The Need to Address Health Care Costs

While often fun, taking today’s trends and extrapolating them for several decades can lead to some absurd results (because the assumption is that nothing changes over the time frame). But they can also highlight the absurdity of today’s public policy.

Case in point: a study by the Congressional Budget Office on what the current rate of health spending growth will do to tax rates if left unchecked through 2050. (Here’s a copy of the CBO Health Care Cost Report). Among the results are an increase to the lowest tax rate from 10%-to-26% and an increase in the highest tax rate from 35%-to-92%.

The reason is that the annual growth in health care cost has exceeded growth in the nation’s Gross Domestic Product by 2.5% over the past 40 years. Continue this trend, uninterupted, for another 40 years and federal spending devoted to health care increases from 4.5% of GDP to 20% of GDP. Further assume no other funding sources are found and you need some pretty hefty taxes. Interestingly, the CBO cites health care costs as having a “significantly higher influence on the budget over the long term than other commonly cited factors.”

Would tax rates really increase by this much? It’s unlikely. Some external event would come along to mitigate the trends. The question is whether that external event will be unplanned for, unexpected and uncontrolled or whether it will be thoughtful and constructive.

As the health care reform debate heats up in Sacramento, it’s sad to note that controlling health care costs is so far back on the burner that it may as well be in the fridge. The political heat is on the easy targets: taxing businesses (oh, excuse me, those aren’t taxes, they’re “fees”) and busting insurance companies.

There’s a lot of room for improvement in the health insurance system. And employers may need to step up to be part of the solution in assuring universal coverage. But none of this will matter in the long run if a tough, serious debate on constraining health care costs isn’t started — and started long before 2050 arrives. All in favor of right now, please raise your hand.