It’s the Health Care Costs, Not Longevity

May 17, 2010

It’s time for another round of missing-the-point-on-entitlements. This time from the Cato Institute, which declared, “Our welfare state is already well on the path to bankruptcy. … Compared to the damage done by native-born U.S. citizens and their cursedly long lifespans, the immigrants’ overall effects are quite small. It would be unkind of us to set up such an ill-considered system and then pin its inevitable demise on others.”

Unable to argue with the last point, it is unfortunate to see that Cato highlights long lifespans as a primary source of trouble in our entitlement programs. In fact, longer life expectancy accounts for very little of the long-run deficits. Rather, an expensive and increasingly costly health-care system drives the projections of long-term deficits.

In 2009, the Congressional Budget Office projected a budget deficit of 45 percent of GDP in 2083. Merely restricting health-care cost growth to overall growth in the economy plus aging of the population would eliminate more than three-fourths of the projected deficit. If the U.S. were to spend as much per-capita on health care as the Euro area (which has life expectancy two years longer than the United States) then by 2083 the federal government would be running surpluses of more than 10 percent of GDP.

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