Vance Ginn
AIER
The debate over illegal immigration has been front and center in American politics, but an equally urgent crisis looms: Medicare is going bankrupt.
The upcoming 2024 election features two competing visions – Kamala Harris’s support for expanded social welfare programs, including Medicare for All and amnesty for undocumented immigrants, and Donald Trump’s push for stricter immigration laws. While immigration, particularly legal immigration, is essential to America’s economic growth, combining Medicare for All and amnesty would create an economic nightmare that policymakers must avoid.
Medicare, the federal healthcare program for seniors, is projected to be insolvent by 2036, threatening the millions of Americans who depend on it. If policymakers add millions of undocumented immigrants to this already-fragile system, the cost could be catastrophic.
My recent study published at the Tholos Foundation found that granting amnesty to the estimated 11 to 12.5 million undocumented immigrants could add as much as $1.8 trillion to the current Medicare program over time. That’s not a sustainable course for a system already teetering on the edge of financial collapse.
Medicare operates as a pay-as-you-go program, which means today’s workers are funding the healthcare of today’s retirees through payroll taxes. This worked well enough when the US had a younger population and a healthy worker-to-beneficiary ratio. But those days are gone.
With the number of workers shrinking relative to retirees, Medicare is simply not bringing in enough revenue to cover its costs. Adding millions of newly legalized immigrants to the system, many of whom have not paid into Medicare through payroll taxes, would only worsen the situation.
Yet Kamala Harris has not denied her past support for Medicare for All, a sweeping government-run national healthcare proposal that would impose a staggering $44 trillion price tag over the next decade. This includes covering newly legalized immigrants, which could increase costs, adding nearly $2 trillion more to a ballooning program. This fiscal irresponsibility would push Medicare over the edge, requiring either deep cuts to benefits or steep tax increases to keep the program afloat.
Milton Friedman’s warning from decades ago rings more true than ever: “You cannot simultaneously have free immigration and a welfare state.” And Medicare is at the center of this paradox.
When you invite millions of undocumented immigrants to access generous welfare programs, you are putting tremendous pressure on an already unsustainable system. While immigration itself is not the problem – indeed, it is necessary for economic growth – how immigrants are integrated into our society and our systems matters a great deal.
Younger, higher-skilled legal immigrants are a huge net positive. They fill crucial labor shortages and pay taxes that help fund the welfare state, education, and other programs.
In fact, legal immigration has been a critical engine of American prosperity for centuries, and most of us are descendants of immigrants. The key is to manage immigration to maximize its benefits while minimizing its costs.
One way to achieve this balance is through market-based immigration reforms, such as visa auctions, where visas are priced and allocated based on economic factors. By charging higher fees for low-skilled workers and lowering them for high-skilled workers in sectors with labor shortages, the US could attract the kind of immigration that bolsters the economy rather than strains it. This would ensure that immigrants contribute to programs like Medicare rather than adding to fiscal strain.
Reforming Medicare itself is just as crucial. The current system incentivizes overuse and misallocation of healthcare resources, driving up costs without improving outcomes. Instead of expanding Medicare through proposals like Medicare for All, which would make the system even more unwieldy and bureaucratic, we should look at reforms that empower individuals and increase competition. Introducing private options with health saving accounts for Medicare beneficiaries, raising the eligibility age, and allowing more flexibility for Medicare Advantage plans to negotiate better prices could help stabilize the program without bankrupting future generations.
The US can only afford to pursue expansive social programs by implementing structural reforms that address the root causes of rising costs. Immigration should be welcomed. At the same time, the welfare state – particularly Medicare – needs serious reform to prevent its collapse.
The upcoming election presents a stark choice. Kamala Harris’s proposals for Medicare for All and amnesty would drive the US further into fiscal insolvency, threatening the country’s economic stability. On the other hand, Donald Trump’s stricter immigration policies, while addressing illegal immigration, don’t tackle the underlying issue of Medicare’s impending bankruptcy.
The path forward requires a middle ground: embracing immigration as a source of strength while reforming the welfare state to ensure it can meet the needs of the American people without bankrupting the nation.
To paraphrase Friedman, we must choose between a welfare state and open borders, because having both is a recipe for disaster. Now is the time for policymakers to embrace a vision of economic freedom, sustainable legal immigration, and a Medicare system that empowers individuals rather than relying on an ever-expanding government bureaucracy.
This article was originally published by the American Institute for Economic Research.
