SOCIAL SECURITY AND MEDICARE:
THE IMPENDING FISCAL CHALLENGE

Although Social Security and the solvency of its trust fund have received much attention, Medicare poses an even greater budget challenge as healthcare costs rise faster than growth in the economy.

Craig Hakkio, senior vice president and director of research at the Federal Reserve Bank of Kansas City, and Elisha Wiseman, a research associate, provide a framework for understanding the nature of the challenges posed by the two programs in “Social Security and Medicare: The Impending Fiscal Challenge.” The article is featured in the first quarter edition of the Bank’s Economic Review.

Combined, Medicare and Social Security currently amount to about 6 percent of the nation’s Gross Domestic Product. With the aging of the baby boom generation and increases in healthcare costs, spending on Medicare and Social Security programs is expected to swell to 20 percent of GDP over the next 75 years. The authors estimate the government’s future obligations to the programs over that period is $35.6 trillion in present value terms – a figure significantly larger than the nation’s current federal debt.

In addition to examining the challenges facing both programs, the article also addresses the growing consequences of delaying any action to solve the problem. The already-large challenge will become larger over time because the divergence between promised benefits and dedicated revenues grows faster than the overall economy.  As a result, the authors conclude that “any viable solution is likely to involve changes in the Social Security and Medicare programs themselves, along with changes in other government spending and revenue.”

The full article is available on the Bank’s Web site at www.KansasCityFed.org.

###

Return to News & Events
Return to www.kansascityfed.org