The Congressional Budget Office’s annual long-term budget forecast prompted numerous news articles about a potential slowdown in the growth of health spending and what that would mean for Medicare and other programs. But federal entitlement spending in the short and medium term will be defined much more by the demographics of an aging population–10,000 baby boomers reach retirement age every day–than by whether policymakers can bend the proverbial cost curve in health care.
The CBO admits as much. In Box 1-1 (Pages 22-23) of its report, the budget office compares the relative weight of three factors in increased health spending: the aging of the population; excess cost growth; and newly created (and in the case of Medicaid, expanded) entitlements under Obamacare. Over the next 10 years and the next 25 years, the effects of an aging population exceed the effects of cost growth when it comes to spending on federal programs.
Because demographics put greater pressure on federal entitlement spending over the next generation than excess cost growth, efforts to bend the health-care cost curve–even if successful–miss the larger problem: If per-beneficiary costs rise not a penny, growing numbers of beneficiaries would still create their own fiscal pressures. For instance, under Medicare’s current structure, a couple about to retire stands to receive three times as much in benefits as they paid in Medicare payroll taxes during their working lives.
Resolving the spending pressures in federal entitlements will require more than efforts to reduce the growth in health-care costs. Broader structural reforms–such as additional means-testing for entitlement programs, or a premium support structure for Medicare–must be an important element of the discussion.
The CBO forecasts were not nearly as sanguine as some coverage suggested. Overall debt-to-GDP projections for the next 25 years rose compared with the CBO’s estimates from September, partly because of reduced projections for economic growth. These projections emphasize the need to enact structural entitlement reforms soon–before the demographic wave of the coming years fully hits. Unfortunately, those focused on the idea that “bending the curve” can save them from the tsunami may not recognize the error of their ways until it is too late.
This post was originally published at the Wall Street Journal Think Tank blog.