Tag Archives: Budgeting

Meaningful Long-term Budget Forecasts and Beating the Health Care Horse

When someone is talking about debt and deficits, they’re implicitly talking about future spending on health care. That’s the determining factor in forecasted long-run problems. Not trivialities like discretionary spending, not social security. Health care. But Mark Thoma asks whether or not those forecasts are logically sound. The math isn’t wrong, and it makes intuitive sense; extrapolating from where things stand now, health care spending will become an increasingly large part of the budget. But more fundamentally?

We can’t forecast very well beyond a 3 to 6 month horizon, yet we are relying upon projections for decades in the future as the basis for cutting social programs now. The CBO, for example, uses a 70 year projection for revenues and outlays, and that is the basis of a lot of the worry over the long-term budget picture. But, did we have any idea at all 70 years ago — in 1942 — what health care costs would be today?

The point is well taken. Hell, I’ll be very disappointed if I’m not half-machine by 2070. Essentially, a lot of things can happen to steer us off this path. We could suddenly stop consuming health care at the level we do now, meaning lower demand and prices. Technological progress could turn medicine into something vaguely resembling robiticized manufacturing—done by robots on the cheap.

So, what to make of all the talk of projections of this sort? This might sound slightly cynical, but… I think everyone sort of already understands this uncertainty on some level. Most of these fiscal doomsayers aren’t considering these forecasts as much more than political ammunition for propagating normative prescriptions.

Thoma goes on to quote Jeff Sachs, who rails against conservative tendencies in calling for an end to the welfare state based off this notion of imminent bankruptcy. Why bring pain to millions now because something might or might not happen seventy years from now?

One of the unshakable myths of the punditariat is that the federal government is going bankrupt because of entitlements spending, especially spending on Medicare and Medicaid. Each day we hear the drumbeat saying that either we cut entitlements now or we are finished as a nation.

I want to defend the obverse side of that coin. Why should we progressives wish to change health care as an institution? Maybe we’re in no danger of being run dry because of health care! Well, while we might not know how health care costs will manifest themselves seventy years from now, we do know, contra Thoma’s remark on our predictive capabilities, what it will cost ten to twenty years from now. I say that because regardless of what changes lay in front of us, minus the discovery of the fountain of youth, the health care sector is large and has inertia and won’t be radically and quickly changing course. Steering the Titanic, and all that. To wit, we know health care is going to stay expensive and get more expensive in the short- to medium-term. We should try to make that not so. The facts also show that our aggregate outcomes, in terms of better health, aren’t commensurate with our level of spending. That’s simply a waste of resources that could otherwise be directed to more socially beneficial undertakings. Secondly, and more importantly, the old standby: there is an immense amount of suffering and inequity that takes place in heath care markets—namely, insurance markets. Per the progressive view on the state and the role it should play in society, we can ameliorate this suffering and inequity.

Should the CBO and varying other parties even bother with these types of forecasts? Are they useful? In any prophetic way, not really. We don’t know how anything is going to play-out that far down the road. However, it’s useful in highlighting that we do suffer from a health care problem, even if its exigency is overstated. So, as they say, “When in Rome, use all estimates of future health care spending to your advantage.”


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