MEDICARE FROM THE PERSPECTIVE OF GENERATIONAL ACCOUNTING: Achieving Generational Balance Via Medicare Cuts

Table 4 examines the permanent cuts in Medicare benefits that could be used to achieve generational balance by which we mean equalizing the lifetime net tax rates of current newborns and future generations. The table considers baseline (current) policy as well as three other policies: a) limiting government purchases after the turn of the century to the same real amount as that spent in 2000, b) reducing the annual growth rate of Medicare and Medicaid expenditures by 2 percentage points between now and 2003 and permitting real expenditures per beneficiary on these programs to grow after 2003 at the growth rate of labor productivity, and c) simultaneously engaging in policies a) and b). itat on

Policy Begins in 1998Baseline PolicyLimit Gov. Limit Medical Purchases Expenditures Limit Gov.Purchases and Medical Expenditures
Percentage cut68.052.831.011.1
Initial dollar cut239.0185.7108.939.1
Equalized Net Tax Rate30.129.831.431.1
Policy Begins in 2003
Percentage cut77.660.336.813.2
Initial dollar cut299.1232.4141.951.0
Equalized Net Tax Rate30.329.931.531.1
Policy Begins in 2016
Percentage cut111.386.555.519.9
Initial dollar cut828.5643.7413.1148.4
Equalized Net Tax Rate31.030.531.831.2

The table also considers initiating the cuts in Medicare at three different dates: 1998, 2003, and 2016.

The table shows the requisite permanent percentage cut in Medicare benefits needed to achieve generational balance given the policy in place and the start date for the cut. It also shows the absolute Medicare spending cut in billions of 1995 dollars in the first year the policy is initiated. Finally, the table shows the common lifetime net tax rate that will face future and newborn generations once the specified policy is enacted.