Simply put, our coming debt crisis is a health care cost crisis. In 1971, the government spent 1 percent of gross domestic product on Medicare and Medicaid. Four decades later, spending on these two programs has more than quintupled to 5.6 percent of the GDP last year.
In its latest long-term outlook document, published in June, the Congressional Budget Office projected that spending on these programs, and on the new entitlements created by Obamacare, will reach 10.4 percent of the GDP by 2035 and 13 percent by 2050.
In the meantime, all other government spending combined (including Social Security, defense, domestic discretionary spending and everything other than interest on the debt) will actually decline, from 17 percent of the GDP today to 14.6 percent in 2035 and 14 percent in 2050.
The CBO projects that annual budget deficits will soar over this period to more than 15 percent of the GDP each year by 2035 and 25 percent by 2050, and the national debt will be more than twice the size of the economy and growing. So even if the agency’s (likely too-rosy) projections of economic growth come true and nonhealth spending falls as a share of the economy, health-entitlement spending would still grow fast enough to push the country off a fiscal cliff. Fixing our health care entitlements is the essential deficit and debt reform.
In a study released July 28, as the debt-ceiling deadline approached, the actuaries of the Obama administration’s own Centers for Medicare and Medicaid Services found that Obamacare will increase, not reduce, national health expenditures — bending the cost curve not down but up, and exacerbating an already critical problem.
Marginal cuts would not come close to addressing the heart of the problem. They would lock in place the immensely inefficient open-ended payment structure of Medicare (which is the chief driver of health care cost inflation) and the new health care law’s architecture, with the federal government calling the shots in the health sector.
Under such circumstances, cost cutting can only be achieved at the expense of quality care — and even so, it rarely happens.
Worse yet, trivial steps would make real reforms less likely, by letting our leaders persuade themselves they have dealt with entitlements when in fact they would have only bought a little time.
To fix health care and the federal budget, reformers must set their sights on a much more fundamental shift, away from central planning and toward a genuine marketplace in health care — with cost-conscious consumers subjecting insurers and providers to competitive pressures.
Public funding would be focused on those who need it most, and everyone would have strong incentives to sign up for high-value, low-cost plans to cut their premiums.
If spending on health-entitlement programs is not brought under the discipline of an effective marketplace, then American health care, and our economy as a whole, will be on the road to ruin.
This article was adapted from The Weekly Standard.