Curing the Future

Following up on my post last week on Social Security: Though it seems clear to me that this program is not nearly in the financial trouble many fear-mongers assert, I’d never claim that the federal government doesn’t have some major budget worries. But they’re not necessarily the ones that get the attention.

Two recent articles in The New England Journal of Medicine note that while Social Security really isn’t a problem, Medicare and Medicaid are. Peter Orszag, director of the Congressional Budget Office, and CBO senior analyst Phillip Ellis make these important, underemphasized, and rather frightening points:

The long-term fiscal condition of the United States has been largely misdiagnosed. Despite all the attention paid to demographic challenges, such as the coming retirement of the baby-boom generation, our country's financial health will in fact be determined primarily by the growth rate of per capita health care costs. [Emphasis added.] Yet discussions of Medicare and Medicaid policy as well as broader health care reforms have not seriously addressed the issue of how to slow growth in spending. Instead, recent debates have focused on how much to increase spending for the Medicare prescription-drug benefit, how to expand coverage for children, and how to avoid scheduled cuts in Medicare physician fees.

Those proposals address important objectives, but putting the United States on a sound fiscal footing will require a clearer understanding of the role of health care costs in the long-term budgetary outlook. Federal spending on Medicare and Medicaid is expected to total 4.6 percent of the gross domestic product (GDP) this year, and the Congressional Budget Office projects that without changes in laws, such spending will reach 5.9 percent of the GDP by 2017—an increase of nearly 30 percent in 10 years. Over the same period, Social Security spending is predicted to increase from 4.2 percent of the GDP to 4.8 percent.

Beyond 2017, these trends are poised to accelerate—driven primarily by rising costs per enrollee for health care. Over the past four decades, costs per beneficiary for Medicare and Medicaid have increased about 2.5 percentage points faster per year than per capita GDP. If costs continued to grow at the same rate over the next four decades, federal spending on Medicare and Medicaid would reach about 20 percent of the GDP by 2050—roughly the same share of the economy that the entire federal budget accounts for today.

You can these two articles about the CBO’s budget concerns here and here.

Last week, I bravely called Halloween America’s stupidest holiday. Thanksgiving is certainly our finest. (I’m not including true “holy days” like Christmas and Rosh Hashanah—they’re at a higher level, and besides, they’re not as widely observed.) So a joyous one to you and to everyone you love. But stay healthy!