How Rising Health Care Costs Impact The National Budget

The defining problem of the United States federal budget is that the cost of health care is growing much faster than prices in the overall economy. The result is that Medicare and, to a lesser extent, Medicaid — the two programs dedicated to providing their enrollees with health coverage — become more expensive each year even when the benefit packages they provide remain the same. Buying the same amount of health care is costing the two programs ever more money, and that cost is rising faster than the increased tax revenue the government receives each year due to economic growth.

Today, the Incidental Economist flagged a remarkable set of graphs from Robert Dittmars at McSweeney’s that attempt to identify just how much this specific problem has contributed to the country’s deficit spending. Dittmars calculated what annual deficits (the blue line) and the national debt (the green line) would look like without health care costs factored in. When the lines go above zero the nation is running a surplus, and when they go below zero we’re adding to the debt:

A few points emerge from this graph concerning what our budget situation would have looked like if it weren’t for the rising trend in health care costs:

The debt was largely created under Reagan and solved under Clinton. Prior to 1980, annual budgets were balanced and the debt level was stable. Deficits and the debt then began to significantly increase, until we swung up into massive budget surpluses in the mid 1990s. In fact, the Clinton-era correction was overkill — the green line of cumulative debt goes well above zero. But since there’s no such thing as “positive” debt, that would’ve just meant more revenue left over for other programs to invest in the country’s needs.

Obama would’ve started from a much better budget position. While our deficits since the recession have been entirely necessary in order to support the struggling economy, their size has been alarming. But if it hadn’t been for health care costs, Obama’s deficits would’ve been smaller by several hunted billion dollars. He also would’ve started with a debt level essentially at zero, rather than being forced to add his deficits to an already sizeable debt problem.

We wouldn’t have unsustainable government spending. Under Dittmar’s calculations, debt increases were only a problem when the twin GOP goals of tax cuts and military spending got out of hand. And they were easily reigned in by subsequent budget corrections. Which means that outside of health care programs, government is not growing at an unsustainable rate. You would never know this from the budgets of Mitt Romney or the House Republicans, which both slash non-defense and non-Medicare spending to astonishing degrees.

Now, in some sense differentiating between Medicare’s payroll taxes and other revenue streams is arbitrary. At the end of the day, a certain amount of revenue comes into the government from all taxes, and a certain amount goes out in spending programs. What Dittmar’s calculation does clarify is that when Medicare and Medicaid were created, lawmakers assumed a certain amount of revenue would be necessary to fund them. Since then, the actual cost of these programs has diverged to an ever greater degree from that assumption — not because of any failure of discipline or frugality on the government’s part, but simply because of how the health care economy evolved.