The Problem

“The graying of America means that the portion of people who are of prime working age is getting smaller, with fewer workers available to fill open positions, ultimately reducing productivity, straining the federal budget, and slowing economic growth.” – Antonioli, J., & Malde, J. (2023)  

“…between inflation and the growing federal debt, interest payments on that debt are gobbling up a larger share of federal revenue every year. Per the Congressional Budget Office (CBO), annual net interest costs would total $663 billion in 2023, and by 2053 interest costs on that debt are projected to be nearly three times the amount the federal government has historically spent on R&D, infrastructure, and education combined.” - Exploring the Problem Space: How to Gradually Lower the Federal Debt, Part I

“Rising interest payments can crowd out other priorities in the federal budget and lead to a cycle of higher deficits, growing debt, and even more interest payments in the future…As interest costs rise, so too will the gap between federal spending and revenues. In fact, CBO [Congressional Budget Office] projects that interest costs alone will account for 38 percent of federal revenues by 2053, significantly exceeding the level of 10 percent recorded in 2022.” - Peter G. Peterson Foundation

The Solution

  1. Raise Tax Revenue (addressed in Part I)

  2. Cut Spending

  3. Grow the Economy

  4. Fix the Political Culture

One Way to Cut Spending: Get Serious about Medicare (revised and expanded from a previous post)

Medicare spending per person has grown from $5,800 in 2000 to $15,700 in 2022. Net Medicare outlays are projected to increase from $744 billion in 2022 to nearly $1.7 trillion in 2033. Most of this money (76%) is spent on managed care organizations, hospitals and physician services.  Another 12% goes to prescription drugs.

The Biden administration has proposed some cuts in Medicare spending, but they would only save around $24 billion a year for the next decade. That’s clearly inadequate, considering that Medicare spending is projected to increase an average of nearly $100 billion a year over the same period. What else can be done to rein in those costs?

For one thing, Medicare should stop paying physicians higher rates for procedures performed in hospital outpatient clinics than for identical procedures rendered in physician offices. As a result of this nonsensical policy, physicians have shifted much of their procedural work to hospital outpatient settings.

Another suggestion comes from Chris Pope, an expert on healthcare payment policy. To quote from his recent paper, Keeping Medicare Affordable: The Cost of Adding Services:

“Medicare’s steadily increasing burden on the federal budget is largely the result of the program’s commitment to pay for ever-increasing volumes of new medical products, procedures, and services—most of which are currently approved without scrutiny of their cost-effectiveness. Congress should be required to approve additions to Medicare fee schedules before they take effect.”

We also need to slash the insane amount of fraud and waste in the Medicare/Medicaid system. Yes, that would involve higher administrative costs but the added expense would be peanuts compared to the amount saved, as in many billions each year. I’m not exaggerating: per the U.S. Government Accountability Office (GAO)*, improper payments cost Medicare/Medicaid over $127 billion in 2022 alone.

Here are some other ideas, all from my January 14, 2022 post, Getting to Switzerland: How to Cut US Healthcare Spending and Save Lives in the Process:

  1. Greatly expand the number of nurse practitioners as independent primary care providers and gatekeepers to specialists, as is already happening in several European countries.

  2. Institute a no-fault medical malpractice system, like the one in Denmark.

  3. Develop federal guidelines for medical testing and treatment, much like the NICE system in Britain, which would reduce excessive testing and treatment, as well as malpractice claims. As in Britain, medical providers would still be allowed to depart from guidance per their independent judgment of what’s best for the patient.

This is doable. But it will require facing down some powerful interest groups, starting with the American Medical Association and Trial Lawyers of America.

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* The GAO is an excellent source for even more ideas on how to cut federal spending. The agency estimated the federal government spent an estimated $2.4 trillion in improper payments over the last two decades. And that’s just the tip of the iceberg. Per a recent GAO Issue Summary: “In fact, the government still doesn’t fully understand the size of federal improper payments, partly because it doesn’t have complete, reliable, or accurate estimates.”

Reference:

Antonioli, J., & Malde, J. (2023). The Demographic Transition: An Overview of America’s Aging Population and Immigration’s Mediating Role.  https://bipartisanpolicy.org/download/?file=/wp-content/uploads/2023/09/BPC_LIT-Review.pdf