Spargang horror story bypasses healthcare costs – OpEd – Eurasia Review

In the 1990s we supposedly had serious fiscal debates focused on avoiding a dark future in which deficits would either skyrocket or taxes would eat up all of our income. Private equity billionaire Peter Peterson provided much of the fuel for these debates. His money supported austerity organizations like the Concord Coalition and the Committee for a Responsible Federal Budget. He also wrote several books that were classics of deficit anxiety, such as Will America Grow Up Before It Grows Old: How the Coming Social Security Crisis Threatens You, Your Family, and Your Country.

Like some of us pointed out Back then, at the heart of the austerity gang’s scare stories weren’t actually Social Security or population aging, but rather projections of rapid increases in per-person health care costs many decades into the future. This rapid growth has been forecast for both public and private sector costs.

If health care costs did indeed follow the projected growth path, it would devastate the economy, whether we pay for it through public programs like Medicare and Medicaid or through private health insurance and out-of-pocket spending. (Per capita spending on public programs actually grew less rapidly in public sector programs than in the private sector.) The real problem had nothing to do with the state budget, it was repairing the health care system.

However, there is actually a good story here that has received far less attention than it deserves. Healthcare spending hasn’t grown nearly as fast as forecast. I have one before piece shows that healthcare spending as a percentage of GDP has actually fallen since the pandemic. I decided to go back to 2000 and show the picture longer term.[1]

Source: Bureau of Economic Analysis and own calculations.

As can be seen, the share of health care in GDP rose sharply in the first three years of the century, from 13.6 percent at the beginning of the century to almost 16.0 percent in 2003. After that, it stagnated until the beginning of the century recession when it jumped again, hitting 17.5 percent of GDP in 2009. After the introduction of Obamacare, it then stagnated again for several years before rising to 18.6 percent in 2016. Little has changed since then until it declined sharply after the pandemic. In the most recent quarter, it was just 17.6 percent of GDP, about the same percentage as in 2009.

That was way better than it was projected for Peter Peterson’s Scary Story Day. In fact, it was even better than what the Congressional Budget Office (CBO) predicted in 2009. CBO’s long-term budget projections from 2009 showed that health spending would account for 33.1 percent of total consumer spending by 2022 (Table F2-2). In fact, my calculations (adjusted for the 0.8 percentage point gap using CMS) show healthcare spending at just 24.8 percent of current consumer spending.

The gap between CBO’s 33.1 percent forecast consumption and 24.8 percent of actual consumption equates to more than $1.45 trillion annually. This equates to $11,800 per family per year. Compared to the projected health care spending growth trajectory 13 years ago, the average family spends an additional $11,800 per year on things other than health care.

This is a huge deal. After all, the media has told us that families have been devastated by inflation, which has outpaced wage growth by less than 1 percent since the pandemic began. Imagine how they would feel if they paid another $11,800 a year for health insurance or out-of-pocket expenses.

We can debate why healthcare spending growth has slowed so much. The Affordable Care Act almost certainly played an important role. The post-pandemic slowdown may reflect a shift to more telemedicine and at-home diagnostic testing. (The use of therapeutic devices has increased significantly in recent years.)

This slower growth may reflect a deterioration in the quality of care. If this is the case, we should see this in health metrics over time. We shouldn’t be fooled by the fact that our healthcare system is now highly efficient. We still spend far more per person than any other prosperous country and more than twice as much as countries like Canada and France.

But we’ve dodged the healthcare horror story projected by the Peter Peterson gang in the 1990s and more recently by CBO. And that’s very good news.


[1] These numbers are slightly higher than those from the Centers for Medicare and Medicare Services (CMS) report for health expenditure as a share of GDP. They showed a value of 17.6 percent for 2019 (the latest year for which data is available), while my calculations come to 18.4 percent. I assume this is due to double counting where I may have some government health spending also showing up as consumption. For those who want to verify, I’ve added rows 64, 119, 170, and 273 from NIPA table 2.4.5U and row 32 from NIPA table 3.12U. These are therapeutic devices, drugs and other medical products, healthcare services and net health insurance. Line 32 is government spending on Medicaid and other health care. Although the level is slightly higher than the CMS data indicate, changes over this period are likely to follow changes measured by CMS fairly closely.

This first appeared on Dean Baker’s Beat the press to blog.

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