1. A Unified Long-Run Macroeconomic Projection of Health Care Spending, the Federal Budget, and Benefit Programs in the U.S
- Author
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Mantus, John, Pang, Gaobo, and Warshawsky, Mark J.
- Subjects
United States. Centers for Medicare and Medicaid Services -- Government finance ,Medical care, Cost of -- Government finance -- Economic aspects -- Forecasts and trends -- Political aspects ,Medicaid -- Forecasts and trends -- Economic aspects -- Government finance -- Political aspects ,Social security -- Forecasts and trends -- Government finance -- Political aspects -- Economic aspects ,Interest rates -- Forecasts and trends -- Economic aspects -- Political aspects -- Government finance ,Budget -- Forecasts and trends -- Economic aspects -- Political aspects -- Government finance ,Market trend/market analysis ,Social sciences - Abstract
In the official models used by the Treasury and the Social Security and Medicare Trustees for projections and policy analysis, many key variables--like interest rates--are assumed as a continuation of past trends. Even the Congressional Budget Office (CBO)--with a more sophisticated growth model--does not consider supply factors determining future health care costs. By contrast, in our model, these variables are simultaneously determined by supply and demand, based on logical functional forms and deep parameter estimates from the literature or empirical analysis. This approach provides projections which better reflect real economic relationships--like those that exist between health care spending, the federal budget, and investment in capital--and changing underlying conditions, especially demographics. Within the next ten years, we find the federal government budget deficit relative to national income will grow significantly beyond historical experience and should be regarded as unsustainable. We project that debt-to-GDP will be 136 percent in 2032 and 264 percent in 2052, compared to CBO's 112 percent and 177 percent, respectively. Real interest rates rise in the long run in a ratcheting cycle of higher interest payments and growing deficits and debt. Our projection of national health expenditures relative to GDP in 2072 is 31.4 percent, compared to 28.4 percent by the Centers for Medicare & Medicaid Services (CMS), used by the Medicare Trustees. These higher rates of health care inflation arise from labor shortage effects in an aging economy because health care is produced in a low productivity, labor-dependent sector. This rise in health care expenditures further deteriorates the federal budget and lowers consumer welfare. Acknowledgements: We appreciate helpful comments from and discussions with James Capretta, Jesus Fernandez-Villaverde, Jagadeesh Gokhale, Steve Robinson, and seminar participants at the American Enterprise Institute and the Savings and Retirement Foundation. All opinions expressed and mistakes made are our own and not theirs, nor our organizations'., Introduction There are several official medium- and long-range economic and financial projections of various federal programs, economic sectors, and government budgets in the US. The Social Security and Medicare Trustees [...]
- Published
- 2023