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Health Care Costs Are Driving State Budget Woes, Like All Other Kinds Of Woes Everywhere

By Matthew Yglesias on February 28, 2011 at 1:29 pm

"Health Care Costs Are Driving State Budget Woes, Like All Other Kinds Of Woes Everywhere"

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Paul Krugman and Kevin Drum write up a new Dean Baker paper (PDF) arguing that state pension shortfalls are actually pretty small, and mostly driven by the recent stock market crash.

But that doesn’t mean that all’s well when it comes to public employee retirement. Instead as Ryan McNeely argues, we’ve basically got a version of the Social Security / Medicare thing. The arm of federal retirement security programs dedicated to giving people money has a modest, manageable problem. The arm of state worker retirement programs dedicated to giving people money has a modest, manageable problem. But commitments to cover people’s health care costs are a huge problem in a world where health care costs are growing as a share of GDP.

Of course the exact same thing is playing out in the private sector. Over the past twenty years, corporate compensation costs have been rising much faster than wages. That’s because employers are paying more for health benefits. The private sector, in effect, has been Social Security to keep Medicare affordable. Or cutting pensions to keep retiree health care costs affordable. The fact that we keep defaulting in that direction reflects the political and social clout of the health care sector but the evidence is pretty overwhelming that providing health care services is not a cost-effective way of promoting health. Most people would be better off with more money and less health care coverage.

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