Talking Points

  • Spending on the three largest entitlement programs—Social Security, Medicare, and Medicaid—already consumes 45 percent of the federal budget and, together with Obamacare, will devour more than half of the entire budget in just one decade without reform.
  • The growth in entitlements spending is steadily undermining other national priorities, especially national defense.
  • Social Security and Medicare projected deficits are large and growing, and raising taxes to pay for this spending would require doubling tax rates even for the lowest income brackets.
  • Entitlement programs are the key drivers of deficits and debt, threatening the economic future of younger generations who face an individual debt burden of $220,000 and slower economicgrowth.
  • We must transform the entitlement programs from unaffordable social insurance benefits for all regardless of need into a real insurance model that provides a durable safety net for seniors without bankrupting youngergenerations.

The Issue

Spending on the three largest entitlement programs—Social Security, Medicare, and Medicaid—already consumes 45 percent of the federal budget and, unless reformed, will devour more than half of the entire budget in just one decade. Spending on Social Security would increase from 4.9 percent of GDP in 2013 to 6.2 percent in 2038. Medicare and Medicaid spending is projected to grow from 3 percent of GDP in 2013 to 4.9 percent by 2038 for Medicare and from 1.7 percent of GDP in 2013 to 3.5 percent in 2038 for federal spending on Medicaid, CHIP (Children’s Health Insurance Program), and Obamacare’s exchange subsidies.

This spending tsunami is a major threat to limited government because entitlement spending increases automatically each year based on each program’s governing laws. Entitlements get the first call on tax revenues; other priorities, such as defense or national security, must make due with an increasingly smaller share of whatever is left. This supposedly “locked in” spending is steadily undermining other national priorities and threatens the economic future of younger generations who face an individual debt burden of $220,000.

Decades ago, Washington politicians promised baby boomers health and retirement benefits that we now cannot afford because they did not design the programs in a way that protected taxpayers from their ever-increasing costs. Now we are faced with the consequences of their neglect. Our national debt held by the public is three-quarters the size of the nation’s economic product and is growing rapidly. The Congressional Budget Office estimates that without fiscal restraint, public debt could exceed 100 percent of GDP by 2028, within less than one generation. Medicare ($36.2 trillion under the alternative scenario) and Social Security ($12.3 trillion) face almost $48.5 trillion in long-term unfunded obligations. We must begin now to address these shortfalls.

On top of the massive financing issues of the current entitlement programs, individual Americans and the economy at large now also face the burden of Obamacare. The Patient Protection and Affordable Care Act was enacted in 2010 and is expected to cost $1.8 trillion by 2023. Full implementation of its new entitlements began in 2014. The law expands Medicaid eligibility to any individual earning up to 138 percent of the federal poverty level ($15,856 in 2013) in any state that chooses to expand the program. This is projected to add 13 million additional Americans, a majority of whom will be childless adults, to the program by 2023 for a 10-year cost of over $700 billion. In addition, the law creates government-run, heavily regulated insurance exchanges in each state through which Washington can funnel subsidies we cannot afford at a 10-year cost of more than $1.1 trillion.

The moral challenge created by entitlement spending is undermining our democratic system as more Americans become dependent on the government and other priorities are automatically preempted. We must transform the entitlement programs away from unaffordable social insurance benefits for everyone regardless of need toward a real insurance model that provides a durable safety net for seniors without bankrupting younger generations. Individuals must also provide for more of their foreseeable retirement needs through personal savings and insurance. These steps will ensure a fiscally sustainable future and better stewardship for younger generations.


  1. Restore fiscal responsibility and protect Americans from unneeded tax hikes. Many opponents of fundamental entitlement reform claim that raising taxes is a feasible approach to solving the entitlement crisis. This assessment is simply wrong. Projected deficits for Social Security and Medicare are large and growing, and raising taxes to pay for this spending would require doubling tax rates even for the lowest income brackets. Such a policy would deal a devastating blow to the economy. The long-term obligations from Social Security and Medicare require more than modest changes in the current system. We should provide a durable safety net for today’s Americans while preserving the same opportunity and economic freedom they enjoyed for their children and grandchildren.
  2. Restore Social Security to its original purpose as a safeguard against seniors’ living in poverty. By transitioning to a flat benefit and targeting benefits to those who are most in need, Social Security can fulfill its original purpose as an insurance against senior poverty without placing unbearable financial burdens on younger generations. Americans are living longer and spending more years in retirement than ever before. By gradually increasing the retirement age and then indexing it to life expectancy, we can create a more reasonable balance between a person’s working years and the years he or she receives Social Security benefits. Coupled with tax reform, this would give Americans greater incentives to save for their own retirement and work beyond the current retirement age, further alleviating the burden on a strained system.
  3. Structurally reform Medicare. Medicare should be transformed from its current open-ended and unsustainable defined-benefit structure to a premium-support system. Under this model, seniors would receive a fixed government contribution, adjusted to reflect income status, to purchase a private health care plan of their choosing. This would allow for proper budgeting and ensure a high-quality, dependable health benefit for seniors. Premium support would allow seniors to apply their government contribution to the health plan that works best for them, just as millions of federal employees and retirees are able to do today in the Federal Employees Health Benefits Program (FEHBP). Competition among insurers would lead to enhanced coverage options that respond to consumer demand, resulting in better quality and access to care at lower cost.
  4. Reform Medicaid to meet the needs of the most vulnerable more effectively. The healthy low-income adults and children enrolled in Medicaid today should be moved out of the failing program and into private insurance of their choosing with the help of federal tax relief and additional subsidies. For the disabled and elderly Medicaid population, the federal allotment to states should be capped, and states should be given greater flexibility and authority to pursue innovative approaches to administering and managing the program to meet the needs of the population in each state more appropriately.
  5. Reform the budget process to ensure that entitlement programs are fiscally sustainable. Social Security, Medicare, and Medicaid are not subject to annual debate in Congress as part of the federal budget process. As the baby-boomer generation becomes eligible for Medicare and Social Security and Medicaid expands under Obamacare, costs are projected to increase to alarmingly high levels. Congress should set a 30-year budget for each major entitlement, with an obligation to adjust the programs as necessary to keep them within budget and protected from insolvency while ensuring that low-income Americans are protected from poverty. Congress should also reveal the projected cost of any proposed policy or funding level for each significant federal program over a long-term horizon of 75 years so that lawmakers avert mounting long-term challenges.
  6. Repeal Obamacare in its entirety. The law’s entitlements spend money that our nation does not have and foster more dependence on government for health care. This onerous law should be completely repealed so that patient-centered, market-based health care reform can be implemented.

