The CBO has just issued its periodic report on the Long Term Budget Outlook. The above is their chart of two scenarios. The scenarios are:
The Extended-Baseline Scenario: Under CBO’s current-law scenario, primary spending— all spending except interest payments on federal debt— would drop relative to GDP in the next few years, level out for the rest of the decade, and grow significantly in later decades. The severe recession and financial turmoil, as well as federal policies implemented in response to them, pushed primary spending to 23 percent of GDP last year, the highest level since World War II. Those factors will keep spending at roughly the same level in 2010 and 2011, CBO projects. However, as the economy recovers and the budgetary effects of those policies diminish, primary spending is projected to decline to 20 percent of GDP and remain near that level through 2020. In subsequent years, primary spending would follow a long upward trajectory under the extended-baseline scenario, reaching 24 percent of GDP in 2035 and 30 percent in 2080.
And they continue:
The Alternative Fiscal Scenario: Under the alternative fiscal scenario, primary spending would be 1.6 percentage points higher as a share of GDP in 2020 than under the extended-baseline scenario . That difference would grow in later years. The higher spending stems from several assumptions of the alternative fiscal scenario: that lawmakers would act to raise Medicare’s payments to physicians; that lawmakers would not allow various restraints on the growth of costs for Medicare and for health insurance subsidies to have their full effect in the decade after 2020; and that federal spending for things other than major mandatory programs or interest payments would be similar to typical recent levels as a percentage of GDP (rather than declining through 2020, as under the extended-baseline scenario).
Well frankly scenario 2 is at least how bad it is going to be. The problem is the new health care legislation. The Government has doubled Medicaid and thus doubled demand, has mandated sets of procedures for coverage, has thus increased overall demand on the system with no iota of control on the downside of demand!
The CBO continues:
Mandatory Outlays for Health Care: Programs and Social Security Federal spending for mandatory programs has grown sharply as a share of primary outlays in the past severaldecades, reaching about 60 percent in recent years. Most of that growth has been concentrated in the three largest entitlement programs—Medicare, Medicaid, and Social Security.
Together, federal outlays for those three programs accounted for an average of 46 percent of primary spending over the past 10 years, up from 27 percent in 1975. Under CBO’s scenarios, all of the projected growth in primary outlays as a share of GDP in coming years stems from increases in mandatory spending, particularly in spending for the government’s major health care programs: Medicare, Medicaid, the Children’s Health Insurance Program (CHIP), and insurance subsidies that will be provided through the exchanges created by the recently enacted health care legislation.
Under both of CBO’s scenarios, total outlays for those health programs would roughly double as a share of GDP over the next 25 years, from 5.5 percent in 2010 to about 10 percent or 11 percent in 2035.7 (For details about long-term projections of health care spending, see Chapter 2.) Spending on Social Security would rise much more slowly, from almost 5 percent of GDP in 2009 to about 6 percent in the 2030s and beyond.
The problem going forward is four fold:
1. Medicare albeit funded by the participants has been looted and that looting will continue now that they are all in one pot.
2. Medicaid has had the explosive expansion and if the Administration also gets changes to immigration it would add another 20 million to the same pool. In addition Medicaid is mandatory but unfunded at the state levels. Thus we would expect to see massive state tax increases as well. Also due to the mandated coverages this means substantially higher costs per participant.
3. CHIP type programs are mandated but partially funded so that the states will get dramatic draw-downs.
4. The Exchange Subsidy program is the snake in this wood pile because we anticipate it becoming much more than anything this report presents. The date for Medicaid and Exchange along with CHIP are:
- 1.9% (2010),
- 2.8% (2020) and
- 3.8% (2030)
We estimate that this is substantially lower than what it will be. We anticipate that in 2020 alone, the combination will grow to 5.2% due to the explosion of Medicaid and the immigration issue and by 2030 it will exceed 7%! The demographics will drive this number. One need just substitute this in the outlays and then add one new factor, reduction in revenue to the Treasury.
By removing this money from the economy we anticipate a reduction in economic growth to half of what has been projected. This will explode the deficit and in turn the debt. And they said no one was looking!
Posts
