Why The Government Has A Health Care Cost Problem And Not A Spending Problem

Posted on


At the end of last week, and just in time for the arrival of the so-called “fiscal cliff” debate, the Congressional Budget Office has released a report on lawmakers’s various options for reducing the deficit. One graph in particular shows that — contrary to conservative and Republican rhetoric — the long-term debt problem did not come from Congress’ “out of control” spending, but rather a technical problem with one specific area of government spending: health care costs.

Mitt Romney and Rep. Paul Ryan (R-WI) pushed for budget cuts during their unsuccessful presidential campaign, warning about “unsustainable spending” on everything from food stamps to Pell grants. But spending is only unsustainable when it’s projected to perpetually increase as a share of the economy, and this graph shows that most government spending doesn’t actually meet that definition. Programs devoted to health care — Medicare being the bulk of the problem, plus Medicaid, CHIP, and the subsidies for Obamacare’s exchanges — are the only ones that do:

Social Security plateaus around 6 percent of the economy by 2035. All other spending outside of health care programs will actually drop to just below 10 percent by that time. That’s lower than the historical average for that spending, which was 11.6 percent of the economy from 1972 to 2011. And this is all according to CBO’s “alternative fiscal scenario,” which assumes that neither the budget sequester nor the cuts to Medicare’s payment rates go into effect — under CBO’s more optimistic scenarios, spending drops even further.

The unsustainable trend in health care programs is occurring simply because the cost of health care itself has been increasing much faster than growth in the overall economy. That problem spans not only the public and private sectors of the United States’ health care market, but most of the western world. Medicare’s budget is just riding the wave of overall cost growth, while actually keeping its costs lower than private insurers. In the realm of what it directly controls, Congress has actually shown significant spending discipline — perhaps too much, as cuts to “all other” spending often come at the expense of social programs that safeguard the nation’s most vulnerable citizens.

This is why Republicans’ approach to budget reform has been largely bizarre and backwards. They would have held to the same spending paths for Social Security and Medicare as President Obama, while getting their deficit reduction by massively slashing the one area of spending that’s already headed down. It’s something lawmakers should keep in mind for the upcoming debate over the fiscal cliff, which would impose yet another round of cuts on the spending in the “all other” category.