The editors of recently invited Charles Blahous, David Malpass, and me to provide some commentary on the state of fiscal and monetary policy as President Obama begins his second term. In my contribution to the collaborative article, I make the case for market-friendly reforms to American health care entitlement programs.

At the heart of the nation’s fiscal challenges are the rising costs of the major health care entitlement programs — Medicare, Medicaid, and the new subsidies provided by the 2010 health care law. In 1972, total federal spending on Medicare and Medicaid was just 1.1 percent of GDP. By 2010, the costs of these programs had risen to 5.5 percent of GDP, and CBO projections from last year show the costs rising to 9.1 percent in 2030 when the new entitlement spending from Obamacare is also added in and when plausible assumptions about on-going enforcement of arbitrary cost-cutting measures are used.

The prospects for seriously addressing the problem of health entitlement spending is not promising in the president’s second term in large part because there is a sense in his administration and among congressional Democrats that Obamacare has already largely solved the problem. They argue that the provisions cutting future Medicare spending in the new law will work, and that numerous, government-initiated efforts to cut costs (such as the Accountable Care Organization program in Medicare) will fundamentally transform how health care is delivered in the United States.

You can read the rest of my piece, along with the contributions of David Malpass and Charles Blahous here.