Is Government-Funded Health Care Sustainable?

It will cost almost $1½ dollars to spend $1 on Medicare:

This paper uses a life cycle model of labor supply, saving, and longevity improvement to measure the balanced-budget impact of continued growth in the Medicare and Medicaid programs. The model predicts that top marginal tax rates could rise to 70 percent by 2060, depending on the progressivity of future tax changes. The deadweight loss of the tax system is greater when the financing is more progressive. If the share of taxes paid by high-income taxpayers remains the same, the efficiency cost of raising the revenue needed to finance the additional health spending is $1.48 per dollar of revenue collected, and GDP declines (relative to trend) by 11 percent. A proportional payroll tax has a lower efficiency cost (41 cents per dollar of revenue averaged over all tax hikes, a 5 percent drop in GDP) but more than doubles the share of the tax burden borne by lower income taxpayers. (Emphasis added)

From an NBER Working Paper by Katherine Baicker and Jonathan S. Skinner.

Comments (9)

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  1. Bruce says:

    Okay. We’re going off a cliff. What else is new?

  2. Ken says:

    70 percent marginal tax rate? They will never collect it.

  3. Jeff says:

    Of course it’s not sustainable. Didn’t we already know that?

  4. Devon Herrick says:

    When I speak to groups, I often tell the audience that we could theoretically spend our entire GPD on health care at some point in the future; but that would leave no money left for housing, transportation, food or other types of consumption. The difference between consumers controlling their own health care resources and the government doing it for them is consumers can decide when a marginal benefit (say a year of additional poor-quality life at age 90) is not worth the cost (say, $250,000 in additional lifetime spending).

    However, when the government makes promises to individual in return for a payroll deduction, the recipients cannot (will not) make these adjustments; and taxes will inevitably rise.

  5. Stephen C. says:

    Of course it’s not sustainable.

  6. Joe S. says:

    This is like Wisconsin writ large. We’ve made promises we were unwilling to fund and now we can’t pay for them.

  7. Brian Williams. says:

    To paraphrase Bernie Madoff (who knows a thing or two about wobbly ventures like Medicare), “I don’t like to see this type of activity. Eventually, if this bubble bursts, I think that people will be left holding the bag. I don’t want to be around when that happens.”

  8. Art says:

    Healthcare is 18% of GDP [$2.7 trillion] and growing and does not cover 40 million people; while the rest of the world has more doctors per citizens, covers them all at a rate of half their GDP’s [9% on average] and have better health statistics than we do [37th in the World]. What they don’t have is $900 billion [6% of our GDP] spent on waste, fraud and abuse. That amounts to the cost of “our” healthcare reform and would help if cut seriously, but it wouldn’t provide a single new doc or nurse, and people care for people-not silly unworkable ideas!

  9. Linda Gorman says:


    Are you saying that 40 million people in the US do not get needed health care? Or simply that they are not signed up for formal insurance plans? The difference is large.

    And the 37th in the world claim comes from a discredited WHO survey.