A Different Take on the Deficit

A Different Take on the Deficit

Printer-friendly version

Capital Exchange is a new blog offering insights and debate on newsworthy (or current) issues, with posts from some of the smartest Washington budget and policy experts.– Eric Pianin, Washington Editor and Moderator

a a
Type Size: Small

Henry Aaron earlier this week made a compelling case against a so-called bipartisan budget deficit reduction commission. Such commissions have never succeeded and, as is reported in any serious study of the Social Security financing fix in 1983, the Greenspan Commission was no exception.

Yet there is a further, even more serious problem with the whole way people talk about the so-called long-term deficit crisis. The debate is often set up as "responsible" people worrying about long-term effects on "our children and grandchildren," vs. "irresponsible" people who refuse to think about the future. This presumes that it is possible to adopt responsible policies to balance the budget 20 or 30 years from now. Yet nothing could be further from the truth.

The whole argument about helping children and grandchildren in the future is a bit bizarre since, as Eric Kingson points out in a letter in the New York Times on February 12, it seems to say that, "older Americans are taking too much from their children and grandchildren, so we need a movement of unselfish elders to advocate raising their children's retirement age and cutting their benefits. Something's wrong here." In separate posts I will explain why respecting our children or grandchildren can include leaving them to make some decisions, and why focusing on health care costs on the government's budget alone is the consequence of a dangerous policy illusion. For now, let's just consider the idea that the "responsible" thing to do is to control long-term health care costs.

As Dr. Aaron reports, the long-term budget forecasts are dominated by projected increases in health care expenses. Even the increases in federal spending are driven mainly by expected increases in costs of health care per person. So the logical question would be: "What kind of long-term policy would control health care costs per person from now through to 2040?" Unfortunately, this is equivalent to, say, "what kind of policy would guarantee protection from terrorism through 2040?" There is no such thing, because the threat will change over time, to respond to policies.

Please don't think I mean the health care industry are terrorists – but the dynamic of conflict is the same. Health care costs are the product of a conflict between payers for care and providers of care. The targets of cost control policy are a very large number of extremely intelligent people with great political resources. It is wishful thinking to imagine that we could invent some set of policies which we know would work for decades to come. They will find ways to break, evade, or foment public dissatisfaction with any set of cost control measures. Health care cost control is not a one-battle war. It is a continual series of engagements in which, every few years, the government – or whoever is trying to control costs – must find new approaches. That is true everywhere. The difference between the U.S. and countries with lower costs in 2010 is not that they took steps in 1990 that guaranteed low costs in 2010. It is that they set up institutions and then controlled costs, step by step, year by year.

So, if you are worried about health care costs per person, the last thing you should do is talk about costs in 2020 or 2030 as if that were a reasonable target of policy. The best thing that could be done to reduce costs in 2030 would be to do a better job in 2011 or 2012. Projected costs depend on an estimated rate of increase over a base. The thing policy-makers can do for sure is lower the base in the short-term. That is what happened in 1997-99, dramatically reducing projected Medicare costs in the distant future. And a failure to control costs in Medicare as well in subsequent years then raised the projections for the distant future.

If you worry about future health care costs, the right response is to start controlling costs now. That would mean real health care reform – with real cost controls. But too many of the "deficit hawks" would rather posture about the future than support measures to strengthen payers in the present. They prefer the form of concern about costs to the substance.

Post your comment below or click here for the next post in the series.

Joseph White is Director of the Center for Policy Studies at Case Western Reserve University