Saturday, November 10, 2012

What's Driving Long Term Federal Budget Deficits?

That answer to this question has been well known for several years. Its all about healthcare.   Healthcare PRICES cannot to continue to rise faster than general inflation and tax revenues. That has not been an easy problem to solve.  The implication is that we have a very inefficient system.  All of the major providers of healthcare would have to become more efficient in order to absorb lower prices.  Congress has stood in the way of the reforms that are required for two reasons: Lobbyists have been effective in protecting their turf, and because the GOP's strategy is to maintain the current system by shifting the burden of price inflation to consumers.  They call that consumer directed healthcare.  In consumer markets, the price system is a form of rationing.  We can only purchase what we can afford to fund with our income.  That doesn't work when we don't want people to die because they cannot afford to pay for necessary medical services.  It also doesn't work when service providers have financial incentives to increase the volume of the products and services that they provide.

In any case, this article contains three simple graphs that show the drivers of cost in the federal budget. We have an aging population which increases the demand for healthcare as prices continue to rise.  We can't do much about the demographics, so the only solution is develop a more efficient system.  There are examples of more efficient systems all over the world.  That's easy because the US spends more per capita on healthcare than any other nation in the world and yet millions are not covered by insurance.  I guess this is another example of American exceptionalism.

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