Debt Deal Means Zero If We Can’t Curb Health Costs
By MICHAEL HODIN,
Posted: August 04, 2011
Part of America’s greatness lies in its expanse and diversity of serious thought. Consider that as D.C. dithers over debt, two separate think tanks on opposite sides of the country have been studying the more profound drivers of our public debt morass. And both essentially step up to the seminal challenge of the 21st century: making sense of the incompatibility between 20th-century social and economic policy instruments and the current century’s demographic realities of our aging population. They may also be more in line with reality, if the stock market performance after the signing the legislation has been any indicator.
Here’s what our think tanks are saying:
Out west, in Palo Alto, Professor Michael Boskin argues that the “bloated welfare states now in place [in Europe] or in the making [the U.S.]” are threatening “future living standards” on both sides of the Atlantic. Both Europe and the U.S., Boskin contends, “are drowning in deficits and debt,” and these figures even fail to account for the “future [of] unfunded public pension and health costs.” And unless we can realign our debt-to-GDP ratio, there’s only one direction our economy can head. With a bulge of aging populations set to consume more entitlement spending, the question is not academic for any debt ceiling or budget “compromises.”
On the east coast, the Manhattan Institute’s Josh Barro addresses the fiscal question with refreshing analytical rigor. It’s a change of pace from the histrionics that have clouded deficit talks inside the Beltway. Why, Barro asks, are public health costs so high? Though the list of central causes is long, he isolates a few. Government health insurance plans have lower premiums, deductibles and co-pays, shorter enrollment periods, and higher opt-in rates. In other words, public employees get an insurance plan that would never survive on the open market.
Barro offers a sobering conclusion: “Realigning government-employee contributions to match those of the private sector could save taxpayers millions of dollars a year,” or, roughly, $1,400 per public employee. But another critical issue that Barro points out is retiree health benefits: “Public employers are far more likely than private ones to offer health benefits to retirees… In most cases, promises to provide benefits to [public] retirees are not pre-funded, and state and local government have an unfunded liability for retiree health care that is estimated at $1-$1.5 trillion.” With 77 million American baby boomers at or approaching traditional retirement age, this liability is poised to explode.
The debt and deficit talks of the past few weeks will amount to a big nothing if we can’t curb rising health care costs, both for current public employees and the masses of retiring boomers. In the past 15 years, health care expenses for local and state governments have tripled, a pace that outdoes even the skyrocketing of private insurance premiums. And, with the aging demographic transformation upon us, costs will triple again before too long.
With the debt bill signed and a variety of emotions about the bill being expressed around the nation, it’s clear that very serious economic challenges loom, and that “the spending nightmare” is far from over. Part of the solution, however, includes understanding the character of a profoundly different demographic – the aging population of today’s society.
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