Mention the U.S. budget deficit now and it is sure to incite unrest among U.S. citizens. According to a senior White House official, the 2009 federal deficit is set to total $1.58 trillion dollars. A trillion dollars is a million million dollars, enough money to buy a Lamborghini Gallardo for everybody living in Los Angeles. Try to imagine $1.58 trillion dollars. That amount is three times more red ink compared to last year’s deficit. Healthcare is a main reason why our National Budget is spiralling out of control. In 2007 alone, the U.S. spent a whopping $2.26 trillion on health care, or $7,438 per person. The role healthcare plays in the budget deficit can no longer be ignored.
The Congressional Budget Office and the Obama administration both agree that the escalating cost of healthcare is the main reason for the increasing budget deficit. Costs for entitlements such as Medicare, Medicaid and Social Security are set to explode in the future. The expected expansion in entitlement spending will result in almost the entire projected surge in total non-interest spending. For instance, Medicare and Medicaid will be accountable for 80 percent of the increase in spending on the three biggest entitlements over the next 25 years. However, even in the face of such appalling figures, citizens remain oblivious of how healthcare is contributing to the black hole of increasing debt.
Evidence of how healthcare contributes to the national deficit continues to be unearthed by watch groups and organizations. The White House Office of Management and Budget (OMB) declared that increasing healthcare costs will be the primary cause of long-term budget deficits. Spending for the two main Federal programs – Medicare and Medicaid – will inflate continuously and displace spending for other concurrent programs. The budget is simply unable absorb these unsustainable healthcare costs.
The Congressional Budget Office has pinpointed several reasons for escalating health care spending over the past few decades. Advancements in medical care technology have greatly increased the price of health care. Other causes include higher consumer disposable income levels, alterations in insurance coverage, and inflation. It is undeniable that the standard of medical care and therefore the standard of living in general has improved over the decades by leaps and bounds. This marked improvement, however, has led to a more tenuous strain on our budget.
Health insurance abuse is another contributing factor to spiralling health care cost. The exclusion of employer-sponsored health benefits from payroll taxes and federal income greatly warps the healthcare market. As employer-funded healthcare benefits are not treated as a taxable benefit to employees, a loss of approximately $150 billion in tax revenue is incurred annually.
The US government also provides full tax shelter to investors in Health Saving Accounts at the highest marginal rate. This proves worrisome as there is absolutely no ability to identify which medical expense actually qualifies for tax exemption. Aesthetic related expenses such as plastic surgery and cosmetic dentistry could actually be funded this way.
According to a study done by Cato Institute, the most regulated industry in the US is healthcare. These regulation costs sum up to $340 billion. Through regulation, the state only saves up to $170 billion in cost, half the amount spent in implementing regulation in the first place. This research concluded that the difference is chiefly due to three separate reasons: medical malpractice, Food and Drug Administration regulations, and facilities and machinery usage regulations. Regulatory requisites, such as preventing medical technicians without a certified medical degree from carrying out simple diagnostic procedures with little risk, have been called draconian and unnecessary.
Like most major reforms, the general populace is initially resistant to changes. Due to uncertainty, most Americans would rather maintain the status quo even if the result is a deepening budget deficit. In a recent poll, even in the face of mounting evidence that healthcare is bankrupting the country, only 55% of 1000 Americans polled feel that the current healthcare system needs major reform. Besides convincing the average American that major healthcare reform is a step toward resolving the national debt, President Obama has to persuade a very stubborn congress to pass the healthcare bill. In a middle-aged democracy where individual politicians are becoming more independent of their party, this is proving to be an uphill task.
At the time of this writing, the nation’s debt stands at $11.7 trillion. This is a worrisome figure even for the country with the biggest financial economy inthe world. Collectively, economists are predicting that an improved economic outlook will help reduce the deficit to around $1.3 trillion in the 2010 fiscal year. However, the United States of America need not be reduced to wistful yearnings for a positive economic climate to trim her budget deficit. Instead, the US should take a proactive stance and actively trim the huge costs that burden the economy and widen the deficit. For this to happen, the country has to comprehend the seriousness of the matter and be willing to make the necessary sacrifices.