Health Care and the Long-Run Budget Deficit
The CBPP did an interesting analysis of the long-term budget deficit issue yesterday that reformulated the familiar point about health care costs and deficits by observing that there’s a revenue-side impact here too:
Long-term spending projections. After 2019, we extrapolate components of the federal budget based on the growth rates estimated in CBO’s June 2009 report. We adopt CBO’s rate of growth for Social Security spending in our projections. Our projections of Medicare and Medicaid spending assume that each program will grow at the rate CBO assumes for the two programs combined.
We assume that all other spending will grow at the rate of inflation and population growth combined, meaning that it will gradually shrink as a percentage of GDP.
Long-term revenue projections. Our revenue projections largely follow CBO’s alternative fiscal scenario, which assumes extension both of the 2001 and 2003 individual income tax cuts and of AMT relief. In addition, our numbers — like CBO’s — assume a decrease in revenues due to increased private health care spending: as health care costs rise, workers are likely to receive more of their compensation in the form of tax-exempt health care benefits and less in the form of taxable wages, so total revenues decline. But because we project that excess cost growth in other health-care spending will mimic that in Medicare and Medicaid, whereas CBO estimates it will be somewhat lower than in those programs, our revenue estimates are lower than CBO’s.
Thinking about the long-run deficit you can really abstract away from all the present political controversies and just focus on two facts. One is that the US has an existing commitment to provide generous comprehensive health care to all senior citizens. The other is that health care costs are rising faster than GDP. That means that unless we’re prepared to violate that commitment (which it seems to me we aren’t) we need to prepare ourselves for taxes to steadily increase as a percent of GDP (which it seems to me we also aren’t). The broad “center” of the political spectrum, ranging from the leaders of both parties, is stuck in the middle of this pincers movement. You have left-wing and right-wing versions of ideas about how to slow the growth in health care spending, but I’ve never seen a credible argument that any of these things can actually slow health care growth to less than the rate of GDP growth.
Note that some sectors or other have to grow faster than GDP. The mere fact that something is doesn’t show that anything has “gone wrong.” We just happen to have substantially assigned one such category to the public sector; and we’ve so assigned to to an even greater degree than most people realize via implicit tax subsidies.
13 Responses to “Health Care and the Long-Run Budget Deficit”
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October 6th, 2009 at 10:49 am
The question of how much GDP should go to health care really ought to be looked at in the context of climate change. One argument against action on restricting emissions is that this will slow down economic growth and hurt people in the developing world. But in reality, it appears that GDP growth is going towards health care in developed nations.
October 6th, 2009 at 10:52 am
The GOP would certainly rather sharply curtail Medicare than have a country where taxes on the wealthy steadily increase.
October 6th, 2009 at 10:52 am
Maybe we should change how payroll taxes work so that rather than a fixed percentage of your income determining your taxes instead some formula including medical costs growth is used. Politicians could adjust the formula, but taxes would automatically increase.
October 6th, 2009 at 10:57 am
It seems to me that the pro-reform people need to hammer away that the anti-reform people are either for future tax increases and/or for future benefit cuts. They have to be because those are the only choices if we do nothing (or do something inadequate).
Repeat often.
October 6th, 2009 at 11:58 am
Great, craig, take the most regressive tax there is and make it even more regressive. That’s some bold thinking there.
October 6th, 2009 at 12:18 pm
A computer used to cost $10000.-, now you can get it for $500.-. If some or ven most of the saved $9500.- goes to health care, where is the problem? Similarly food has gotten much cheaper (compared to incomes), clothing has become cheaper, almost anything that is manufactured has become cheaper.
I don’t say cost control is a bad idea, but to the extent that we get more bang for the health care buck (antibiotics, cancer therapy, future improvements) we’ll have to be prepared to pay a larger share of our wealth for it.
As for the other point Matt is making: we should not try to solve our grand children’s problems (or rather the ones we anticipate them having). A system that will need another fix in 10 years is a reasonable goal. We will never be able to fix these problems “once and for all” (President bush about Social Security privatization). And the future generation have a right and a duty to make their own decisions.
October 6th, 2009 at 1:03 pm
I say we go for cutting Medicare benefits and teach those self-indulgent boomers a lesson for electing Reagan and the Bushes, “you want to pay no taxes all your life and then turn around and get unrestricted tax-funded health care, well fuck you! Oh and a bonus fuck you for ignoring global warming for a couple decades, assholes!”
October 6th, 2009 at 1:07 pm
Albrecht:
I don’t say cost control is a bad idea, but to the extent that we get more bang for the health care buck (antibiotics, cancer therapy, future improvements) we’ll have to be prepared to pay a larger share of our wealth for it.
The problem is that we spend more than any other advanced country – costs have gone up 10% the last decade and will go up 10% the next – and we get less bang for the buck than other countries as Obama said in his speech to Congress. Spending on healthcare will crowd out other needed spending.
Why is this difficult to understand? Ideology? Part of the problem is that Wall Street (who we just bailed out) tells the insurance companies that they have one priority: profits. All other considerations are secondary.
October 6th, 2009 at 3:03 pm
This makes seniors’ whiny objections to health reform seem even less defensible, doesn’t it? Not only do they want to deprive younger people of the kind of reliable coverage they receive, they’re expecting that we pay even more in taxes to support it. Shouldn’t this blatant redistributive policy earn a little more opposition from the right wing?
Of course I’m under no illusions of consistency. I fully expect them to revive this argument as long as there’s no alternative to Medicare on the table.
October 6th, 2009 at 3:11 pm
It really does seem like there’s a big risk of a giant age divide here. The Boomers rejected responsible governing for their entire era of political dominance, and now they’re violently rejecting any attempt to deal with their irresponsibility (sometimes with literal threats of violence).
Matt assumes that our commitment to public insurance for the elderly is rock solid. I really hope that’s true. But I’m not sure it’s assured when the people paying an ever-larger share of the bill are told they can’t actually access this service. All the more so when they’re making parallel sacrifices to deal with climate change and deficit-created inflation.
October 6th, 2009 at 10:33 pm
Those people don’t represent boomers. They’re Republicans. They’re people who are STILL Republicans. These calls for collective punishment are disgusting. Regardless of what baby-boomers do and do not advocate, they’ve been paying into Social Security all their working lives.
As generation Jones, and having been paying into Social Security since I was 15, I must say, I never once felt bitter about “paying for” the currently retired. I always saw it as investing in my future. Try it some time.
October 7th, 2009 at 9:27 am
we are talking about decreasing subsidies and increasing premiums for the wealthiest seniors
October 7th, 2009 at 10:06 am
It seems like you’re thinking of the issue in a partially skewed way. As you said, there’s nothing necessarily wrong with one sector growing one way or another. You’re right, whether that is health care or some other industry.
The problem is that health care appears ready to continue to grow at an exponential rate with an enormous amount of waste that shows no signs of changing. The industry as a whole will grow, but so will the inefficiencies and thus the spending will be out of control. It will break the budget while providing less and less in value.
I don’t know whether it’s possible to solve the majority of the problem through better incentives and effectiveness research, but it looks like it’s a big, big step in the right direction. If nothing else, it seems reasonable to expect any necessary tax increases to deal with naturally increasing costs, for health care or for anything else, to be far more reasonable.