Entitlement Spending and Medicare
Social Security, Medicare, and Medicaid are entitlement programs; that is, individuals who are eligible for these programs are entitled to particular benefits. Social Security provides income to seniors, the disabled, and surviving spouses and dependents. Medicare provides health insurance to retirees and the disabled. Medicaid provides health insurance to certain lower income groups. Workers and their spouses are entitled to receive Social Security and Medicare benefits if they make sufficient payroll contributions while working, and citizens and qualified aliens are entitled to Medicaid benefits if they meet certain income and other demographic criteria.
The $549 billion in Federal spending on Social Security benefits was 21 percent of total Federal outlays. The $330 billion in federal spending on Medicare benefits was 12 percent of outlays. The $191 billion in federal spending on Medicaid was 7 percent of outlays. Because Medicaid is jointly funded by the Federal and State governments, State governments also spent about $139 billion on Medicaid.
For those not covered by Medicare or Medicaid, the federal government also helps with the purchase of private health insurance coverage in a variety of ways, including the exclusion of employer contributions towards health insurance premiums from personal income taxes. These tax expenditures are included in the Federal budget and are estimated to equal $133 billion in 2006. The President's 2008 budget includes a proposal to replace the existing exclusion for employer-provided health insurance with a flat standard deduction to all families who purchase health insurance that meets minimum requirements for catastrophic coverage, in order to improve the efficiency and equity of these tax expenditures.
Spending on Social Security, Medicare, and Medicaid is projected to increase and claim an even more significant share of the federal budget in the future. Examining total spending as a fraction of gross domestic product (GDP) is especially relevant because this measures the portion of the overall economy devoted to each particular program. For instance, Social Security spending was 4.2 percent of GDP in 2005 and is projected to be 6.3 percent of GDP in 2080. Total Medicare spending was 2.7 percent of GDP in 2005 and is projected to be 11.0 percent of GDP in 2080. Total health care spending in the United States by private and public sources combined was 16.0 percent of GDP in 2005, equaling almost $2.0 trillion or $6,697 per person. Although national health expenditures have grown at a slower rate than the previous year for the prior 3 years, health spending has still consistently grown at a faster rate than general inflation.