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US Healthcare Delivering A Heart Attack!
US Healthcare Delivering A Heart Attack!
First published February 10, 2011, in his weekly economics and finance column at
alrroya.com
Medical spending could deliver a debilitating heart attack to the US economy, despite
the recently passed healthcare legislation that hopes to significantly control costs.
Depending on assumptions made, the unfunded US government medical liabilities
range as high as $125 trillion, equivalent to about eight times America’s annual
gross domestic product (GDP). These unfunded liabilities—money that might have to
be borrowed—have the possibility of totally derailing the US economy.
In 2008, Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas
cited the US government’s unfunded Medicare program liabilities at $85.6trn over
the infinite horizon. He said that including the unfunded liabilities of US Social
Security the total rises to $99.2trn. Mr. Fisher further added that were they to be
funded, it would require a lump sum payment of $1.3 million per family of four to the
US federal treasury! Or alternately, an increase of 68 per cent in federal taxes for all
individuals and corporations, for now and forever.
The unfunded liabilities figure of $125trn arose from a conversation I had recently
with Boston University’s renowned Professor of Economics, Laurence Kotlikoff, who
believes they could range that much also using an infinite horizon time frame.
Now really ‘low-ball’ medical unfunded liability estimates come from the 2010 Annual
Report of the Boards of Trustees of the Federal Hospital Insurance Trust Fund and
the Federal Supplementary Medical Insurance Trust Fund. They are the reports of the
Medicare trustees of the US government. The 2010 estimates of US government
medical unfunded liabilities have been shaved dramatically from their prior year
reports.
And the Medicare trustees make the following remarks in that regard. They say that,
"the Affordable Care Act [the recently passed healthcare legislation] improves the
financial outlook for Medicare substantially. However, the effects of some of the new
law’s provisions on Medicare are not known at this time, with the result that the
projections are much more uncertain than normal, especially in the longer-range
future… the actual future costs for Medicare are likely to exceed those shown by the
current-law projections." In other words, their low-ball estimates are based on such
flimsy assumptions as to make them untenable.
Also, the US spends disproportionately higher on its healthcare than other developed
countries, yet with frequently poorer outcomes. Mark Pearson, Head, Health Division,
of the Organisation for Economic Co-operation and Development (OECD), made
these written comments to the US Special Committee on Aging on September 30,
2009. He wrote that, "the United States spent 16 per cent of its national income
(GDP) on health in 2007. This is by far the highest share in the OECD… Even France,
Switzerland and Germany, the countries which, apart from the United States, spend
the greatest proportion of national income on health, spent over 5 percentage points
of GDP less: respectively 11.0 per cent, 10.8 per cent and 10.4 per cent of their
GDP… For all its spending, the US has lower life expectancy than most OECD
countries (78.1; average is 79.1)."
Additionally, CMS found that US government Medicare and affiliated Medicaid 2009
program expenditures grew even faster at 7.9 and 9 per cent respectively,
accounting for 35 per cent of NHE. The US federal government’s share of health care
spending rose by just over 3 per cent in 2009 over 2008, to 27 per cent.
Reining in the growth of US federal government Medicare and related spending will
require huge healthcare industry adjustments, spending cuts and continuing
modification of government health funded programs. And it will probably require
substantially increased taxes to fund its remnants. In recent polls by CNN/Opinion
Research Corp Poll and Gallup, the vast majority of Americans said no to cuts in
Medicare. A healthcare expense heart attack could be on the horizon for Americans.
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