SOCIAL POLICY| 455we stopped taking payroll taxes and allowed people to put the money into
private accounts, there wouldn’t be any money to pay for today’s retirees.
These transition costs—having to cover the retirement of all current retir-
ees and everyone else who has paid into the system for a substantial num-
ber of years—are estimated to be $7 to 8 trillion! A second criticism of these
plans is that investing in the stock market is fi ne as a supplement to Social
Security, but everyone needs that dependable check, and investing in the
stock market is too risky (as the collapse of the stock market in 2008–09
reminded us).These issues are not likely to be resolved anytime soon, which illustrates
that politics is confl ictual. Social Security reform can pit one generation against
another or wealthy people against poor people. The stakes in Social Security are
extremely high because it is the most popular and visible social program, which
makes it all the more diffi cult to handle.HEALTH CARE
Hea lth ca re policy has seemed as diffi cult to reform as Socia l Security. Ever y pres-
ident since Theodore Roosevelt who attempted comprehensive reform failed until
President Obama’s success in 2010. In order to understand the current issues we
have to understand how health care is provided in the United States and what fac-
tors it addresses: the nation’s aging population, health care costs that are rising
faster than infl ation, and the more than 46 million Americans who have no health
insurance.^42 Americans spend more on health care than citizens of any other
nation in the world—more than $2.6 trillion, or 17.9 percent of GDP, compared to
9.5 percent on average for citizens of other developed countries.
The current system combines government spending (Medicare and Medicaid),
private insurance, charity (donated care), and out-of-pocket payments. Medicare,
the federal health care program for retired people, covers most health care costs
and about 75 percent of the cost of prescription drugs.
The other government health care program is Medicaid, which serves poor
people who otherwise would have no health care. Medicaid is administered through
the states with substantial funding from the federal government. Although Med-
icaid is an entitlement, states have considerable discretion over the program.
Each state (1) establishes its own eligibility standards; (2) determines the type,
amount, duration, and scope of services; (3) sets the rate of payment for services;
and (4) administers its own program.^43 (See Nuts and Bolts 14.4.)
The variation in state Medicaid coverage means that some states cover virtu-
ally all poor people and others cover as few as one-third of those in need. Overall,
nearly 40 million Americans receive health care through Medicaid at a projected
cost of $395 billion in 2013 ($276 by the national government and $119 billion by
the states).^44 The federal government reimburses the states for about 60 percent
of the costs, but this percentage varies by the relative total personal income in
the states (that is poorer states get more of their costs reimbursed than wealthier
states).^45 Like Medicare, Medicaid faces growing budgetary pressures in the com-
ing years. An increasing share of Medicaid’s costs goes toward long-term nursing
home care for the indigent elderly, which continues to grow as the population ages.
The long-term fi scal problems of Medicare and Medicaid are severe. In fact,
they dwarf Social Security’s problems. The 2010 Medicare Trustees report esti-
mates that Social Security’s unfunded liabilities through 2085, or the amount
of additional money (beyond the current payroll tax) required to fund all the
Medicare The federal health care
plan created in 1965 that provides
coverage for retired Americans for
hospital care (Part A), medical care
(Part B), and prescription drugs
(Part D).
Medicaid An entitlement program
funded by the federal and state gov-
ernments that provides health care
coverage for low-income Americans
who would otherwise be unable to
afford health care.
entitlement Any federal gov-
ernment program that provides
benefi ts to Americans who meet
requirements specifi ed by law.