The (Long-Term) Cost of Being Sick

The CBO made another attempt today to point out something that not enough people realize: the rising cost of health care has huge impact on our long-term budget situation. Medicare, even more than Social Security, is going to be a problem, not just because there will be far more older people getting care than workers paying in, but because health care costs are rising so rapidly. Or as CBO Director Peter Orszag told the Senate budget committee today:

The nation’s long-term fiscal balance will be determined primarily by the future rate of health care cost growth. If health care costs continued growing at the same rate over the next four decades as they did over the past four decades, federal spending on Medicare andMedicaid alone would rise to about 20 percent of gross domestic product (GDP) by 2050—roughly the share of the economy now accounted for by the entire federal budget. Furthermore, controlling those federal costs over the long term will be very difficult without addressing the underlying forces that are also causing private costs for health care to rise. A variety of evidence, however, suggests that opportunities exist to constrain health care costs both in the public programs and in the rest of the health care system without adverse health consequences. Capturing those opportunities to reduce costs without harming health outcomes involves many challenges, including the time that may be necessary to generate significant savings— but even if reforms take time to generate savings, acting sooner rather than later can ultimately make a substantial difference.

Alice Rivlin at the Brookings Institution, one of our Facing Up partners, also tackles this issue in the latest edition of her book on Restoring Fiscal Sanity. (Full disclosure: She's also on the Public Agenda board). But there's no question that this is what makes Medicare one of the toughest long-term challenges we face. Social Security, by comparision, is straightforward: people pay taxes and get benefits based on formulas that the government sets (and can change). But Medicare costs involve the individual health decisions of millions of people, each with unique circumstances. And since the public hasn't worked through its views on reforming health care in general, we shouldn't be surprised if it takes some time to get them up to speed on Medicare. We've got to start talking about it sometime.