Five Things You Need to Know About Health Care and the National DebtDec 17, 2010
The battle over health care reform has to count as one of the most exhausting public debates of recent history, and it’s not over yet. The plan passed by Democrats in 2010 is supposed to phase in over the next few years, and now that Republicans have taken control of the House they’re vowing to either repeal it or cut off its funding. The ruling by a Virginia federal judge that requiring people to buy health insurance or face fines is unconstitutional raises the possibility that the law might not stand up in court.
There are lots of angles to health care reform, but one of the biggest is its impact on the federal budget. In fact, fixing health care and fixing our fiscal problems go hand in hand. Here’s five things you need to know about why:
- The two factors driving our long-term budget problems are rising health care costs and an aging population – and health care is the bigger of the two. The combination of both an aging population and health care costs rising faster than inflation means that spending on Medicare, Medicaid and Social Security are going to be pushed way, way up.
That’s why all the government budget agencies say the federal budget is “unsustainable.” The Congressional Budget Office (CBO) says the health care programs make up 80 percent of the projected growth in mandatory spending.
- Medicare is the real budget-buster. Since Medicare has both rising health care costs and an increasing number of recipients as the baby boomers retire, it’s going to end up being the toughest problem to solve. The Government Accountability Office likes to explain our budget problems by talking about $56 trillion worth of “unfunded liabilities” – that is, financial obligations the government will have to pay in the future, but where there’s no definite plan for how the government will get the money. The cost of Medicare accounts for $34 trillion – that is, more than half – of the total amount of unfunded liabilities which loom ahead of us over the next 75 years.
- So getting the rise in health care costs under control would help bring the budget under control, too. Not that this would be easy. Health care costs have been rising well above inflation for decades. Turning that around is a big job.
- The best projections say the Obama health care plan will help, but it’s not the total answer. This is a controversial point, since no one’s absolutely sure how the health care plan will play out. But the nonpartisan CBO says the plan will trim the deficit slightly over the next decade ($143 billion by 2019) and by $1 trillion or more after that. Medicare’s trustees say that the law as now written will significantly extend the life of the program’s trust fund, by 12 years, to the year 2029.
- But there are a lot of “ifs” in those projections. The projections depend on Congress following through on the changes planned in the law, like cutting payments to doctors and hospitals, and not adding anything new that would up the cost. Most experts would say that’s not likely. In addition, the projections assume the law succeeds in making the health care system more efficient and productive to hold down costs. If that doesn’t work – and critics, including Medicare’s own actuary, are doubtful – Medicare will cost more than projected.
So what now? If we want to control our deficits and national debt in the long run, there’s really no way around this problem. The Choosing the Nation’s Fiscal Future report offered four different paths to keep the national debt manageable, but all of them require us to control government spending on health care. (For a look at lots of ideas on how to do that, read the report’s section on health care).
This means that if we stick with the Obama health care plan, we have to follow through on the measures designed to cut costs. And if the plan is repealed, thrown out in court or hobbled from lack of funding, we’ll have to come up with something else. There are lots of ideas for going further that might cut costs more, from a Canadian-style “single payer” system, often suggested by liberals, to replacing Medicare with vouchers to buy private insurance, often proposed by conservatives. Regardless of which approach we choose, depending on its pros and cons, we’re going to have to do something about this problem.
Fortunately, we do have options, lots of them, that can bring the debt under control and still let us get what we need from the government. To find out more, visit OurFiscalFuture.org on the Web, on Facebook, or @FiscalFuture on Twitter.
Sources: Congressional Budget Office, Long-Term Budget Outlook, June 2010); Government Accountability Office, (Long-Term Fiscal Outlook; Office of the Actuary, Center for Medicare and Medicaid Services, “Estimated Financial Effects of the Patient Protection and Affordable Care Act as Amended, and 2010 Medicare Trustees Report.