Princeton economist Alan Blinder says four myths about the economy are wrong but one nasty fact is true: Healthcare costs constitute a “humongous” problem.
"(It's a) myth that America has a generalized problem of runaway spending, one that requires cuts across the board,” Blinder writes in The Wall Street Journal. “The truth is that we have a huge problem of exploding healthcare costs, part of which shows up in Medicare and Medicaid spending.”
The Congressional Budget Office (CBO) projects federal spending on all purposes other than health care and interest to be roughly stable as a share of GDP from 2015 to 2035, and then to drift lower, notes Blinder, a professor of economics and public affairs at Princeton University.
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“So no, America, we don't have a generalized overspending problem for the long run. We have a humongous healthcare problem,” he says.
Economists, Blinder explains, focus on the primary deficit, which includes everything except interest payments, on the grounds that the interest bill on the national debt is a consequence of past decisions.
“Policy initiatives can't change the government's interest payments. But they can reduce the primary deficit, now or in the future, by either spending less or taxing more,” says Blinder, a former vice chairman of the Federal Reserve.
According to the CBO, says Blinder, if nothing is done, the primary deficit will bottom out at 2.6 percent of GDP in 2018 and then rise to 7.4 percent of GDP by 2040 — and the additional 4.8 percent of GDP come from healthcare spending, which balloons from 6.6 percent of GDP to 11.4 percent in the projections, or 4.8 percent more of GDP.
“This exact match is just a coincidence, of course,” Blinder says. “If we use 2050 as the endpoint instead of 2040, the projected primary deficit increases by 6 percent of GDP, of which healthcare spending accounts for 6.6 percentage points,” he says.
“Yes, you read that right: Apart from increased healthcare costs, the rest of the primary deficit actually falls relative to GDP.”
CNBC reports that UnitedHealth Group Inc.'s fourth-quarter net income jumped 20 percent, while Bloomberg reports that a stipulation in the 2010 healthcare law that bans U.S. states from dropping Medicaid patients has forced them to be more efficient in managing the program to save money.
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