September 25 2012

Healthcare Costs Set to Double in the Next Decade, Surpassing Discretionary Spending

Vicki E. Alger

Healthcare spending is on track to surpass all discretionary spending in 2016 and will double by 2022, according to the Tax Foundation.

Using figures from the Congressional Budget Office, the Tax Foundation concluded:

Medicare will almost double over the next decade, from $550 billion this year to $1.064 trillion in 2022.  Medicaid will more than double, from $253 billion this year to $592 billion in 2022.  The biggest growth is in other mandatory healthcare programs, mainly the new Obamacare exchanges and subsidies, which are due to grow from $25 billion this year to $181 billion in 2022.

In total, healthcare entitlement spending is due to more than double, from $828 billion this year to $1.837 trillion in 2022.  This means healthcare spending will overtake all discretionary spending in 2016 – Obama’s last year in office if reelected.  This would be truly unprecedented, and scary, since discretionary spending represents the basic functions of government, including defense, law enforcement, roads, etc.

Nobel Prize winning economist and New York Times columnist Paul Krugman poo-poos the idea of letting private insurance companies compete for Medicare funds. He insists government would do a better job of containing costs.

The Reason Foundation’s Peter Suderman, says on this point Krugman is partially right because insurance companies have a ton of bureaucracy, among other factors. Still, Suderman provides some compelling evidence that Medicare and Medicaid are not the bargains Krugman purports—including the fact that these programs “blow about $65 billion every year on improper payments, everything from mistaken billing to outright fraud,” according to government audits.

It’s well worth reading Suderman’s entire blog, but his point on what states are actually doing to contain costs is telling:

But what’s one of the leading ways that states are trying to restrain the Medicaid spending that’s threatening to chew through their entire budgets? Turning Medicaid case loads over to the private sector. And it seems to be producing savings. As a 2009 Lewin group metastudy for the insurance industry pointed out, nearly all of the 24 studies reviewed showed savings in states that pursued managed care, a system in which states contract with private insurers to run state Medicaid programs. A 2011 article in the health policy journal Health Affairs agreed with the basic premise. Although the Health Affairs piece noted that although managed care’s effect on health outcomes was unknown, it also agreed that “the evidence suggests that states are in fact likely to achieve billions of dollars in savings through these arrangements.”

 

 

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