The Deficit and Health Care Costs

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Dean Baker and Murtaza H. Baxamusa
The San Diego Union-Tribune, October 31, 2008

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Today, AMC Fashion Valley will be hosting a scary movie on the economy.

The documentary movie “I.O.U.S.A.” is promoted as a “wake-up” call brought to us by modern day Paul Reveres. We are told that an unbearable $54 trillion budget deficit will be passed on to our children and grandchildren. But “I.O.U.S.A.” ignores the real cause of budget deficits, which is the high and rising private sector health care costs in the United States.

As Peter Orszag, the director of the Congressional Budget Office has repeatedly pointed out, the main cause of projected budget problems is not irresponsible members of Congress and their pork-barrel spending, although that is a problem. Nor is it the aging of the baby boom generation, even though the growing percentage of the population receiving Social Security and Medicare will be a burden.

The real cause of “I.O.U.S.A.'s” budget horror story is the U.S. health care system. We pay almost twice as much per person as Germany, Canada, or any other wealthy country, yet we actually have worse health care outcomes than people in these countries. The scary budget projections in “I.O.U.S.A.” assume that the gap between the cost of health care in the United States and everywhere else in the world continues to grow.

They project that in 30 years we will be spending more than four times as much per person on health care as people in other wealthy countries. Since half of health care costs in the United States are paid by the government through Medicare, Medicaid and other government programs, if health care costs follow this path, then the government will face very large deficits.

Of course, if we do end up paying four times as much as other advanced countries for a health care system inferior to theirs, then we will have an incredible problem keeping our economy competitive. But if “I.O.U.S.A.” had discussed the country's problems in an honest way, it would have told the American people about the urgency of fixing our health care system.

Our children and grandchildren will see a decline in living standards only if inequality and health care costs continue to grow. However, “I.O.U.S.A.” never once mentioned inequality and missed the real threat posed by the degradation of our health care system.

Certainly people in the United States are not intrinsically more stupid or less capable than the people in Germany, Canada or any of the other countries that get better health care than the United States for much lower cost. The problem is that our political system allows the powerful interests that benefit from the waste in our health care system – drug companies, insurance companies and highly paid medical specialists – to block any effective reform of the system.

“I.O.U.S.A.” could have made an enormous contribution to public debate if it had focused on the waste in our health care system and the threat that this waste poses to the economy and the budget. Unfortunately, the “I.O.U.S.A.” promoters decided to conceal the country's real problems and instead are trying to scare people about budget deficits. Their goal appears to be to attack social programs making life better for ordinary Americans.

“I.O.U.S.A.” ignores real problems such as growing inequality and a private profit health care system that is dysfunctional. Instead, it exaggerates and frightens people with misleading statistics. But we need real solutions to real problems, not false solutions for false problems this Halloween and beyond.


Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer. He also has a blog on the American Prospect, "Beat the Press," where he discusses the media's coverage of economic issues.

Murtaza H. Baxamusa is director of research and policy at the Center on Policy Initiatives in San Diego, CA.