Unrestrained Healthcare Spending Suffocates Our Growth

Ron Haskins

It has been clear for at least a year that the focus of the nation on reducing the federal debt has vanished. The speeches of policymakers, the House and Senate legislative agendas, the content of the nation’s debate forums, and the rhetoric of President Obama are all virtually silent on the nation’s debt.

You would think that the debt problem had been solved. But perhaps the most remarkable aspect of the intense, three-year focus on the debt that featured bitter inter-party battles and closing of the federal government while producing several laws that reduced the nation’s debt in the short-term, was that almost nothing was achieved that will reduce the long-term debt. At most, the rate at which debt is accumulating was somewhat reduced and the moment of reckoning postponed for a few years.

One thing the struggle did produce was a broad understanding that the two major causes of the long-term debt are the growth of federal health care programs – especially Medicare – and interest on the federal debt. Between 2010 and 2035, as a percentage of the Gross Domestic Product, federal medical expenditures will increase by 85 percent to10 percent of GDP or about $2.75 trillion. Meanwhile, primarily because of the growth of health programs, the nation will be forced to borrow huge sums of money, thereby greatly increasing net interest payments on the federal debt. At some point, as the history of excessive borrowing by many nations shows, there will be a crisis.

An important tactical error made by those in the vanguard of the fight against federal debt when they had the nation’s attention was to rely primarily on warnings of impending doom as a justification for reducing the debt. The problem with predictions, even ones that are certain to eventually come true, is that it is impossible to know when they will come true. And debt-induced doom just has not occurred.

Now in the midst of the failure to deal with the real causes of our debt, unfortunate and dire consequences of the unbalanced and ineffective spending cuts adopted to reduce it are now apparent. Most of the spending cuts by Congress fell on the discretionary part of the federal budget – the part that must be reauthorized every year or no money can be spent.

A few figures show the problem. Between 1980 and 2010, discretionary spending grew from $276.3 billion to $1.3 trillion. But between 2010 and 2013, discretionary spending actually fell to $1.2 trillion. Think of discretionary spending as a mouse and Medicare as a lion. Congress and the president showed modest bravery in shooting the mouse, but they wimped out when faced by the mountain lion.

Now the lion is running free and spending like a lottery winner, while the mouse is barely breathing. In the abstract, cutting spending was good because it helped slow the rise the nation’s debt. But all discretionary spending is not equal. Defense spending, a major part of the discretionary budget, is scheduled to fall from nearly $690 billion in 2010 to a little more than $600 billion in 2015. That is very good news for Al Qaeda and their affiliated groups as they expand violence in Syria, Iraq, Pakistan, and North Africa. The Iranians and Chinese must also be big fans of our declining military capability.

Or consider spending at the National Institutes of Health, the agency that has done more to improve human health and extend longevity than any organization in history. Between 1970 and 2005, the NIH budget increased from around $1 billion to nearly $28.6 billion. But after a brief increase associated with the stimulus legislation Congress passed to fight the recession, NIH spent less as a percentage of GDP in 2013 than it did in 2005 and its budget will increase only modestly over the next decade. How many American will suffer and die because of the foregone medical discoveries the NIH cuts ensure?

Arguably the most egregious cuts are taking place in programs for children. Two recent reports from the Urban Institute and America’s Promise both show declines in spending on children in recent years. The First Focus report, for example, finds that federal spending on children declined from $310 billion to $290 billion or by around 14 percent between 2010 and 2014.

Many Americans would question whether these cuts in defense, health care research, and children’s programs are wise – especially in view of the fact that expenditures on entitlement programs for the elderly continue to grow unabated.

And fear of the lion by federal elected officials – the only ones who can tackle the long-term debt – is keeping pace with spending on entitlements for the elderly. This is a terrible way to run a country.