon be faced with even higher interest rates and decreased economic growth — not to mention an impossible political situation when the next generation realizes that the retirement benefits they assumed were coming their way will have been cut by 21 percent. Historically, we would expect a country in our position to be faced with hyperinflation, a marked decrease in the standard of living, and mass emigration. We’re hanging on by a thread. Something must be done.
As I’ve mentioned, one of the easiest ways to extend the life of our entitlement programs is to demand net price transparency in health care. Studies show that up to a third of what we spend on health care in America is wasted. Think about that — if you were a shareholder in a company that wasted a third of what it spent annually, you wouldn’t sit quietly and trust that the problem would resolve itself. You’d demand answers and expect to see results, or else you’d sell your stock. It’s time for Americans to start demanding answers.
The reason we waste a third of what we spend on health care is the same reason Medicare doles out billions of dollars of improper payments annually: there’s no transparency on price or quality. Our health care system is so clouded with insurance, government subsidies, and profit-seeking middlemen, that no one knows the real price of any given health service.
With prices this obscured, there’s no incentive to shop around. And as long as patients aren’t shopping for value, providers will never have an incentive to lower prices. It’s a vicious cycle that keeps patients in the dark and prices high — but we can escape it. By mandating that all health care providers publish their net prices — before any rebates, discounts or adjustments — we can restore real markets to health care. This will shine a light on the shady billing practices that currently define our health care system, and force providers to compete for business, driving down prices across the board.
Mandating price transparency will not singlehandedly solve Medicare’s problems, but it’s a big first step. If transparency eliminates even a third of what Medicare spends on improper payments, our country saves $20 billion. That’s $20 billion that can be put to better use, increasing federal revenues while decreasing federal expenditures.
Principled leaders need to stand up, implement and enforce price transparency, and follow it up with other smart regulation. If they do that, we can save Medicare before it’s too late, and put America’s entitlement programs back on track.
Dr. Tom Coburn represented Oklahoma in the U.S. Senate from 2005-2015 and is presently the Nick Ohnell Fellow at the nonprofit Manhattan Institute.