America’s Humongous Healthcare Problem: Healthcare Fact of the Week

  • Title:

    American Health Economy Illustrated
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Extraordinary. The president’s State of the Union address made no mention of what is purportedly his signature domestic policy achievement: the Affordable Care Act. In fact, the speech nearly ducked entirely the single largest problem most in need of the forward-looking bipartisan team effort repeatedly invoked by the president: America’s “humongous healthcare problem.”  According the Congressional Budget Office’s latest long-term spending projections, the federal government is slated to increase in size by more than 40 percent (relative to the economy) over the next 75 years. Fully 100 percent of that increase can be attributed to growth in federally-financed health care entitlements (figure 20.7c).

Of course, these estimates only represent CBO’s “extended baseline scenario.” Moreover, they exclude the 40 percent or so of Medicaid spending that is paid for by the states as well as non-mandatory health spending such as public health. Inclusion of these missing components would add several more percentage points of GDP to the totals shown.

More importantly, the CBO, like the Centers for Medicare and Medicaid Services and even the Medicare Trustees, recognizes that some of the vaunted “savings” promised in the Affordable Care Act are unlikely to come to fruition. For example, Congress for a decade now has repeatedly granted physicians a temporary reprieve from spending cuts mandated by the Balanced Budget Act of 1997. To comply with such statutory requirements now would require nearly a 30 percent a reduction percent reduction in physician fees paid by Medicare. In light of the devastating consequences to access that would result from imposition of such draconian reductions, no one seriously believes they will ever happen. Under a more realistic alternative fiscal scenario that assumes no physician fee reduction and other companion adjustments to how Medicare constraints really would play out as well as other assumptions, CBO projects that federal spending will have climbed to 75.9 percent of the economy by 2085!

One might suppose that a looming fiscal tsunami of that magnitude might be front and center in a president’s efforts to even-handedly describe the state of the union and what he planned to do about it. But judging from the laundry list of new spending initiatives proposed by the president, he is not particularly alarmed by this massive increase in the size of government. There appeared to be not a single problem on his list of priorities for which additional federal spending was not his suggested solution. That attitude does not bode well for making any progress on health entitlements. To be fair, the president did say he would be willing to contemplate addressing the Medicare and Medicaid entitlements problem if and only if Congress were willing to raise taxes on the 1 percent of Americans who already pay (again, according to the CBO) 29.5 percent of all federal taxes. Perhaps I misunderstood, but the president appeared to be saying that if Congress were unwilling to play the game according to his rules, the president would be happy to pick up his marbles and go home. It is hard to picture President Lincoln telling Congress he would be willing to address the attack on Fort Sumter only if he first got from them a pet piece of legislation, or FDR insisting on approval of one more component of the New Deal before he would lift a finger to respond to the attack on Pearl Harbor. Admittedly, the impact is much further in the future, but having the federal government sop up so much of GDP within 75 years would have adverse consequences that arguably would rival the nation’s being split in two or facing a Nazi empire in Europe.

More stunning still is that a serious bipartisan proposal to address the Medicare problem just recently got put on the table by House Budget Committee chairman, Rep. Paul Ryan and Senator Ron Wyden. Instead of hectoring Congress to learn a lesson from the U.S. military on teamwork, the president might have invoked the Wyden-Ryan proposal as a living breathing example of the kind of teamwork that will be essential to resolve the entitlements tsunami. Readers can judge for themselves why the president failed to do so. What we can be certain is that unless and until the country has a president willing to confront this problem squarely, our nation’s best days may no longer lie ahead.

Christopher J. Conover is a research scholar at Duke University’s Center for Health Policy and Inequalities Research, an adjunct scholar at AEI and affiliated senior scholar at the Mercatus Center at George Mason University. The charts shown are from his new book American Health Economy Illustrated, to be released in February 2012 by AEI Press. See PowerPoint version of Figure 20.7c. All figures were obtained from supporting tables from the CBO’s most recent Long Term Budget Outlook.

 

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Christopher J.
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