From providing a safety net during personal crises to ensuring access to essential healthcare services, entitlement programs support those in need by enabling accessibility to necessary resources, services and funding. However, their soaring costs raise critical questions about sustainability and the future of federal spending.

Continue reading to learn more about government entitlement programs, their impact on the federal budget and the potential solutions to address their growing expenses.

What Are Entitlement Programs?

Entitlement programs play a crucial role in the U.S. federal budget by providing support and benefits to individuals—both citizens and certain non-citizens—who meet specific criteria such as age, income or disability. Within the federal budget, these programs fall under mandatory spending. However, over the years, entitlement programs have progressively consumed a growing portion of federal spending, incurring further criticism and questions about their long-term sustainability and fiscal impact.

Understanding Entitlements

An entitlement is a federal program designed to offer benefits to qualifying recipients. Some of the most well-known examples of entitlement programs include Social Security, SNAP (Supplemental Nutrition Assistance Program), Medicare and Medicaid. 

One distinguishing feature of entitlement programs is that the government’s commitment to providing these benefits is open-ended. Unlike other federal programs where spending levels are determined annually, entitlements guarantee that eligible individuals will receive benefits. This means that the government must allocate funds to meet the needs of all qualified individuals, even if it exceeds the budgetary limits set by Congress and the President.

The Impact of Entitlement Programs

Entitlement programs serve as a safety net for individuals during recessions, personal crises and old age, ensuring that they can maintain a decent standard of living regardless of income. For example, a significant portion of nursing home residents and disabled adults receive Medicaid benefits. Without these payments, many of these individuals would struggle to afford essential care. Similarly, a large percentage of children from low-income households receive Medicaid support, ensuring access to routine medical care and emergency treatment.

Programs like SNAP, the child tax credit and housing subsidies have been shown to substantially reduce child poverty rates. Additionally, data reveals that children from lower-income households who receive benefits from government entitlement programs perform better in the labor market as adults. Social Security, in particular, has been successful in reducing poverty rates for seniors. Without Social Security benefits, the poverty rate among American seniors would be over four times higher than the current rate of 9%.

The Cost of Entitlement Programs

Entitlement programs constitute an increasingly significant portion of federal spending, rising from approximately 30% in 1960 to over 60% in recent years. Factors like an aging population, increased life expectancy and rising healthcare expenses continue to strain entitlement spending. As the Baby Boomer generation approaches the age to collect entitlement benefits, the pressure on spending is expected to intensify over the next three decades. For instance, Medicare spending is projected to double to $1.844 trillion by 2031. The combination of longer lifespans and declining birth rates also pose challenges for Social Security. With older Americans collecting benefits for an extended period and fewer younger Americans contributing to the program, the trust fund has been receiving less in payroll taxes than it pays out in benefits since 2010. Currently, reserve funds cover this shortfall, but if no changes occur, the trust fund will only be able to provide around 80% of full benefits to recipients after 2035.

Controlling Entitlement Spending

There are three primary approaches to curbing the growth of government entitlement programs:

• Benefit reductions: Benefits can be scaled back for either current or future beneficiaries.
• Increased cost-sharing: Current or future beneficiaries can be required to contribute a greater share of the program’s costs.
• Eligibility changes: Eligibility requirements can be modified to limit the number of individuals receiving benefits.

To illustrate these strategies, let’s consider proposed reforms to the Social Security program. Most studies suggest a combination of policy changes to address the shortfall between benefits and receipts:

Adjusting the Social Security tax. Currently, the tax is only collected on the first $147,000 of an individual’s income. Reforms could involve raising this limit or eliminating it altogether.

Raising the eligibility age. The age at which individuals can start receiving partial Social Security benefits (currently 62) or full benefits (currently 67 for those born in 1960 or later) could be increased by several years.

Modifying the benefit adjustment formula. The formula used to calculate Social Security benefits could be adjusted to align more closely with the actual inflation rate experienced by retirees.

Implementing more significant changes. These could include capping the maximum benefit size or transitioning to a system where everyone receives the same benefit amount. Another proposal is investing a portion of the trust fund in stocks and other securities, which could potentially increase the fund’s size but also carry risks during stock market downturns.

It is important to note that finding solutions for entitlement reform is not straightforward. Balancing the cost of these programs involves making difficult choices, such as higher taxes or reduced benefits for current and future recipients. Alternatively, without any changes, entitlements will continue to consume a growing share of federal spending, leading to increased taxes, larger budget deficits or cuts in other government programs.

Conclusion

Government entitlement programs play a vital role in providing support to individuals who meet specific criteria based on age, income or disability. While they offer essential benefits and serve as a safety net, the increasing costs associated with these programs present challenges to the U.S. federal budget. Careful considerations and potential reforms are necessary to ensure the long-term sustainability of entitlement programs while balancing the fiscal needs of the nation.

Read the Policy vs Politics Entitlements Policy Brief to learn more about government entitlement programs.