By Dean Baker
Last month, a bipartisan group of prominent budget experts had a press event at the Brookings Institution where they argued that Congress had to make major cuts in Social Security, Medicare and Medicaid. They claimed large cuts in these programs were necessary in order to prevent the explosion in the budget deficit that is projected if these programs stay on their current course.
While these experts are right to point to the long-term fiscal problems facing the country, the real problem is not the budget and these key programs on which tens of millions of people depend. The real problem is the United States has a broken health care system, which is projected to get progressively more inefficient through time.
Since roughly half of the country’s health care costs are paid by the government, primarily through Medicare and Medicaid, the projected explosion in health care costs is also projected to lead to an explosion in government spending. If the health care system is never fixed, the burden on the budget will eventually be unsustainable, with annual deficits running into the trillions of dollars, exactly as the Brookings contingent claimed.
However, it is crucial the public recognize that the problem is health care costs, not a growing population of elderly. The two issues are easily confused, especially since most public sector health care costs go to provide health care for the elderly. The projected increase in the ratio of retirees to workers will impose a strain on the budget, but it will not be qualitatively different than the strain that aging has imposed in prior decades.
The country has always been aging - we are living longer - we can easily cover the cost of a growing population of retirees as long as the economy is healthy. With normal productivity and wage growth, our children and grandchildren will be able to support a larger population of retirees and still enjoy a better standard of living than we do; just as most of us now enjoy a better standard of living than our grandparents, even though we support a much larger number of retirees than they did in their working years.
However, if health care costs follow the projected trajectory, then the cost of Medicare, Medicaid, and other government health care programs will be unsustainable. Of course, in this scenario the rising cost of health care will also place an enormous burden on the private sector.
Our per person health care costs are already more than twice as high as the average in other wealthy countries like Germany, England and Canada. In the projected scenario, per person health care costs will be four or five times as high in the United States as in other countries by 2050. In this context, US firms will face an enormous competitive disadvantage if they pay for their workers’ health care costs.
If the companies don’t pay for insurance, then most workers will face an enormous struggle paying for insurance costs that will be almost as high as the typical wage of a worker today. In either case, workers will have far less money to spend on food, housing, education, and other necessary expenses, if health care costs grow as projected.
No one in the Brookings contingent would dispute the basic facts; we are all looking at the same numbers. If health care costs in the United States were brought in line with costs in other wealthy countries, all of which enjoy longer life expectancies than we do, then we would not be looking at scary budget projections 20 or 30 years down the road.
This suggests the urgency of fixing the US health care system. Health care reform is not only necessary to extend health care coverage to the uninsured, it is also essential for preventing our health care system from strangling the economy. Reform will require overcoming the opposition of extremely powerful lobbies, such as the pharmaceutical and insurance industries, but there really is no alternative.
As the Brookings contingent said, the current path is unsustainable. And it is not acceptable to tell our parents and grandparents they will just have to die because our health care system has made their care unaffordable.
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