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Juggernaut Lies In Aging Population And Healthcare

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By Lowell L. Kalapa

(Released on 11/9/08)

The doomsday outlook for the federal budget starts with current and past policies that have set the federal budget on a collision course. Couple that with the anticipated change in the demographics of our nation and the bleak economic conditions and the trajectory becomes even steeper for potential disaster.

It is estimated that more than 10,000 baby boomers will, on average, become eligible for Social Security each day for the next two decades. At the other end, there will be fewer and fewer workers supporting a growing number of Social Security beneficiaries. The result will place an unfair burden on younger workers who will end up bearing an increasingly heavier burden of taxes, making it even more difficult for those workers to save for their own golden years, if and when they occur.

It is estimated that for every dollar that the federal government spends today on education, health care, income support and other programs that help parents meet their children’s basic needs, it spends four dollars on behalf of older Americans. While some joke that elected officials like to pander to older Americans because kids can’t vote, it is hardly a laughing matter when the Congressional Budget Office reports that 42% of the federal budget is attributable to Social Security, Medicare, and Medicaid benefits.

This percentage will undoubtedly continue to grow as the population ages because these three programs provide significant benefits to older Americans. Couple that with the fact that as a result of advances in healthcare, those older Americans can be expected to live longer and collect more benefits than current retirees. Medicare, which provides health insurance to those age 65 years and older, and Medicaid, which is the largest third-party provider of long-term nursing home care, will come under increased financial pressure as this portion of the population grows. Without solutions to the overall health care delivery in the United States, it will be difficult to keep the growth of the cost of Medicare and Medicaid in check.

Indeed, the federal government has had a huge role in health care financing, with the share of the federal budget going toward health care programs doubling over the past twenty years. According to the Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group, the share of the federal budget going for health care programs stood at 26% or $717 billion in the year 2007. About 80 million people, or 27% of the population, were insured with Medicare, Medicaid or military health programs during the 2006 year. As a result, the federal government pays for one-third of the nation’s medical bills. Since 1965 when Medicare went into effect, the federal share of the nation’s medical bills has tripled. This is because many of the costs that individuals had previously paid out of their pockets have been transferred to the federal budget.

Add to this the fact that the federal government subsidizes private health care costs through the tax code. For example, employer contributions for their employees’ health insurance coverage are exempt from income and payroll taxes. These back door tax subsidies are worth over $260 billion each year and will continue to grow as the cost of health care rises.

The Centers for Medicare and Medicaid Services also reports that the cost of health care for the nation as a percentage of Gross Domestic Product (GDP) has doubled since 1975. The increased cost of health care affects the federal budget in two ways. First, it increases the cost of federal health programs. Second, it drives further interest in the expansion of the federal government’s responsibility for paying for more of those costs. The question now is will these costs one day overtake nearly all of federal expenditures, a possibility that threatens the nation’s collective financial future.

While both politicians and their constituents may want the federal government to provide even more in health care services, it is obvious that the federal government has already promised more in health care benefits than it can afford to deliver. It should be remembered that just because those costs have been transferred to the federal budget does not mean that they disappear.

What are some of the alternatives to fixing or at least containing the rising cost of health care in the United States? It would seem that there needs to be some basic package of services afforded to all citizens that will guarantee all citizens access to health care. Any subsidy by the federal government for services beyond basic health care services should be predicated upon the person’s ability to pay.

Finally, politicians must realize that the health care system must be one for which taxpayers are willing to pay.

Lowell L. Kalapa is the president of the Tax Foundation of Hawaii. Mr. Kalapa’s commentary is printed each week in the Maui News, West Hawaii Today, Garden Isle News, and the HawaiiReporter.com.

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