“A Healthy Budget” by John Edward

John Edward, a resident of Chelmsford who earned his master’s degree at UMass Lowell and who teaches economics at Bentley University and UMass Lowell, contributes the following column.

The result was as expected. The government averted the fiscal cliff, for now. However, they did not solve the budget problem. Spending still exceeds revenue. The gap is huge. We still do not have a long-term plan to fix it.

We have to get health care spending under control. Otherwise, there is no hope for getting and keeping the budget under control.

The financial crisis did not cause the fiscal crisis. The stimulus programs passed in response to the financial crisis did not cause the fiscal crisis.

The federal debt problem has been a long time in the making. As stated in a recent Federal Reserve study: “The analysis here shows that the U.S. deficit/debt problem began during the early 1970s when the government started to increase spending significantly without a corresponding increase in tax revenue.”

Our national debt was 36 percent of Gross Domestic Product (GDP) in 1970. By 2007, it was 64 percent. Then came the Great Recession. Then came the Bush and Obama stimulus packages in 2008 and 2009. The debt quickly rose to over 100 percent of GDP.

Even without the recession and stimulus, the same thing would have happened in time. The Fed study estimates the debt would have reached 100 percent of GDP by 2017.

The Great Recession hastened the day of reckoning. The problem was building when times were good. Only when times got bad did the debt get everyone’s attention.

The big budget buster has been health care. The same Fed study states: “most of the increase in spending that generated the persistent deficit over the 38 years before the financial crisis was spending on Medicare and Medicaid.”

In 2007, Medicare spending as a percentage of GDP was 5 times what it was in 1970. The Congressional Budget Office (CBO) estimates Medicare spending will continue to increase dramatically in the next 25 years.

Part of the problem is simple demographics. Most people fall under Medicare when they turn 65. In 1970, 9.8 percent of the U.S. population was 65 and over. By 2010, it was 13 percent. The Census Bureau projects that by 2030, 19 percent of us will be 65+.

Medicare covers 50 million elderly and disabled people. The CBO estimates it will grow to 80 million by 2030.

The larger problem is how expensive health care is. A big part of the problem is we are not Paying for health care.

The huge increase in Medicare spending mirrors huge increases in overall health care spending. In 1970, health care spending was 6.4 percent of GDP. By 2007, it was 16 percent. It is projected to be almost 30 percent by 2030.

Fiscal cliff negotiations considered so-called entitlement programs, including Medicare. The negotiations did not go anywhere. Worse, they were not headed anywhere that would actually result in reducing cost.

Many have criticized the President and Congress, appropriately so, for “kicking the can down the road.” Every time we appear to be facing a crucial budget deadline, they find a way to delay meaningful action.

Some have criticized the President for concentrating on the Affordable Care Act during his first term. That criticism is inappropriate. Obamacare did not go far enough. It did take important steps toward reducing costs.

The CBO estimates that under current law, federal spending on health care will be 9.6 percent of GDP by 2037. Without Obamacare, they estimate it would grow to 10.4 percent of GDP.

The fiscal cliff negotiations focused on shifting who pays for health care. That also is just kicking the can down the road. The problems are how we deliver health care, what we pay for, how we pay for it, and the results we get.

The results are not good. We spend well over twice as much per person on health care as other nations. Yet, a recent study by the Harvard School of Public Health shows we are not getting our money’s worth. The study looked at “healthy life expectancy.” It adjusted life expectancy for chronic pain and disabilities. The U.S. ranked 32nd for male healthy life expectancy and 35th for females.

When the federal government created Medicare in 1965, less than half of people over 65 had any health insurance. Now coverage for the elderly is virtually universal.

Medicare and Social Security have had a dramatic effect on quality of life for the elderly. In 1965, almost 30 percent over 65 were living in poverty. Now it is under 9 percent.

Medicare gets high ratings for customer service, and very high ratings for efficiency. Medicare and Medicaid serve our most vulnerable taxpayers. We should not turn our backs on them now. We should not be trying to fix the debt problem on their backs.

Instead, we need comprehensive health care reform that goes beyond Obamacare. Right now, the President should focus on the budget. However, during his second term he must find further health care cost savings if we are to have a healthy budget.

Medicare is not the problem with the budget. Medicare must be part of the solution. I can say the same of Social Security. More on that next month.

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