Mandatory Spending

Mandatory spending, which makes up over half of the federal budget, presents a looming crisis. This spending includes unemployment compensation, food stamps, agriculture subsidies as well as the three biggest entitlement programs: Medicare, Medicaid and Social Security. These three entitlement programs were not designed to support an aging population, cannot absorb rising costs in health care and are premised on flawed and unrealistic political promises.

Entitlements face bankruptcy because they are premised on government monopoly of service. Medicare was not designed and has not been required to account for an evolving environment. Medicaid inserts the federal government into state welfare spending, ignoring the disparate needs of different states and incentivizing wasteful spending states themselves cannot sustain.  Saving Medicaid requires reforming it to allow state control of its need-based programs.

The increasing costs of health care cannot be addressed within the current confines of state-sponsored monopolies. As long as Medicare is isolated from competition, patients will see costs continue to rise. The recent health care law only exacerbates the exploding cost of health care, restricting innovation in health services and promulgating government monopolization of care.

The path forward in Medicare reform is to bring the benefits of competition to seniors—the program should look more like Medicare Part D/Medicare Advantage and less like traditional Medicare Parts A and B which now cost many times what they were projected to in 1965 when Medicare was created. Medicare Part D has come in at less than half the anticipated cost to taxpayers, and the integrated Medicare Advantage delivery option should use market forces to drive down long-run Medicare costs.

Likewise, social security was not designed to evolve with the population it was created to serve. When the program was created in 1950, there were 3.5 million beneficiaries. Today, there are over 50 million. The demographic reality of an aging population can only be faced with serious changes made to the current system. A system that encourages and allows for personal savings accounts should be considered before the insolvency of the Social Security Trust Fund becomes an imminent and intransigent reality.

TAGS: Spending