WILLIAM GALSTON JULY 16, 2009
CBO director Doug Elmendorf’s written testimony before the Senate budget committee today should be required reading for anyone interested in understanding our long-term fiscal plight. Among its many instructive features, it challenges--tacitly but fundamentally--the Obama administration’s dominant fiscal narrative.
The president and his economic team have tirelessly argued that reforming health care is the key to regaining fiscal stability. In the very long run, no doubt, this is true. But over the next decade (or even the next generation), it is not true. In Box 2 (pages 12 and 13) of his testimony, Elmendorf divides projected growth in Medicare, Medicaid, and Social Security outlays into two factors: the aging of the population and excess cost growth in health care. Between now and 2019, the aging of the population will be responsible for almost all the growth in federal spending for Medicare, Medicaid, and Social Security. Even over the next quarter century, the aging population will be responsible for fully 64 percent of the total increase.
To be sure, aging is more significant for Social Security than for the big health care programs, whose costs are driven by many factors other than demographic change. Still, even for Medicare and Medicaid, the aging of the population accounts for well over half the spending increases expected over the next decade, and for 44 percent between now and 2035.
These figures are consistent with the findings of President Obama’s own Council of Economic Advisors, which reported last month that even if we were able to reduce excess health care cost growth by 1.5 percent points in 2014 and maintain that restraint for the remainder of the decade, the federal budget deficit would shrink by only 1 percent of GDP in 2020--about one-sixth of the deficit CBO projects.
None of this is an argument against health care reform--assuming that it constrains costs, which is by no means guaranteed. In today’s Budget Committee hearing, Sen. Kent Conrad asked Elmendorf a blunt question: “From what you have seen from the products of the committees that have reported, do you see a successful effort being mounted to bend the long-term cost curve?” Elmendorf answered, “No, Mr. Chairman.”
But let’s assume that the Congress eventually passes health reform that constrains costs and expands coverage. Even so, that reform, while necessary for a sustainable fiscal policy, would by no means be sufficient. If the president and his team are serious about regaining fiscal equilibrium once the current crisis passes, they will have to consider cost restraint in every category of federal outlays, as well as fundamental tax reform that increases revenues while diversifying their sources.