Download Promise or Tease? Mismatch between taxes and promised

Three Health Care Paradoxes
Signature Health Conference
19 October 2006
Henry J. Aaron
Bruce and Virginia MacLaury Senior Fellow
The Brookings Institution
Tomorrow’s Health Care
 Enormous promise
 Enormous cost
Promise or Tease?
Mismatch between taxes
and promised spending
Why it matters…
 Termites in the woodwork (slowed growth)
 High debt  high interest
 High taxes and sharply reduced spending
If "monster" seems like rhetorical overkill, then recall
what the aging baby boom does to government.
Federal spending on the elderly is plausibly projected
to double from 2000 to 2030 as a share of national income.
About three quarters of that increase will be health spending
—mostly Medicare, but also Medicaid (70 percent of
Medicaid spending goes to the old and disabled).
The rise in health spending exceeds all of today's
discretionary domestic spending on schools, the FBI,
the environment and much more.
Robert Samuelson, Newsweek columnist
Simply put, our nation’s fiscal policy is on an
unsustainable course. ...[B]udget simulations ... Show
[that] over the long term we face a large and growing
structural deficit due primarily to known demographic
trends and rising health care costs.
... Nothing less than a fundamental reexamination
of all major existing spending and tax policies
... is needed.
David Walker, Government Accountability Office
...a country with large numbers of impoverished elderly
citizens languishing in understaffed, overcrowded,
substandard nursing homes. You see a government
in desperate trouble. It’s raising taxes sky high,
drastically cutting retirement and health benefits, slashing defense,
education, and other critical spending, and borrowing far beyond
its capacity to repay. It’s also printing tons of money to ‘meet’ its
bills. You see major tax evasion, high and rising rates of inflation,
a growing underground economy, a rapidly depreciating
currency, and more people exiting than entering the country.
Laurence J. Kotlikoff, professor of economics, Boston University
Scott Burns, journalist
Three paradoxes
1. Health care is worth what it costs on the average
… and is hugely wasteful on the margin
2. Insurance for all is inexpensive, but required shifts
in financing make it impossible to achieve
3. To close looming government deficits requires
that private health care financing must be reformed
Actual and Projected Deficits
excluding Interest Payments
Year
Projected
Deficit,
including all
expenditures
and revenues
Revenues
2005 (actual)
– 1.2
17.5
2020
– 3.2
18.3
2030
– 7.3
18.3
2040
–11.5
–16.0
18.3
18.4
2050
Percent of GDP
‘Primary’ Projected Budget Deficit (-) or Surplus (+):
Including and Excluding Health Care Programs
2.0
0.0
-2.0
-4.0
-6.0
Projected Deficit, excluding
Medicare and Medicaid and
associated revenues
-8.0
-10.0
-12.0
-14.0
Projected Deficit, including all expenditures
and revenues
-16.0
-18.0
2005
2010
2020
2030
2040
2050
Figure 2
Per Capita Income, Per Capita Income less Taxes, and Per Capita Income less Taxes and All Health
Care Spending, 2005-2050
250
200
Per capita
incom e
150
Per capita income less
taxes
100
Maximum value in
year 2025
50
Per capita income less taxes
and all health care spending
0
2005
2010
2015
2020
2025
2030
2035
2040
2045
2050