If President Obama’s newly-proposed budget were to be enacted, its long-run projections show U.S. debt stabilizing as a percentage of GDP until approximately 2030, after which it begins to rise again indefinitely. Last Thursday, House Budget Committee Chairman Paul Ryan (R-WI) decided to take Treasury Secretary Tim Geithner to task over those numbers:
RYAN: Leaders are supposed to fix problems… Our government is making promises to Americans that it has no way of accounting for them. And so you’re saying, “Yeah, we’re stabilizing it but we’re not fixing it in the long run.” That means we’re just gonna keep lying to people. We’re going to keep all the empty promises going.
The most important thing to remember about the debt increase from 2030 onward is that it’s driven almost entirely by health care costs:
Some of this is the retirement of the baby boomers, and the resulting increase in retirees as a share of the population. Though Social Security is also effected by this, and its per year expenditures stabilize after a few decades at 6 percent of GDP. Some of this is also technological advancement, which just naturally makes health care more expensive as it’s able to do more things. Every advanced country’s health care is rising as a percent of GDP, but none are as high or rising nearly as quickly as the U.S. The fundamental problem is the cost of health care in America is rising at a much faster rate than overall economic output. And that’s the costs for everyone: Individuals, private insurers, and government alike. As a result, the amount of money the government is scheduled to spend each year on health care, the lion’s share of which goes to Medicare, is predicted to grow indefinitely as a percentage of GDP. Simply put, the thing Medicare buys is becoming ever more expensive, so Medicare’s budget is becoming ever larger.
There are two ways to solve this. One, the government can simply buy less health care over time — and by extension leave every American who has relied on that support to find some other way to make up the difference. That’s what Ryan and the Republicans did in their 2011 budget which passed the House last April. Ryan’s budget would’ve transformed Medicare into an exchange providing private insurance plans, with premium support to help seniors buy those plans. Ryan and the Republicans would then have slashed that support so drastically that by 2030 the typical 65-year-old would be paying 68 percent of their health care costs, according to the CBO. Absent those changes to Medicare, that amount would not rise above 30 percent. Ryan’s budget also called for severe cuts to Medicaid and discretionary spending, two-thirds of which would’ve fallen on the shoulders of America’s poorest and most vulnerable citizens.
That’s how the debt reductions in the “Path to Prosperity” budget Ryan shows off in the video were achieved: It simply stops providing seniors, the middle class, and the poor much of the support they now depend upon to buy health care. As the CBO put it, “Those differences in specified growth rates [of premium support] are the fundamental reason why CBO projects that deficits and debt will be much smaller under the proposal than under either of CBO’s long-term budget scenarios.” Ryan’s budget doesn’t reduce the growth in health care costs, it simply shifts the burden of dealing with them from society and the American government to vulnerable individual citizens. In a nutshell, that’s the leadership Ryan is calling for: Not repairing the system to fulfill the government’s promises, but simply ending the promises almost entirely.
With the Affordable Care Act, the Obama administration chose the second solution to the problem: Reform the system so that health care costs across the system stop becoming so much more expensive so fast, and the government can continue providing citizens with the support it always has. In the private realm, the ACA moves individuals not covered by employers onto exchanges to create a more efficient market, and institutes an excise tax to hold down the cost of high-end private insurance plans. For Medicare, the ACA established the Independent Payment Advisory Board to propose internal reforms (the IPAB is specifically forbidden from proposing reductions in benefits) and launches a grab bag of pilot programs to make the delivery of health care more efficient and effective. All of which is aimed at lowering the rate at which health care costs grow, and thus making both our public and private health care systems — and the support they provide — more sustainable.
The CBO was actually quite conservative in its scoring of these reforms, and credited them with little-to-no potential to reduce deficit spending. The deficit reduction the ACA was credited with — several hundred billion in its first decade and over a trillion in its second — came from direct increases in revenue or direct cuts to spending. There’s reason to believe the CBO underestimated on this point. If it did, then thanks to legislation we’ve already passed, U.S. debt is going to rise at a slower rate than the chart Ryan was brandishing suggests.