The Iceberg Groweth
By Arnold Kling
in the absence of changes in federal law:
–Total spending on health care would rise from 16 percent of gross domestic product (GDP) in 2007 to 25 percent in 2025, 37 percent in 2050, and 49 percent in 2082.
–Federal spending on Medicare (net of beneficiaries’ premiums) and Medicaid would rise from 4 percent of GDP in 2007 to 7 percent in 2025, 12 percent in 2050, and 19 percent in 2082.
Those results show significantly higher federal spending on Medicare and Medicaid under current law than other official projections do, which typically assume that spending on those programs grows much more slowly in the future than it has in the past. For example, although the projections by CBO and by the trustees of the Medicare program (under their intermediate assumptions) track each other relatively closely for the next two or three decades, by the end of 75 years, Medicare spending under CBO’s projections is about 50 percent higher.
They are telling us that the standard estimate that Medicare faces tens of trillions of dollars of unfunded liabilities in the future–the reason I refer to Medicare as the fiscal equivalent of the Titanic–is too optimistic.
Just so you won’t miss the point, the analysis says,
The main message of this study is that, without changes in federal law, federal spending on Medicare and Medicaid is on a path that cannot be sustained.
If you read the report, make sure you get to the last chart, which shows what happens over the next 75 years if health care spending relative to other spending rises at the same rate as it has over the past 30 years. (That is not the assumption that the authors make in the report. Implicitly, they invoke Stein’s law–anything that cannot go on forever, stops.)