Long-Term Deficit Disorder
    By Dean Baker
    t r u t h o u t | Perspective

    Thursday 27 July 2006

    In the quest to criticize the Bush tax cuts, many progressives have seized on long-term projections (often for the infinite future) showing the dire financial state, or even bankruptcy, of the federal government. These long-term budget projections should be treated with care. The Bush tax cuts are just a footnote in this story. The real story in these long-term projections is health care. If health care costs continue to rise as projected, it will devastate the economy. Exploding health care costs will also be bad news for the federal budget.

    It is important to keep your eye on the ball when talking about these long-term budget projections. A whole industry has developed to promote the notion that the aging of the baby boom generation will sink the budget. The key actor in this movement is Peter Peterson, a wealthy investment banker and former commerce secretary under President Nixon. Peterson has used his personal fortune to bankroll the Concord Coalition and to buy himself legitimacy in the media. His views are routinely given deferential treatment on public affairs talk shows, including by people who should know better, like Bill Moyers.

    The deferential treatment is essential, because if Mr. Peterson ever actually had to defend his views (as would be the case if he appeared opposite someone with a different position), he would quickly be forced to acknowledge the hoax. The story of US demographics is not very complicated. The ratio of retirees to workers is projected to rise in the next three decades. The main reason is that we are projected to live longer in the future than we do today.

    This prospect should not be terribly frightening. We are living longer today than we did thirty years ago. As a result, the ratio of retirees to workers is considerably higher today than it was in 1975. The rate at which the population ages is not projected to be very different over the next three decades than over the prior three decades, so there is no case that demographics trends present some great problem. The projected increase in living standards due to rising productivity will dwarf any declines associated with a larger population of dependent retirees.

    Demographics will not generate a nightmare story, but projections of exploding health care costs will. The Congressional Budget Office and the Center for Medicare and Medicaid Services (CMS) both project that health care costs will continue to grow far more rapidly than the economy, even after adjusting for the aging of the population. Their projections for health care costs are truly frightening. For example, the CMS projections imply that health care costs will average nearly $25,000 a year (in 2006 dollars) for people in the age range from 55-64 in the year 2035. The projections imply that the cost of treating someone over age 85 in 2035 will average more than $85,000 a year.

    If these projections for health care costs prove accurate, then the impact on the economy will be devastating. Most of the country will not be able to afford adequate health care insurance, and even those who can afford it will have to make large sacrifices to pay their bills. Since Medicare pays for health care costs for people over age 65, these health care cost projections also imply that the government will face huge financial burdens.

    Any serious person seeing these projections would immediately say that the United States has to fix its health care system. After all, the United States is the only country that has exploding health care costs. And, it has nothing to show for this spending in terms of outcomes; it ranks last among the wealthy countries in life expectancy and infant mortality rates. Obviously, we just have to set up a health care system like Germany, England, Canada, Sweden or anyone else.

    As an alternative, if US politicians are too incompetent or corrupt to fix the existing health care system, why not give people the choice to buy into one of the systems that work? I proposed a voucher system, "Medicare Choice Plus," that would save trillions of dollars by allowing Medicare beneficiaries to buy into the health care system of any country with a longer life expectancy than the United States.

    The point is that we can find ways to deal with the problem of exploding health care costs, but the key obstacle is powerful interest groups like the drug industry, the insurance industry, and the doctor lobbies. These are the groups responsible for the long-term deficit problems. When you hear the scare stories on the long-term budget, just keep saying the magic words, "health care."