Getting to the Root: The Nation's Financial Woes Won't End till It Confronts Health-Care Costs

Article excerpt

There are two ways to reduce the federal budget deficit: cut spending and increase revenue. Most of the debate in Washington has focused on cuts; more recently the two parties have been in a standoff over whether to raise money as well--by reducing tax breaks. Serious progress on the balanced-budget front will require both approaches. But neither can solve the larger problem behind the nation's budget woes: the dramatic rise in health-care costs.

American health care is staggeringly expensive. This is true whether care is purchased by an individual, an insurance company or the government. Medicare--the largest federal health-care program--eats up a huge chunk of the budget, but not because government-run insurance is especially costly. Health care costs too much in general.

At present, Medicare covers seniors directly. The budget that House Republicans passed in April would change it to a voucher program that helps seniors buy coverage themselves. This new program would be allowed to grow just 1 percent faster than inflation. But health-care costs are going up much faster than that--and the Republican plan does nothing to address this problem. It simply caps the amount the government will pay, leaving seniors to pick up the increasingly larger difference.

Tax increases might sound like an appealing alternative. But whatever their merits, higher income taxes aren't a sustainable way to preserve Medicare either. Wage growth can't come close to keeping up with health-care costs. Raising taxes would certainly help in the short term, but it would just have to be done again--and again.

The fundamental problem isn't that Medicare pays too large a share of seniors' health care, and it isn't that taxes are too low to fund it. …