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For years, conventional wisdom in Washington said the nation's long-term fiscal crisis is being driven by the aging of the Baby Boomers and their impact on entitlements, such as Social Security and, especially, Medicare and Medicaid.
Now, that view is being challenged, and it has set off a donnybrook that could have profound implications for the way the next President approaches fiscal policy. It may, in fact, be the most important budget debate we've had since Ronald Reagan came to town.
It was all set off late last year by Congressional Budget Office Director Peter Orszag, TPC's former co-director. In a late 2007 CBO report, and in a number of articles and speeches since, Orszag argued the real entitlement problem is the overall cost growth of health care, not demographics. Thus, if we don't fix those things that drive excessive medical spending, we won't fix the budget.
The cudgel has been taken up by others, including Henry Aaron of the Brookings Institution. Paul Krugman of the New York Times even argued that Barack Obama was a "sucker" for talking about reforming Social Security.
Neil Howe and Richard Jackson of the Concord Coalition have blasted this new view as "a classic bait and switch." They argue that while systemic health care problems drive some Medicare and Medicaid costs, it is dangerous to ignore the impact of those aging Boomers. Howe and Jackson figure that by 2030, at least 40% of the growth of the two programs will be caused by an aging population, twice CBO's estimate. Over time, the gap between the two projections becomes a chasm.
This is a big deal because, if you blame rapid growth of overall medical spending, you can focus your reforms on information technology, disease management, or changing the relationships between insurance companies and health providers, ideas pushed by all of the major presidential candidates. Perhaps you can even use this view to justify remaking the entire health care financing system, as Hillary Clinton and Barack Obama would. You can also rationalize avoiding painful and politically dicey changes to Medicare and Medicaid, such as cutting benefits or slashing payments to doctors or hospitals.
On the other hand, if you buy the demographic argument, the only way to slow the growth of Medicare and Medicaid is by, well, trimming Medicare and Medicaid. You can't do anything about the demographics (short of starting a worldwide pandemic), so you have to make painful cuts in these exceedingly popular programs.
Who is right? In truth, our ability to peer into the future of health care spending is pathetically bad. Economists who project costs 50 years from now once again prove the old axiom that if you can't be accurate, at least be precise.
Orszag has raised some important issues, and he says it is still necessary to fix the government health programs. But it would be a tragic mistake if politicians used this new view as an excuse to duck the hard choices on entitlements while they await the magic bullet that will fix all of health care. And that, I fear, is exactly what would happen.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.