The Trump administration has launched a holy war against the rampant waste, fraud and abuse of taxpayers’ money. And, given the corruption uncovered thus far, the administration deserves enormous credit.
Nowhere is this campaign more important than in the giant federal health programs, Medicare and Medicaid, which account for roughly $2 trillion in federal spending annually. Gustav Chiarello, assistant secretary for final resources at the U.S. Department of Health and Human Services, estimates that the average annual losses to waste and fraud range between $100 and $200 billion annually. While the Medicare trust fund — the account that pays for hospital services — faces insolvency in 2033, Dr. Mehmet Oz, administrator of the Centers for Medicare and Medicaid Services (CMS), has indicated that the government “can double the life of the Medicare trust fund if we fix fraud.”
That’s wishful thinking. Eliminating waste, fraud, and abuse will not ensure long-term solvency of the federal entitlement programs, eliminate deficits, and balance the federal budget.
The reason: Even the hoped for savings from Trump’s crackdown will be swamped by the massive expansion of federal entitlement spending, especially Medicare. Medicare spending will more than double, from $1.2 trillion to as much as $2.4 trillion, over the next decade. The Congressional Budget Office says that among all federal health programs, the “primary driver” of the biggest spending increases is Medicare. Today, it accounts for about half of all federal health spending, but it will account for more than two-thirds of all such spending by 2054.
Medicare spending is not subject to annual budget appropriations; it is on autopilot, it is mandatory, and it generates deficits and debt. Former Congressional Budget Office Director Douglas Holtz-Eakin reported that since the program’s inception in 1966, Medicare spending alone has been responsible for 34 percent of all the “outstanding” federal debt up to 2019.
The 2024 Medicare trustees report revealed that Medicare’s Supplementary Medical Insurance (Part B and Part D) required a direct $453.4 billion transfer from the federal treasury to cover the combined health benefit and drug spending for the fiscal year 2023 alone.
Taxpayers’ obligations to cover these program costs mount year by year. Last year, the Medicare trustees reported that the program’s unfunded obligations — the amount required to pay for Medicare’s promised benefits in today’s dollars — will total $60.3 trillion over the next 75 years, or about $174,000 per person. In short, Gen Z gets hit by a fiscal freight train.
Democrats and Republicans have studiously ignored this festering fiscal problem for years. They promise to deal with it later, claim they have “bigger fish to fry,” or resort to some other transparently lame excuse. Worse, self-styled congressional “progressives” pushing “Medicare for All” bills would happily pour proverbial gasoline on the fiscal fires by radically increasing federal entitlement spending, deficits, and unsupportable debt.
When a few statesmen periodically peep up to offer common-sense Medicare reforms, they are assailed by shameless demagogues who scare seniors silly to score short-term political points at the long-term expense of Medicare patients and taxpayers -– a tactic dubbed by The Washington Post and others as “Mediscare.”
Lawmakers need to take a deep breath and get serious. As The Heritage Foundation and others have long argued, Congress should close several crucial benefit gaps, especially the lack of protection from the financial devastation of catastrophic illness in traditional Medicare.
But America’s population is aging fast. The number of people aged 65 and older is expected to grow from about 60 million to more than 80 million over the next 20 years, even as the number of workers supporting each beneficiary continues to drop. Per capita health costs will continue to increase faster than inflation driven by medical breakthroughs and advanced yet expensive new medical technologies.
So, given the reality of rapidly rising Medicare spending, the key task is to get the best value for Medicare dollars, while slowing spending growth by harnessing cost-cutting market incentives that will benefit both seniors and taxpayers.
In short, even while the Trump administration intensifies its laudable crackdown on Medicare waste, fraud, and abuse, Washington policymakers need do more and inject a big dose of real market competition into the program and realign the economic incentives to ensure greater efficiency in care delivery.
Working with the White House, Congress can eliminate tens of billions of dollars of waste generated by outdated policies that preserve or promote perverse incentives. For starters, these would include the flawed Medicare Advantage payment system, silly restrictions on more efficient physician-owned hospitals, excessive bureaucratic reporting requirements, and disparate Medicare payments for the same services delivered in hospitals and doctors’ offices. For example, “site neutrality” in Medicare payment — paying the same amount for the same service regardless of where it is delivered — alone would save the program $157 billion over 10 years.
Meanwhile, Congress should take measured steps to transform the entire Medicare program into a streamlined, fully transparent, competitive system driven by patient choice and modelled on the popular and successful Federal Employees Health Benefits Program, a robust consumer choice system, which serves approximately 8 million federal workers and retirees. According to Holtz-Eakin, such a fully competitive Medicare program could save $2.2 trillion over 10 years, including $333 billion in reduced costs for Medicare beneficiaries.
Washington policymakers can no longer ignore the mounting challenge of federal entitlements, especially Medicare. Both parties must drop the posturing. They must fix broken incentives and slow the program’s unsustainable growth. This requires real statesmanship, eschewing low-minded demagoguery and rising above short-term partisan politics. Lawmakers can do this, and all well-meaning citizens should encourage them. Current and future generations of patients and taxpayers alike depend on it.
