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For millions of Americans, getting sick doesn’t just threaten their health. It threatens their livelihood. According to a recent Gallup poll, the number one issue Americans are worried about is the availability and affordability of health care, even more than the economy, inflation, or the size and power of the federal government. This year marks the 60th anniversary of one of the main causes of health care unaffordability, the Medicare program. Medicare is primarily for individuals 65 and older, but also for those with certain disabilities. Initially intended to be a safety net for the most vulnerable, it is now the second largest government entitlement program. In 2025, Medicare spent $1.2 trillion, making it one of the main reasons why the federal government is heading toward a debt crisis. In reality, since 1965, the Medicare program has denied workers the right to decide how to spend their money on medical care. It has increased health care prices for Americans, including non-enrollees, and has reduced the quality of care overall. But despite its structural faults, Medicare has survived all attempts at real reform, and it’s so politically durable that politicians like Bernie Sanders have proposed to enroll every U.S. citizen in the program. Today, 60 years after its implementation, we try to answer, how did we get here, and what should we expect if nothing changes?

Laura Bondank-Harmon: I’m Laura Bondank-Harmon. This is the Cato Podcast. I’m here today with Michael F. Cannon, Director of Health Policy Studies at the Cato Institute, and David A. Hyman, Adjunct Scholar at the Cato Institute and Professor of Health Law and Policy at Georgetown University Law Center, and author of Medicare Meets Mephistopheles. And someone once told me it’s the best Medicare satire.

David A. Hyman: Best satire ever written about the Medicare program.

Laura Bondank-Harmon: Yeah. So let’s start with the basics. Can either of you tell me, what is Medicare and how is it different from Medicaid?

Michael F. Cannon: So this is often a matter of confusion. So let me see if I can clarify it. Both programs sound similar, but they’re very different. So the Medicare program covers elderly Americans. It costs about $1.2 trillion in 2025. Covers about 70 million elderly Americans. That’s 65 and older. And that covers everything from hospitals and doctors to pharmaceuticals. It mostly doesn’t cover nursing home care, however. And it’s obviously expensive and getting more expensive every year. When you’ve heard about the trust fund bankruptcy, it’s usually in connection with Medicare, although sometimes in connection with Social Security.

The Medicaid program is a different program. It covers a different population. It’s run differently as well. The Medicare program is exclusively federal. The Medicaid program is a joint federal-state program. It covers sort of 85 million or so Americans. It costs about a trillion dollars a year between money coming from the federal government and the states. And it covers the same range of services, hospitals, doctors, pharmaceuticals. But it also covers nursing home care. And because it covers poor Americans, it covers Americans of every age group, moms and kids, disabled individuals, and also the elderly who can qualify for both programs.

Laura Bondank-Harmon: Michael, can you tell us a little bit about the current situation with American health care affordability? Have prices gone up so much to justify it being a top worry in 2026?

Michael F. Cannon: They really have. And prices have been going up for a long time. And health care has been a top worry of voters for a very long time. The first US president to declare the US health sector in a crisis was Richard Nixon in the early 1970s. It’s no coincidence that he made that declaration and became the first president to do so shortly after the Medicare program took effect. The Medicare program, as well as other government interventions, have driven up health care prices dramatically to the point where right now the average family with employer-sponsored health insurance, it costs them about $27,000 per year for that family policy. And taxes for programs like Medicare, which cost $1.2 trillion per year, and the Medicaid program, which costs another trillion dollars, are taking a serious bite out of family budgets.

David A. Hyman: Yeah, I would just add that health insurance is expensive because health care is expensive. And that’s both about the volume of services, but also the price per unit of services. And there’s a lot of unhappiness among people who compare spending on health care in the US versus spending in other places. Most of the difference has to do with prices as opposed to volume of services. We charge a lot more when we do things to you in the health care system.

Laura Bondank-Harmon: This year marks the 60th anniversary of the Medicare program. David, can you tell us a little bit about the origins of Medicare?

