Free Markets, Free People

CBO, Entitlments, Health Care Reform and the Deficit

One more time into the breach. The CBO has issued a warning to Congress about entitlement spending. Again. Here’s a key paragraph:

Almost all of the projected growth in federal spending other than interest payments on the debt comes from growth in spending on the three largest entitlement programs–Medicare, Medicaid, and Social Security.

Most of you know that Medicare and Medicaid have an unfunded future liability of 36 trillion dollars. That’s about 3 times the annual total GDP of the US economy. And they are the very same type of “public option” program – i.e. government insurance – that the left says is so very necessary and crucial to real “health care reform”.

In other words, the left’s argument is that adding at least 47 million (presently uninsured), plus the possibility of adding 119 million who are shifted to the public option from private insurance (private insurance, btw, doesn’t have any effect on the deficit whatsoever since we, the private sector, are paying for it) will somehow make the deficit picture better?

I’m obviously missing something here.

With the public option, we’re adding a new entitlement (47 million who presently supposedly can’t afford insurance, meaning taxpayers will subsidize theirs). Assuming it is set up originally to be paid for by premiums, at some point, like Medicare and Medicaid, and every other government entitlement program I can think of, it will pay out more than it takes in. How can it not? It is a stated “non-profit” program and it will include subsidies. At some point, another revenue stream is going to be necessary as it burns through the premiums with its payouts.

Well, say the proponents of government involvement in your health care, we’re going to save money by doing preventive health care. Yes, preventive care is the key to lower costs because a healthier population is one which visits the doctor less. While that may seem to be at least partially true (you’d think a healthier population would, logically, visit the doctor less) the part that is apparently missed when touting this popular panacea is the cost of making the population healthier (and the fact that the assumption of less visits isn’t necessarily true) doesn’t cost less – it costs more:

If health care providers can prevent or delay conditions like heart disease and diabetes, the logic goes, the nation won’t have to pay for so many expensive hospital procedures.

The problem, as lawmakers are discovering to their frustration, is that the logic is wrong. Preventive care — at least the sort delivered by doctors — doesn’t save money, experts say. It costs money.

That’s old news to the analysts at the Congressional Budget Office, who have told senators on the Health, Education, Labor and Pensions Committee that it cannot score most preventive-care proposals as saving money.

So with that myth blown to hell, we’re now looking at a government plan which will add cost to the deficit by subsidizing the insurance of 47 million and (most likely) many more, plus a plan to use a more costly form of medicine as its primary means of giving care.

But, back to the entitlement report – or warning. The CBO says that unless entitlements are drastically reformed (that means Medicare, Medicaid and to a lesser extent, Social Security) we’re in deep deficit doodoo:

The most frightening findings in this report are the deficit and debt projections. In this year and next year, the yearly budget shortfall, or deficit, will be the largest post-war deficits on record–exceeding 11 percent of the economy or gross domestic product (GDP)–and by 2080 it will reach 17.8 percent of GDP.

The national debt, which is the sum of all past deficits, will escalate even faster. Since 1962, debt has averaged 36 percent of GDP, but it will reach 60 percent, nearly double the average, by next year and will exceed 100 percent of the economy by 2042. Put another way, in about 30 years, for every $1 each American citizen and business earns or produces, the government will be an equivalent $1 in debt. By 2083, debt figures will surpass an astounding 306 percent of GDP.

The report also finds high overall growth in the government as a share of the economy and of taxpayers’ wallets that provides an additional area of concern. While total government spending has hovered around 20 percent of the economy since the 1960s, it has jumped by a quarter to 25 percent in 2009 alone and will exceed 32 percent by 2083. Taxes, which have averaged at 18.3 percent of GDP, will reach unprecedented levels of 26 percent by 2083. Never in American history have spending and tax levels been that high.

Here’s the important point to be made – these projections do not include cap-and-trade or health care reform.

Got that? We’re looking at the “highest spending and tax levels” in our history without either of those huge tax and spend programs now being considered included in the numbers above. Total government spending, as a percent of GDP is now at an unprecedented 25%. And they’re trying to add more while this president, who is right in the middle of it, tells us we can’t keep this deficit spending up forever.

Fair warning.

~McQ

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4 Responses to CBO, Entitlments, Health Care Reform and the Deficit

  • Taxes, which have averaged at 18.3 percent of GDP, will reach unprecedented levels of 26 percent by 2083. Never in American history have spending and tax levels been that high.

    We should be so lucky.  At the rate we are going, taxes will spike significantly within just a few years, as the Obama administration “suddenly” discovers that their policies will cost “a lot more than we anticipated.”  Thankfully, we will still be able to tax the rich.  We will just define the rich as anyone making more than $10,000 a year.

  • I’m fully in agreement that government spending (at all levels) and the forthcoming rise in taxation are insane. However, I have a big problem with making arguments (not just in this report, many other places also) based projections as far out as 2050, much less 2083. It’s totally guesswork. Anyone today making projections for 2050 is in the same boat as somebody in 1969 would have been making budget predictions for us now – what about the current situation (fiscally, socially, technologically, etc.) in 2009 could anyone in 1969 have reasonably foreseen? It’s enough to try to predict the sort-of-forseeable future maybe 10 years out and identify the big drivers; the world 70 years from now is unknowable.

    Sorry to pick nits, it’s just that I do long-term modeling predictions for a living and this kind of thing drives me nuts.

  • Yeah Chuck, that’s a valid point, but nevertheless, the numbers are still very big and the current trajectory is unchanged so it does serve some purpose.  We can’t just let it ride, counting on unknown changes to fix the problem.  It’s a known, provable problem (unlike AGW) that needs to start having a redirection.

  • It’s Bush’s fault somehow.

    Or maybe Palin.

    Nobody seems to want to hear the truth