programs. So to get a feel for where all that money goes and for why cutting spending sounds easier than it is, slice the budget into five pieces besides interest—health care, Social Security, other benefits, defense, and everything else—and take a closer look.
“IT’s TWO WORDS: HEALTH CARE”
“When I left OMB in 2007,” Portman said in an interview, “people asked me: ‘What did you learn? What’s the biggestconcern about our budget? Is it the spending in Iraq and Afghanistan? Is it tax revenues? Is it the spending?’
“I said, ‘No. It’s two words: health care.’ ”
The numbers support that assessment. Health care spending is rising faster than any other major part of the federal budget, driven by a costly trio of factors. One, the number of insured is rapidly increasing as Congress expands the pool of those who are eligible, fewer people get health insurance on the job, and the huge baby boom generation turns sixty-five and becomes eligible for Medicare. Two, those insured through government-subsidized insurance are using more health care, undergoing more procedures, and availing themselves of newtechnologies. Three, the price of that health care is rising faster than the price of other goods and services.
These three facts add up to a predictable and alarming trend: already expensive, health care is likely to balloon in cost in coming years. Medicare for the elderly and disabled and Medicaid for the poor currently account for about 21 percent of all federal spending. Medicare alone cost $555 billion in 2011; adjusted for inflation, that’s more than the federal government spent on
everything
in 1951. The CBO forecasts that the Medicare tab will climb by 75 percent over the next decade. “It is the aging of the population and the rising costs of health care that are putting this unbearable pressure on the federal budget,” CBO director Doug Elmendorf told Congress recently.
Replacing worn-out hip joints, a marvel of modern medicine that makes old age more comfortable, illustrates the three drivers of Medicare costs. First, more people are living longer, creating a larger pool of potential hips to be replaced. Second, the overall number of eligible patients electing the procedure is on the rise.Between 1999 and 2009, the number of hip replacements performed on patients between sixty-five and eighty-four rose 30 percent, and in a remarkable development, the number done on people over eighty-five rose 21 percent. By 2009, nearly one in every six Americans who had a hip joint replaced was over eighty-five. A generation or two earlier, it was next to none. Third, the cost per procedure has escalated.
In 2009, Medicare spent $9 billion replacing hip, knee, and shoulder joints, a tab that has been rising at better than8 percent a year, with about a third of that going to 264,000 hip replacements at roughly $12,000 apiece. The Government Accountability Office, the investigative arm of Congress, estimates that while 40 percent of the increase in Medicare spending on hip replacements between 2004 and 2009 reflects the increase in the number of procedures, fully 60 percent is due to the rising cost per case.
Surveys of patients after surgery suggest that most are very satisfied, reporting an improved ability to walk and, in some cases, exercise or play sports, so the money may be well spent. But the popularity of the procedure is also an ominous portent for Medicare’s finances: the rapid adoption of joint replacement among middle-aged, non-Medicare-covered Americans is growing, and those artificial hips don’t last forever. When it’s time to replace them, the patients are likely to be of Medicare age.
The upward pressure on costs is not just a result of more and pricier procedures. The way the government pays for health care is itself a patchwork of perverse incentives crafted for reasons historical and political. Among these costly legacies is a decades-old embrace of fee-for-service, an
“IT’s TWO WORDS: HEALTH CARE”
“When I left OMB in 2007,” Portman said in an interview, “people asked me: ‘What did you learn? What’s the biggestconcern about our budget? Is it the spending in Iraq and Afghanistan? Is it tax revenues? Is it the spending?’
“I said, ‘No. It’s two words: health care.’ ”
The numbers support that assessment. Health care spending is rising faster than any other major part of the federal budget, driven by a costly trio of factors. One, the number of insured is rapidly increasing as Congress expands the pool of those who are eligible, fewer people get health insurance on the job, and the huge baby boom generation turns sixty-five and becomes eligible for Medicare. Two, those insured through government-subsidized insurance are using more health care, undergoing more procedures, and availing themselves of newtechnologies. Three, the price of that health care is rising faster than the price of other goods and services.
These three facts add up to a predictable and alarming trend: already expensive, health care is likely to balloon in cost in coming years. Medicare for the elderly and disabled and Medicaid for the poor currently account for about 21 percent of all federal spending. Medicare alone cost $555 billion in 2011; adjusted for inflation, that’s more than the federal government spent on
everything
in 1951. The CBO forecasts that the Medicare tab will climb by 75 percent over the next decade. “It is the aging of the population and the rising costs of health care that are putting this unbearable pressure on the federal budget,” CBO director Doug Elmendorf told Congress recently.
Replacing worn-out hip joints, a marvel of modern medicine that makes old age more comfortable, illustrates the three drivers of Medicare costs. First, more people are living longer, creating a larger pool of potential hips to be replaced. Second, the overall number of eligible patients electing the procedure is on the rise.Between 1999 and 2009, the number of hip replacements performed on patients between sixty-five and eighty-four rose 30 percent, and in a remarkable development, the number done on people over eighty-five rose 21 percent. By 2009, nearly one in every six Americans who had a hip joint replaced was over eighty-five. A generation or two earlier, it was next to none. Third, the cost per procedure has escalated.
In 2009, Medicare spent $9 billion replacing hip, knee, and shoulder joints, a tab that has been rising at better than8 percent a year, with about a third of that going to 264,000 hip replacements at roughly $12,000 apiece. The Government Accountability Office, the investigative arm of Congress, estimates that while 40 percent of the increase in Medicare spending on hip replacements between 2004 and 2009 reflects the increase in the number of procedures, fully 60 percent is due to the rising cost per case.
Surveys of patients after surgery suggest that most are very satisfied, reporting an improved ability to walk and, in some cases, exercise or play sports, so the money may be well spent. But the popularity of the procedure is also an ominous portent for Medicare’s finances: the rapid adoption of joint replacement among middle-aged, non-Medicare-covered Americans is growing, and those artificial hips don’t last forever. When it’s time to replace them, the patients are likely to be of Medicare age.
The upward pressure on costs is not just a result of more and pricier procedures. The way the government pays for health care is itself a patchwork of perverse incentives crafted for reasons historical and political. Among these costly legacies is a decades-old embrace of fee-for-service, an
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