David A. Hyman: So something like Medicare had been a priority for the Democratic Party certainly ever since Truman was the president. And Lyndon Johnson delivered after getting a supermajority in Congress. And the Medicare and Medicaid programs, as I said before, covered two different populations and are two very different programs. But both of them were basically the fulfillment of a campaign promise that started with Truman and then continued through Lyndon Johnson. The partisan aspect of the Medicare program has faded a little bit, but not that much.

The other part of it is the financing of the program reflects both Washington budgetary dynamics and also a desire to hide from people how the programs actually cost. Medicare has different parts, which complicates things a little bit, but it’s funded by a combination of payroll taxes that everybody who’s working pays, even though they don’t qualify for the program while they’re paying for it because it covers people who are elderly that are overwhelmingly retired. And so every paycheck you get, if you look closely, you’ll see some money’s going to Social Security and some money’s going to Medicare. And that’s what covers part of the cost of the program.

Given the reality that the people that are paying for it are mostly not receiving it, although they may have an entitlement to get it at some later point in time, you can sort of think about this as a program that taxes the working poor and middle class to pay for a population that’s retired and doing pretty well, all things considered. I’ve described it as a sort of reverse intergenerational Ponzi scheme, which is kind of unkind, but still captures something that’s fundamental about the program, that single working moms who are waitresses in Iowa are paying a significant chunk of their wages to provide a cushy retirement for people living in Miami, Florida.

Laura Bondank-Harmon: So how would you sum up what Medicare has done on its 60th anniversary?

David A. Hyman: Well, it’s certainly broadened access for the beneficiaries, access to the health care system because it’s basically an open-ended commitment to pay for more or less whatever they need in the way of things that the health care system will provide. And that’s, you know, an important accomplishment, but it’s important to recognize there’s another side of the ledger as well. There are a lot of costs associated with having the Medicare program. We’re basically making promises that it’s going to be very difficult for us to keep. If you look at the unfunded liabilities, that is how much we promised relative to the future tax revenues to pay for it, there’s a huge gap there in the trillions of dollars, comparable to Social Security, but growing much faster and hitting much sooner than the problems with Social Security. It’s also had a variety of distortionary impacts on our health care system. What Medicare pays for and how it pays for it has a big impact on the way the health care system is structured. If you’re unhappy with consolidation in the health care system, Medicare actually shares a lot of the blame for that because of its payment rules that encourage consolidation.

Laura Bondank-Harmon: Now, I think a lot of people attribute increased health care prices due to capitalism, things like corporate greed and the desire to fill pockets of insurance companies. But our health care system is far from a free market. Michael, how have programs like Medicare distorted the health care market in the United States?

Michael F. Cannon: Oh, in all sorts of ways. It’s important to understand that Medicare is not a correction to market failures. Medicare is an attempt to address a government failure. In the 1960s, Congress looked around and saw about half of seniors, maybe more, didn’t have health insurance, and they created Medicare to remedy that problem. But that was a result of another government distortion. For 40 years at that point, the income tax had been penalizing workers if they took their income and bought lifelong cradle-to-grave health insurance, which many insurers were selling at that time. Instead, it was compelling workers to enroll, by way of a tax break, in employer-sponsored health insurance that disappears when you retire. So that’s why so many seniors lacked health insurance. And instead of correcting a market failure, Medicare is addressing a government failure, and it introduced more.

The Medicare program had an explosive impact on health care prices. That’s why President Nixon was complaining about a health care crisis, because prices for physician services and hospital services grew dramatically after the Medicare program took effect, and then health insurance premiums, even private health insurance premiums, grew as a result. Medicare had a negative impact on the quality of care by distorting competition between different ways that payers are purchasing health care from providers.

