Guess What? We’re Broke!

Guess What? We’re Broke!
The Congressional Budget Office released the nation’s 2012 Long-Term Budget Outlook last week. To make a long story short, Uncle Sam is shaking out the few coins left at the bottom of his piggy bank and is projected to spend a lot of them on healthcare entitlement programs.

In addition to projecting what would happen if current law actually plays out, the CBO also looked at what will happen if current policies are allowed to continue. So, for example, it reviewed what would happen if the federal government actually gave Medicare providers the dramatic plan cut the laws on the books say it will, as well as if Congress passes another “doc fix” bill and never actually changes its level of spending for Medicare provider services, which is historically what happens. Unsurprisingly, the report paints a fairly bleak future of debt if current tax and spending policies are allowed to continue.

The CBO projected that extending the Bush tax cuts, preventing a decline in Medicare payment rates for physicians and turning off the Budget Control Act (BCA) sequester scheduled to kick in the first week of January 2013 would increase federal debt held by the public by one-third in 10 years. These policies would cause federal debt held by the public to exceed 90% of the GDP in 2022, compared to federal debt held by the public of about 60% of the GDP if the tax cuts expire, Medicare payment rates for physicians are reduced and the BCA sequester takes hold. Debt held by the public at the end of 2012 is projected to be 73% of the GDP. The CBO said increased debt would result in higher interest payments, restrict policymakers’ ability to use tax and spending policies to respond to unexpected challenges, and increase the probability of a sudden fiscal crisis, noting, “The explosive path of federal debt under the alternative scenario underscores the need for large and timely policy changes to put the federal government on a sustainable fiscal course.”

The need for dramatic reform to maintain fiscal order is particular apparent with regard to federal healthcare spending as the report points out that “the aging of the U.S. population and the rising costs for health care mean that the combination of budget policies that worked in the past cannot be maintained in the future.” The CBO projects that four-fifths of the total projected increase in non-interest spending over the next 25 years will come from government spending on Medicare, Medicaid and, “to a lesser extent,” insurance subsidies provided under PPACA to purchase health insurance through state-based exchanges.

One of the biggest problems when it comes to this healthcare spending is demographics. The aging population and the PPACA increases to Medicaid and subsidy eligibility will put so much increased demand of these programs, that even if the medical care cost curve is bent (and both the CBO and the Medicare actuary have expressed doubt that PPACA will reduce costs long-term), they are still unsustainable.

Another issue the CBO uncovered concerns the premium tax credits lower-income individuals are set to receive in 2014 to purchase health insurance in the new Exchanges. The report shows that if the law is fully upheld, then over time its subsidies will become less meaningful to people and will need to be altered to keep the population at the subsidy level it will become accustomed to. So the report’s alternative fiscal scenario presumes that policy-makers will not be able to tolerate individuals being mandated to buy health insurance they cannot afford and assumes greater spending on PPACA’s subsidies in 2022 on forward.

The bottom line: slowing health costs alone won’t solve our financial problems and our public health programs need to be restructured right away, while they still can.

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