The Lights of Runaway Freight Trains

Optimists keep trying to look past current economic and financial woes in the hope of finding a light at the end of the tunnel.

Unfortunately, what they are likely to see hurtling towards them in the distance are numerous runaway freight trains representing a host of longer-term financial problems.

These include underfunded public and private pension programs and an array of retirement-related obligations, many of which are expanding at an alarming rate. In "Medicare Spending to Surge," the Wall Street Journal gives us the latest on one such disaster-in-the-making.

Government spending on health care could nearly double by 2017 to more than $2 trillion, according to a new federal study, reflecting a surge that promises to complicate the campaign debate about health care.

Driven by the aging of the baby-boom generation and rising costs of new drugs and medical technology, Medicare, the big federal health program for the elderly, will take up 20.7% of national health spending by 2017, according to the report.

Overall, the report projects health-care spending in the U.S. will hit $4.3 trillion by 2017, nearly double the 2007 amount. That would equate to nearly 20% of gross domestic product. In 2007, health-care spending accounted for 16.3% of GDP, according to the study. But more of that cost is expected to shift to government agencies -- even as the federal government struggles to shrink huge deficits.

The Bush administration has proposed various steps to curb Medicare spending in its latest budget, but it isn't clear whether those cuts will win approval from Congress.

"The impact of the population aging is expected ... to have a substantial influence on the public share of spending growth, as the leading edge of the baby-boom generation becomes eligible for Medicare," wrote Sean Keehan and his co-authors of the study, economists at the federal agency that runs Medicare and Medicaid. The study expects aging baby boomers to account for a relatively small share of future health-care spending growth on a per enrollee basis.

The annual projections by the Centers for Medicare and Medicaid Services are being published today in the journal Health Affairs.

Health care has become a key topic in the presidential campaign and a top voter concern. Sen. John McCain, the Republican front-runner, favors using tax changes to make health care more accessible.

The two Democratic candidates, Sen. Barack Obama and Sen. Hillary Clinton, would spend some $100 billion a year to provide universal health care. But the two have sparred over how to expand government coverage and whether all Americans should be required to buy health insurance.

Concerns about the bulging health-care budget aren't new, and the Congressional Budget Office recently warned about the federal budget gap as baby boomers retire and start tapping Medicare, Medicaid and Social Security.

Health-care spending will grow on average 6.7% in the next decade, outpacing the general economy by 1.9 percentage points each year, the new federal study said. The growth will mainly be driven by medical prices and increased usage as well as smaller factors such as population growth and its changing mix. Private spending on health care is expected to grow at a slower pace, from 6.6% in 2009 to 5.9% in 2017, the authors said. That is partly because of the cost shift to the government.

Medicare spending is expected to grow to $844 billion in 2017, up from $427 billion in 2007. There also will be a shift toward the private arm of Medicare, which tends to cost the government more. By 2017, 27.5% of eligible Medicare enrollees are expected to enroll in managed-care plans, compared with 16.4% in 2006, the study said.

Comments

[Independent Accountant]

I read this article. My conclusion: inflation is going higher. Printing money is the only way to pay for this.

[Steve]

Health costs will simply rise with inflation. The real question is when is the US going to get serious about fixing a system that delivers lower life expectancy at twice the cost of health systems in other developed nations.

[farang]

1) After experiencing Universal health care first hand, in Thailand, I am all for it. ALL for it.

2) Thai don't pay any insurance fees. It is a POS affair.

3) Exactly how would Obama or Hillary make us pay for health insurance (according to the above article)? if you can't afford to feed your family now? Would they take grocery money from your mouth? Or make you miss a house, credit card or auto payment? With a majority living paycheck to paycheck and using credit cards to purchase food, exactly where does this insurance fee money come from?

4) Hillary is numero uno recipient of insurance industry lobbyist funds, numero uno. Think about that when you consider her motivation.

4) When are they going to talk about the horrid mistake of lowering the tax rate on super wealthy Americans, like they did in 2001? If your budget is balanced, and actually building "surpluses" (no, I am not saying it was perfect, or that S.S. wasn't getting raided to do so, but I am saying according to the then established accounting procedures) of hundreds of billions, exactly how freakin' hard is it to FIGURE IT OUT?

Jebus.