Budget Ducks Big Benefit Cuts

February 10, 2012

Wall Street Journal

By DAMIAN PALETTA

President Barack Obama's budget proposal Monday will offer several measures to trim the federal deficit in the next 10 years. But it would leave largely unchanged the biggest drivers of future government spending: the Medicare, Medicaid and Social Security programs that are expanding rapidly as the baby boom turns into a senior boom.

Calling for major changes in the popular programs would be politically treacherous in an election year because of fierce opposition from seniors, who vote in large numbers. But budget experts of both parties agree the programs' growth must be curbed at some point or they will swamp the budget.

In 2011, the U.S. government spent $1.56 trillion on Medicare, Medicaid and Social Security benefits—more than $4 billion a day—accounting for 43% of all federal spending. In 2022, if no changes are made, the government will spend just under $3 trillion on these programs, or 54% of the expected federal budget, according to the Congressional Budget Office.

Covering these costs would require large increases in taxes or government borrowing, or cuts in other programs. Reducing these costs would mean benefit cuts.

"Although we have been warned about such developments for many years, the time when projections become reality is coming closer," Federal Reserve Chairman Ben Bernanke told Congress on Tuesday, referring to Medicare and Medicaid.

The White House opened the door last summer to changes in some of the programs, but only in combination with tax increases as part of a deficit-reduction deal. Republicans balked at that.

The math is inescapable as the nation's 77 million baby boomers grow older and health-care costs rise. Last year, 2.8 million Americans born in 1946—the leading edge of the boom—turned 65 and qualified for Medicare, joining roughly 47 million beneficiaries already in the program, according to census data. This year, as members of that group turn 66, they will qualify for full Social Security retirement benefits. Close to 10,000 Americans turn 65 every day, according to different estimates.

Meantime, health-care costs are growing faster than inflation or the economy, and people are living longer.

"You can't fight the demographics," said Erskine Bowles, the Clinton administration chief of staff who co-headed the White House's 2010 panel on deficit reduction, in an interview. "Not only is the number of people eligible using Medicare and Medicaid going up, the cost of the programs is growing at a rate that's simply not sustainable."

Medicare is the government-run health program for seniors and the disabled. Medicaid is generally used by low-income Americans, but a growing share of Medicaid dollars is going to nursing-home care for seniors.

Mr. Obama's proposal Monday is expected to closely resemble his September deficit-reduction plan that called for trimming close to $320 billion in spending over 10 years through changes to Medicare and Medicaid, such as levying bigger premiums on high earners. The administration says the health-care overhaul will yield further savings, but Republicans disagree.

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