Rising Costs

 In addition to growing social security financing imbalances, owing mainly to changing demographics affecting Social Security, the cost to the government of health care entitlements- Medicare and Medicaid- is rapidly increasing and contributing to growing federal deficits. Since 1980 to 2001, the cost of Medicare has risen from 5.8% to 12.8% of the federal budget. Medicare as a percentage of the budget is expected to rise to 16.6% in 2011. Medicaid is currently 7.5% of the federal budget and is expected to rise to 9.3% in 2014iv. An older population coupled with more technology, lifestyle choices, and increased usage are the reasons for the cost increases.

 

Throughout the 1990’s a surge of technology improved the healthcare system, but at the same time, it increased the costs. Today many physicians and patients prefer to use modern technology for earlier diagnosis even though it often costs them twice that of older technology. These lifestyle choices are costing Americans an average of $4,400 a year on health.  Citizens who smoke add $272 a year; those who consume unhealthy amounts of alcohol add $318 a year, and the population that is overweight adds $376 a year.  At least 20% of the increase in healthcare costs is from an increase in the demand for prescription drugs.v Along with the change in technology and unhealthy living choices, Americans are using medical care significantly more than in previous decades. The outpatient services at hospitals have become a huge cost to citizens. Increasingly more of the population refer themselves to emergency care instead of making an appointment with their physician. Americans are also visiting their doctors on a more regular base for small concerns.

 

Overall, the demographic situation in the United States coupled with the rising costs of entitlement programs will exacerbate the current deficit problem.  These factors will cause the government to have to pay out more money than it will collect in revenue from the dwindling proportion of the population who are working and being taxed to pay for these entitlement programs.  As the graph shows, today, government revenues are 16.1% of GDP and outlays are 20% of GDP. By 2014, revenues are projected to be 17% of GDP while outlays will reach 21% of GDP. vi This projection clearly demonstrates that current fiscal policy is unsustainable.