The bill is coming due for “Obamacare,” and it’s a whopper.
According to Medicare’s actuaries, U.S. health care spending is about to skyrocket.
“Obamacare” continues federal meddling in what was once the finest and most cost-effective health care system on the planet.
Back in the 1960s, many Americans paid for doctor and hospital services out of pocket or through modestly priced private insurance. Health care spending was about 6 percent of the country’s gross domestic product.
Enter President Lyndon B. Johnson and Medicare. He bought millions of votes by giving seniors free health care that they never paid for through payroll taxes during their working years. He also helped lay the foundations for the entitlement state with Medicaid.
Medicaid, which was conceived to help poor children, has been gradually expanded to include many working families.
Today health care spending is more than 17 percent of GDP. Life-extending treatments are part of the jump, but Germany and Holland spend about 12 percent and have those. The extra costs in the United States are federally mandated giveaways, inefficiencies, and abuse—about $850 billion, which is much more than what is spent on defense.
Federal programs set reimbursements for providers and limit use of many drugs and procedures. Those rules are intended to mirror market prices and informed private decisions but often do not.
No bureaucratic rule or computer program can even capture all the judgments we put into purchasing decisions to maximize what we squeeze from our incomes to meet our family’s needs. Those decisions build up to become what economists call the invisible hand of the marketplace that guides businesses to make what we need.
Just as Soviet central planning failed to put enough TVs and beef on store shelves, federally managed health care creates long waits to see doctors and lots of opportunities for soft fraud—activities by health care providers that game federal rules—and outright stealing.
For example, Medicaid pays doctors a small fee for drawing blood, but labs pay doctors handling fees up to six times as large to get their business. Doctors prescribe questionable, expensive treatments that may be administered in their offices and push up Medicare reimbursements into the millions for each practice.
Before “Obamacare,” federal and state governments were already financing about half of all health care spending. At that level, federal reimbursement rates and rules no longer mirror the market; those become the market. The decisions of private insurers—each much smaller by dollars spent than federal outlays—fit in around those policies.
It was already Soviet health care but without the benefit of free access, as private premiums, deductions and co-pays soared.
Now “Obamacare” is throwing new sand into the gears by fining individuals who lack employer-provided insurance and fail to purchase a plan from the government marketplace.
No surprise, next year those policies are expected to jump in cost by as much as 30 percent. Medicare actuaries are forecasting health spending will rise at 6 percent a year during the next decade and is on pace to reach 20 percent of GDP by 2025.
The administration has obfuscated the issue. Government numbers show Medicare expenditures growing more slowly, but that’s because the new law raises premiums, cuts benefits, and slices reimbursements to doctors and uses the cash saved to subsidize the federal and state insurance exchanges.
Small businesses are shedding employees and larger ones are scrambling to find machines to replace lower paid workers, or leave the country altogether to escape the burdens of health insurance.
Good jobs are scarce, and America is losing its brand.
The United States, once the home of free markets, is no longer the most vibrant economy on earth.
Peter Morici, professor at the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Follow @pmorici1
