Our National Debt Crisis: Healthcare is Both a Driver and a Casualty

By Mark Tipps, FCV Partner & COO

On August 19th, the U.S. gross national debt hit $40 trillion. That's $117,000 for every U.S. citizen and $286,000 for every single taxpayer. Start spending $1,000 per second, and it will take you over 1,200 years to spend $40 trillion. So … it's a lot. Economists typically exclude intergovernmental debt and focus only on debt held by the public - which is now about $32 trillion - and equals 100% of our annual gross domestic product ("GDP") as a nation.

How'd we get here?

We've had sizeable debt previously. At the end of World War II, public debt was about 104% of our GDP. The difference? We'd just paid for the largest war in history, one that would shape everything to come for the next century, and in the ensuing decade our economy would grow at over 4%. So, it was a non-structural, temporary problem. Today, there's no cataclysmic event to blame - just poor leadership. By comparison, in the early 2000's our national public debt was about 31% of GDP. From 1998-2001, with President Clinton and a Republican-controlled Congress, we actually ran budget surpluses and began to reduce the debt. But wars in the Middle East, tax cuts, the 2008-09 recession, Covid-era spending, and a rapidly aging population consuming more Medicare and Social Security dollars changed all of that.

The last decade under Presidents Trump and Biden also really hurt. From our country's founding until 2016 we'd borrowed about $19 trillion. Since 2016, we've borrowed another $20 trillion, doubling our debt. Today, non-defense, discretionary spending - i.e., federal spending on everything except Medicare, Medicaid, Social Security, interest on the debt, and defense - is only about 13% of the federal budget. Think of things like education, transportation, medical research, law enforcement, national parks, and foreign aid. Now, even if we try to make significant changes to discretionary spending, we're just tinkering at the edges of the problem.

Healthcare (i.e. Medicare/Medicaid) is both a major driver of the debt and, as discussed below, a likely casualty. Social Security and Medicare - the entitlement programs for older Americans - are the biggest problems. Rather than face them head on, our politicians, who focus primarily on reelection, repeatedly tell us that they won't touch these "earned" benefits. The reality, however, according to the Committee for a Responsible Federal Budget (CRFB), is that most retirees will receive in Social Security benefits 3.7 times the Social Security taxes they paid. And Medicare is the biggest culprit. The Washington Post recently reported that a husband and wife with $100,000 in income, who turned 65 in 2025, will receive 4.4 times in Medicare benefits (present value and net of premiums) what they paid in Medicare taxes. According to that same article, Medicare premiums last year covered only 14% of the program, payroll taxes covered 33%, and we borrowed the remaining 53%.

Why is now a tipping point?

The federal government spends $1.5 trillion more than it receives in revenue each year. So, we borrow the difference. Our national debt (the accumulation of these yearly deficits) is skyrocketing, which means so too are the mandatory interest payments on that debt. According to CRFB, annual interest on the debt now equals approximately $1.2 trillion, making it the fastest growing major expense in the entire federal budget. We now spend more annually on interest payments, alone, than we do on the entire national Defense budget.

The government borrows primarily by selling Treasury bonds and notes. When economic bumps hit, the buyers of those securtities may sell them quickly, as happened just recently. When Treasury bonds are dumped, their price goes down, which in turn drives up their yield (i.e., their annual return, expressed as a percentage of the bond price). As Treasury yields increase other rate-sensitive securities increase their yields to compete, and that drives up the borrowing rates across the U.S., including home mortgage rates. This debt spiral, and the resulting higher borrowing rates, continues to make home ownership much more difficult for many Americans.

But this problem also negatively affects healthcare in numerous ways.

First, because so much of our entitlement spending is in Medicare and Medicaid, those programs will continue to be top targets for lawmakers, particularly Medicaid, where politicians see fewer voters compared to Medicare beneficiaries. Provider reimbursements, eligibility rules, state funding methods, and covered services, all will continue to be targeted.

Second, the debt burden also increases health disparities. If federal support for safety net programs is reduced, the financial burden shifts to states and private citizens, disproportionately affecting vulnerable populations.

Third, increasing debt drives up the cost of borrowing for everyone, including the cost of capital for hospitals, medical device manufacturers, drug manufacturers, and healthcare systems. That makes capital expenditures and other investments in technology more difficult and leads to layoffs and other belt tightening.

At some point there has to be a pressure outlet, but the choices are limited: pay providers less, cut the services offered, limit who's eligible, reduce drug prices, make care more efficient and effective, hope for a healthier population, and/or increase taxes. Republicans can't continue to rely on the "fraud, waste, and abuse" mantra, it simply won't make a big dent in this problem. And Democrats can't just complain about the One Big Beautiful Bill or advocate for a "Medicare for all" system. Hospitals would quickly be out of business if they were reimbursed for every patient at Medicare rates. The Medicare Payment Advisory Commission says that hospitals lost about 12 cents on every Medicare dollar they received in 2024. Hospitals survive because Medicare is just part of the overall payer mix.

So, what should be done?

First and foremost, politicians need to tell the public the truth - that there's no way to fix this without some pain. They should look particularly hard at Social Security and Medicare and consider things like increasing the eligibility age, slowing automatic cost of living adjustments, and implementing stronger means-testing. In Medicare, we should ask: can we afford to keep adding new billing codes, i.e., new treatments, or should we hold services where they are? We should focus harder on value-based care and innovation - these are the least painful and most hopeful. And for seniors who can afford it, we should charge higher premiums. It makes no sense for America's wealthiest to pay only one fifth of their Medicare costs in premiums.

Our national debt crisis isn't going away. Keep an eye on the upcoming midterm elections and an even closer watch on the 2028 presidential election. Healthcare costs and their effect on our national debt will take center stage. How the two parties choose to address this issue will be telling.