Medicare in the USA

Published January 1, 2009

European Papers on the New Welfare, No. 11

1. Introduction

The election of former Illinois Senator Barack Obama as the next president of the United States has pushed health-care back to the top of the national agenda, although the exact timing of a legislative initiative remains unclear.

Most of the policy attention in the short-term will necessarily focus on how to pull the U.S. out of the most precarious financial crisis in many decades. And it is possible that preoccupation with restoring economic growth could delay consideration of a health-care plan for several months or even years. However, key players in the new Administration are eager to move quickly on health-care, regardless of other economic conditions.

The primary focus of American health-care policy debates in recent years has been over what to do about the nation’s 46 million uninsured residents. Mr. Obama considers that to be the number one failing of current U.S. health-care policy. His campaign plan, released as a white paper in mid-2007, proposed major revisions in the regulatory structure for health insurance for the working age (under age 65) population and their families. He would also provide substantial new subsidies for households with incomes below 400% of the poverty line to make insurance more affordable. But the Obama plan does very little by way of reform of Medicare, the insurance program already in place for those citizens age 65 and older, as well as for the disabled.

That is not likely to be a sustainable position over the long-run. Left unchanged, Medicare spending will push the federal budget into sustained deficits that could spiral out of control. Many economists consider Medicare’s rising costs to be the number one threat to the longterm strength of the U.S. economy.

It is also not yet well understood among health-care policy analysts that Medicare provides a serious disincentive to continued work past age 65. Thus, Medicare reform needs to be considered not only to make the budgetary outlook more favorable, but also to take steps to address the issue of an aging society and the need to encourage work for as long as possible past age 65.

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