You would think that at least for all of this spending, all the taxing and all the spending and the central direction of the health sector, at least if we’re buying this much health care for people, the Medicare program would be at least saving some lives. But the highest quality study that anyone’s ever done of Medicare’s impact on mortality among seniors found no evidence that Medicare saved lives within its first 10 years of operation, after spending about a trillion dollars providing health care to people whose life expectancy at age 65 was about 10 years. So the Medicare program has distorted not just people’s incentives in the health sector, so that providers can charge and the political system will pay excessive prices for services, it’s also distorted how health care providers deliver care to people, so the health care that U.S. patients receive is lower quality as a result of Medicare than it would be otherwise.

Laura Bondank-Harmon: So we’ve come to this scenario in which Medicare is the main driver of federal spending, deficits, and debt. David, can you explain why Medicare is so expensive to maintain and how it affects the average American?

David A. Hyman: An important reason why Medicare is expensive is because it’s trying to pay for health care services for roughly 70 million Americans in this vast, wonderful land that we live in, and trying to figure out what the right price is to pay for each of those things, for each of the patients, for each of the things that they need. And that’s an inherently challenging problem, right? Normally in the rest of the economy we use markets to sort those sorts of things out, and Medicare mostly relies on centralized price setting instead, and that hasn’t worked very well anywhere for anything. And guess what? It works even less well for health care.

Laura Bondank-Harmon: When you say centralized price setting, can you explain that a little bit? What does that mean?

David A. Hyman: For example, the question is how much should the Medicare program pay to hospitalize a particular beneficiary for the treatment of a particular problem in a particular location at a particular point in time? And to say that gives you an indication of how complex the problem is, right? Because different people have different problems. So should you pay the same thing for all of them? Should you pay more for the people that have more conditions? And if so, how much more? Should you pay more for different kinds of hospitals? Should you pay more if they have to stay longer or need more things, right? All of these things are the kinds of questions that markets are inherently good at generating answers to. But if you’re trying to come up with a centralized response that will satisfy a federal judge that you’ve touched all the bases from an administrative law perspective, and you should recognize that Congress is going to be lobbied very heavily if you go too low on one of those, right? Nobody shows up and says, hey, you’re paying us too much, please pay us less, right? So it’s inherently going to be inflationary.

Now, in the 1980s, Congress adopted what became known as the prospective payment system. These are billing codes that try and figure out, if you have this kind of problem, here’s how much we’re going to pay. That got you off the treadmill of if you spend more, we’ll pay you more. But it nonetheless left lots of flexibility for health care providers to come up with new ways of robbing the treasury. And the core problem with the Medicare program is it basically tossed the keys to the federal treasury to the health care system, and said, we don’t care what it costs, we’ll write a check for it. We don’t do that in anything else, right? We don’t do that for defense. We don’t do that for housing. We don’t do that for food. There are dysfunctions in each of those market sectors, but there isn’t the same open-ended commitment. And so the core problem was this open-ended commitment and a payment system that aggravated the worst incentives.

Laura Bondank-Harmon: So what does this mean for the average American?

David A. Hyman: They’re spending a lot of money through their taxes and not getting so much for it, and in some ways distorting the care they receive as well, and the prices that they pay. And not only do the taxpayers end up paying more for those services, but the Medicare program is fueling hospital consolidation. And that increases prices for people, even if they’re not in the Medicare program. And so the Medicare program, through this mechanism and many other mechanisms, not only distorts and increases people’s tax burdens, it also increases the prices that we pay for health care outside of the Medicare program.

The reality is, just go out into your community and look around, and you’ll see lots of examples of both the Medicare and Medicaid programs fueling huge amounts of fraud, waste, and abuse. And this is not rocket-science fraud either. It’s lying about whether you provided services at all. It’s lying about which services were provided. And because the Medicare program has historically been pretty passive in dealing with the bills it receives, it sort of has a presumption of regularity, and it just writes a check when it gets a bill, unless there’s really strong grounds for suspicion. And that’s not a recipe for a program that’s going to be safeguarding the taxpayer dollars that it’s been put in charge of.

