Happy Holidays: GAO Reminds Us Health Care Reform Means Deficit Reduction

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Written by David Rosnick   
Thursday, 23 December 2010 09:32

If you are truly concerned about the long-term fiscal health of the country, then the 2010 Financial Report of the U.S. Government reminds you of some recent happy news.

As we all should know, the long-run threat to the deficit is health care.  According to the latest numbers, the 75-year shortfall in Medicare has fallen by $15.3 trillion in the last year—from 4.8 percent of GDP to 2.7 percent.

(Actually, calling this a shortfall in Medicare is unfair, because three-quarters of funding for Parts B and D comes out of general revenue.  So long as this is true, Parts B and D will always run deficits totaling 75 percent of spending… even if spending is cut 99 percent!)

From where did such a large deficit reduction come?  According to the report “the decrease is primarily attributable to provisions of the ACA as amended by the Health Care and Educational Responsibility Act of 2010”—that is, the recent health-care reform.  Total costs of running Medicare—Parts A, B, and C-- are projected to be 5.3 percent of GDP over 75 years compared to 7.4 percent last year.  In other words, health-care reform is projected to save Medicare 28 percent.

It is important to realize just how large (2.1 percent of GDP) are the savings that the recent health care legislation has offered.  By comparison, the shortfall in Social Security is $5.8 trillion, or 0.6 percent of GDP.  In other words, the fall in Medicare deficits have fallen by enough to cover that of Social Security more than three times over.

Anyone who frets over the Social Security “crisis” should be overjoyed by the ACA and working to strengthen and extend heath care reform—not aiming to further lower the retirement prospects of current and future retirees.