Facts & Figures

  • Total means-tested welfare spending (cash, food, housing, medical care, and social services for the poor) has increased sixteenfold since the beginning of Lyndon Johnson’s War on Poverty in 1964. Though the current trend is unsustainable, the Obama Administration plans to increase future welfare spending rather than enact true policy reforms.
  • Under the most realistic scenario, Social Security and Medicare would need nearly $48.5 trillion today to fully fund benefits promised in the future. Some argue for taxing only the wealthy to raise revenues and reduce federal deficits, but hiking income taxes on these taxpayers would increase their rates to mathematically impossible levels. To close the 2035 deficit, the top two rates would increase to 139 percent and 150 percent, and in 2050, they would reach 206 percent and 223 percent.
  • If the average historical level of tax revenue is extended, spending on Medicare, Medicaid, the Obamacare subsidy program, and Social Security will consume all revenues within less than two generations. No revenue will be left to pay for other government spending, including constitutional functions such as defense.
  • In combination with other entitlements such as food stamps, unemployment, and housing assistance, Medicare, Medicaid, and Social Security constitute more than half of total spending.
  • Social Security began running deficits in 2010, and its trust fund will be exhausted by 2033, which is when beneficiaries will see about a 25 percent cut in benefits if Congress and the President fail to enact meaningful entitlement reform soon.
  • In net-present-value terms, Social Security owes $12.3 trillion more in benefits than it will receive in taxes.
  • Medicare spending is one of the main drivers of long-term runaway deficits because of the combined effects of an aging population, rising health care costs, and structural flaws inherent in the program’s design. Medicare spending was $580 billion in 2012 and is projected to nearly double by 2022, reaching over $1.1 trillion in that year alone.
  • The Medicare Part A trust fund has been running deficits since 2008 and is projected to be exhausted by 2026, meaning it can pay out benefits only to the extent that payroll tax revenue is coming in. The result: cuts in benefits, a Medicare payroll tax increase, or some combination of the two. Worse, under the most plausible scenario, the cost of benefits that Medicare has promised seniors but does not currently have dedicated revenue to pay for over the next 75 years is estimated to be $36.2 trillion.
  • Other taxpayers already pay for about 88 percent of Medicare’s total annual spending, with only about 12 percent of spending covered by beneficiary premiums.
  • Medicaid, the joint federal–state health program for the poor, elderly, and disabled, served almost one out of five Americans at some point during 2011. Enrollment has increased drastically over time, growing from 22.9 million people in 1990 to 56 million in 2011, and, as a result of Obamacare’s expansion of the program, is projected to reach 78 million by 2022.
  • Total federal and state spending on Medicaid is estimated to have been $416.8 billion in 2012 and is expected to more than double by the end of the decade, reaching $839.2 billion by 2022, largely due to Obamacare’s expansion of the program. The explosive growth in costs increasingly stresses state budgets and draws taxpayer funding away from other state spending priorities like transportation and education.
  • After a full decade of Obamacare’s implementation, it is projected that 24 million people will obtain coverage through the law’s exchanges, 19 million of whom will have their coverage subsidized by the government for a projected 10-year cost of almost $1.1 trillion.

Selected Additional Resources

Heritage Experts on Entitlements

  • Romina Boccia

    Grover M. Hermann Fellow

  • Stuart Butler, Ph.D.

    Distinguished Fellow and Director, Center for Policy Innovation

  • Rachel Greszler

    Senior Policy Analyst

  • Rea Hederman, Jr.

    Director, Center for Data Analysis and Lazof Family Fellow

  • Robert Moffit, Ph.D.

    Senior Fellow

  • Nina Owcharenko

    Director, Center for Health Policy Studies and Preston A. Wells, Jr. Fellow

To talk to one of our experts, please contact us by phone at 202-608-1515 or by email.