Laura Bondank-Harmon: Right. I think we mentioned at the start of the podcast that in 2025, Medicare spent approximately $1.2 trillion, and when coupled with Medicaid, which isn’t far behind, it makes health care the largest area of federal spending, right?

David A. Hyman: Exactly. It dwarfs basically everything else.

Laura Bondank-Harmon: So given how much money we’re spending on these programs, Michael, is there evidence that Americans’ health has improved due to these programs?

Michael F. Cannon: So we heard some version of this claim in the budget debate last year, where people said if Medicaid spending doesn’t grow as current law says, then people will die. It’s a plausible claim. If people get less health care, they might die. But, as I mentioned before, the best study that we have of the impact of Medicare on mortality rates did not find any evidence that it improved mortality rates. That does not mean that the Medicare and Medicaid programs are not saving some lives, but a substantial body of economic research into large variations in health spending across populations has found no effect of those large variations in health spending on population health outcomes. So that means if the additional health spending, say, in the Medicare program is saving lives, it’s likely being offset by harmful care that the Medicare program or other policy interventions are encouraging in other areas. That is one of the hypotheses that Professor Newhouse of Harvard University offered after doing one of the seminal studies in this area, the Rand Health Insurance Experiment. And so we’re just not at the point where I think people can responsibly claim that, yes, the Medicare program is saving lives, yes, the Medicaid program is saving lives.

Laura Bondank-Harmon: We’ve talked a lot about the issues surrounding Medicare. Have there been any meaningful reforms or attempts at reforms?

Michael F. Cannon: Well, there have been multiple reforms, lots of small ones, a couple of big ones. Another reform was adding coverage for prescription pharmaceuticals. A third, much more recent reform, is part of the Inflation Reduction Act, which is going to put the federal government in the business of negotiating prices for particular branded drugs. Those are the things that sort of immediately come to mind, I guess there’s a fourth, which is how we pay for physician services, which has changed pretty dramatically.

Laura Bondank-Harmon: What about these discussions about Medicare for All?

Michael F. Cannon: Well, so I would put all those changes into the box of just adjusting Medicare’s price controls and exchange controls. There was a much more significant, I think, reform that has been sort of evolving ever since the 1980s, and that is giving seniors a choice, essentially a voucher, that they could either take to the traditional government-run Medicare program, where the government writes the checks to doctors and hospitals, or go to a private insurance company, where the government writes one check to the insurance company on your behalf, and then that insurance company provides you the coverage that government says you’re entitled to get. And so we call that Medicare Advantage, and now more than 50 percent of enrollees are choosing Medicare Advantage. That’s a pretty substantial reform. It has also increased Medicare spending. It increases Medicare spending by about 14 percent for every person who makes that switch. But what’s interesting about that, with regard to the question of whether we should expand Medicare to all U.S. residents, which is what Medicare for All advocates propose, is the Medicare for All advocates want to keep everybody in that traditional Medicare program, at the same time that half of Medicare enrollees are rejecting it. They are moving someplace else. They don’t want the traditional Medicare program. They want private Medicare Advantage plans. So Medicare for All, I think, is a not very wise or realistic proposal, and one of the reasons for that is that the one really significant reform that we’ve seen to the Medicare program shows that not even seniors like traditional Medicare, or would like Medicare for All.

David A. Hyman: Yeah, I agree with that. I would just follow on by making a point, which is the current Medicare program, with all of its difficulties, is funded mostly by people outside the Medicare program. And if you’re going to do something called Medicare for All, leave aside what exactly we mean by that, you’re going to have to figure out a way to get a lot of money from people who are currently outside the system and soon will be inside the system and demanding all of the health care services the current Medicare beneficiaries get. So you’re going to have to tap a different source of revenue than the current Medicare program. And the current Medicare program has all sorts of problems we’ve talked about already. Fraud, waste, and abuse, distortionary impacts, paying too much for some things and not enough for other things.

