To Deal with Debt, Congress Must Slow Federal Health Spending | Opinion

The White House is bracing for a standoff with conservatives who want to tie spending reforms to the next debt ceiling increase. President Joe Biden's intransigence on spending is disappointing given his significant involvement during the deficit reduction talks in 2011. The situation is even more dire now after Congress issued massive new debt to deal with COVID and the misguided lockdowns.

While COVID-related spending has pushed our debt-to-GDP ratio to its highest level since World War II, the growth of federal entitlement programs is a far greater threat to our country's economic future. The Medicare and Social Security Trustees—a group consisting mostly of senior Biden administration officials—report that Medicare's Hospital Insurance Trust Fund will be insolvent by 2028 and Social Security's trust fund will be insolvent in a decade. Unfunded liabilities for these two programs are projected to exceed $71 trillion over 75 years. And no program has grown as much as Medicaid, which used to be for the poor and vulnerable until Obamacare and COVID-era policies expanded enrollment to roughly one in four Americans.

As the national debt increases, the government will have to face one key question: how much debt can it rack up before it can no longer pay interest on existing debt with the revenue it collects, minus its spending commitments? Fiscal wonks refer to this as the government's de facto debt limit. The first sign of reaching that limit would be significantly higher interest rates. Getting close to it would have disastrous effects for the federal government and for families. Higher interest rates, inflation, and necessary taxes would reduce Americans' standard of living.

In a new paper, one of us (Winfree) used spending and revenue projections from the Congressional Budget Office to estimate when the federal government will exhaust its fiscal space—i.e., run out of capacity to take on additional debt. On its current path, the government will reach that point in the next 25 to 50 years.

national debt clock
WASHINGTON, DC - FEBRUARY 08: A Peterson Foundation billboard displaying the national debt is pictured on 18th Street in downtown Washington DC on February 08, 2022 in Washington, DC. As of February 2022 the National Debt Clock is over $30 Trillion. Jemal Countess/Getty Images

The loss of fiscal space is driven by two factors: consistent inflation-adjusted projected increases in spending and the additional associated borrowing costs. The spending growth is driven by health care commitments—a product of the aging of the baby boomers, Obamacare spending, and the surge of Medicaid. The federal government now spends more than $1.5 trillion annually on federal health programs, up from $825 billion 10 years ago.

As a share of the economy, spending on federal health programs is expected to grow from 6 percent to 9 percent within 30 years. That assumes inflation-adjusted growth in federal spending of about 1.6 percent per year. Policymakers need to focus on reducing the rate of growth of federal health care spending. They don't even need to make cuts; the key is slowing the rate of growth of these programs, so they only grow faster than inflation by about 1 percent per year over the next generation. Doing so would still leave federal health spending as a higher share of the economy than it is today, but it would only be about 7.5 percent of the economy in 30 years.

It's long past time for policymakers to get serious about Washington's dreadful fiscal course. Time has basically run out, and Congress must enact reforms to federal health programs within the next few years. Acting now will avoid drastic program cuts, massive tax increases, and inflation that would come within the next two decades otherwise. The sooner Congress acts, the more time for a phase-in of reforms, to reduce the growth in spending relative to baseline and to allow time for families and the market to adjust to a new level of government spending.

Both sides must put away talking points on privatization and death panels and get back to serious legislating. Another fiscal commission, similar to Simpson-Bowles, would be a good start and a sign that Congress is acknowledging the severity of the problem.

Paul Winfree, who served as director of budget policy and deputy director of the White House Domestic Policy Council in 2017, is a distinguished fellow at The Heritage Foundation. He authored a new report published by Paragon Health Institute titled "The Contribution of Federal Health Programs to U.S. Fiscal Challenges and the Need for Reform." Brian Blase, who served as a special assistant to President Trump at the National Economic Council, is president of Paragon Health Institute.

The views expressed in this article are the writers' own.