Yuval Levin and I have a new article up at The Weekly Standard on why the debate over spending cuts versus tax increases doesn’t get to the root cause of the still-looming debt crisis — namely, spiraling health-care costs:
Simply put, our coming debt crisis is a health care cost crisis. In 1971, the government spent 1 percent of GDP on Medicare and Medicaid. Four decades later, spending on these two programs has more than quintupled to 5.6 percent of GDP last year. In its latest long-term outlook document, published in June, the Congressional Budget Office projected that spending on these programs, and on the new entitlements created by Obama-care, will reach 10.4 percent of GDP by 2035 and 13 percent by 2050. In the meantime, all other government spending combined (including Social Security, defense, domestic discretionary spending, and everything other than interest on the debt) will actually decline, from 17 percent of GDP today to 14.6 percent in 2035 and 14 percent in 2050….
[President Obama’s proposed cuts to Medicare] might produce marginal savings for a time, but they would not come close to addressing the heart of the problem. They would lock in place the immensely inefficient open-ended payment structure of Medicare (which is the chief driver of health care cost inflation) and the new health care law’s architecture, with the federal government calling the shots in the health sector. Under such circumstances, cost cutting can only be achieved at the expense of quality care — and even so it rarely happens. Worse yet, such trivial steps would make real reforms less likely, by letting our leaders persuade themselves they have dealt with entitlements when in fact they would have only bought a little time.
To fix health care and the federal budget, reformers must set their sights on a much more fundamental shift, away from central planning and toward a genuine marketplace in health care — with cost-conscious consumers subjecting insurers and providers to competitive pressures.
Read the whole article here.