Laura Bondank-Harmon: I have one final question for you both. Why should this matter to the listeners? Why should this matter to everyday Americans?

David A. Hyman: Well, I think there are a couple of reasons. One reason is it’s likely that the listeners have relatives who are on Medicare or Medicaid, and so it directly influences the care they receive. That’s an important reason. And one day, maybe sooner rather than later, some of the listeners will find themselves on Medicare. So they ought to want to make sure the program is being run, and run well. The second reason is, as taxpayers, a lot of people’s money is going towards this program that, on the one hand, is serving a population that lots of people feel like we ought to be helping out, but they may have concerns about how their money is being spent. And I think the third reason is just from a sort of fiscal health of the United States standpoint, the program’s not sustainable in its current form. It’s accumulated a huge set of obligations, but it’s hard to see how they can be paid absent really strikingly large tax increases, and even that’s not going to cover the future obligations. So for all of those reasons, I think your listeners should be concerned about this. I guess the final reason is the issues involving personal liberty, and I’ll let Michael answer that one on behalf of the Cato Institute.

Michael F. Cannon: So I will. And I think that even if you are not a Medicare enrollee, if health care in the United States drives you crazy, you should care about the Medicare program. People love to say, oh, I hate the US health sector, but I love Medicare. You don’t get to have it both ways, because Medicare is the US health sector. The US health sector is Medicare. When people complain about things they don’t like about US health care, like fee-for-service payment, wasteful care, low-quality care, harmful care, medical errors, health care fraud, excessive profits, high administrative costs, they are complaining about the Medicare program. When they complain about federal deficits and debt, the time bomb of entitlement spending, or special interest influence over health care, they are complaining about the Medicare program. We lament the lack of innovation in health care delivery, or the lack of evidence-based medicine, the lack of medical records, or what they call accountable care organizations, or telemedicine, or coordinated care — we’re complaining about the Medicare program, because the Medicare program produces all of these ills while increasing health care prices, while increasing our tax burden, and widening the gaps in our health sector rather than filling them in so that fewer people fall through.

Along the way, it takes a huge chunk of our incomes and our liberty away, our freedom to make our own health decisions, because the government is telling us you will pay for your health care and retirement this way, and contribute to other people’s health care and their retirement in this way, and you don’t have any choice in the matter. Whereas if the government left those decisions to people to make for themselves, they would make much more responsible decisions. Health care would be more affordable and universal, and we would be getting higher quality health care as a result. But to get to a world like that, we need to reform the Medicare program so that the federal government exercises far less control over our incomes and our health decisions.

David A. Hyman: Let me just add one more thing, just to sort of make this very practical. If you think Medicare for All is a great idea, you have to explain why it’s so difficult to find a geriatrician in the United States currently to take care of your parents or grandparents. This is a population that the Medicare program has a monopoly on serving, and they can’t even figure out how to pay enough for us to have doctors who treat the very population that they specialize in. If they can’t handle that simple task, why would you turn more of the health care system over to them?

Laura Bondank-Harmon: It’s a very good question. I think it’s safe to say that Medicare is making health care unaffordable for Americans. Medicare pits the young against the old, providers against lawyers, and politicians against bureaucrats, and providers against one another. The program guarantees that politicians will make promises they cannot keep and forces citizens to order their lives around unreasonable expectations. Without meaningful reform, efforts to fix it will only prolong its demise. Thank you, Michael, and thank you, David, for joining us today.

Michael F. Cannon: Thank you.

David A. Hyman: Thank you.

Laura Bondank-Harmon: Thank you for listening to today’s episode of the Cato Podcast. If you’ve enjoyed today’s discussion, please subscribe and leave a review wherever you get your podcasts. To learn more about the ideas and research discussed in this episode, visit Cato​.org. The Cato Podcast is a production of the Cato Institute, dedicated to advancing individual liberty, limited government, free markets, and peace. Join us next time for more insights and conversation on the issues shaping our world.