In the face of rising national healthcare costs, the spotlight is firmly on the U.S. government’s efforts to manage its expenditure on Social Security, Medicare, and Medicaid. These programs, often misconstrued as out of control, are in fact projected to see a modest increase in spending from 5% to 6% of GDP between 2023 and 2053, according to the Congressional Budget Office (CBO). This increase is attributed entirely to the aging population, a factor that pales in comparison to the fluctuations seen in defense spending over the past two decades.
However, the real fiscal challenge lies in the sharp increase in spending on healthcare programs, expected to surge from 6.5% of GDP in 2023 to 10.1% by 2053. While aging demographics play a part, the primary driver is the escalating cost of healthcare. Alarmingly, U.S. healthcare costs are double the average of other OECD countries, despite underperforming on critical health indicators such as infant mortality and obesity rates. The pressing question remains: why isn’t more being done to curtail these runaway healthcare costs?
Understanding the Challenges in Controlling Social Security and Healthcare Spending
Social Security Spending: A Slow Rise
Contrary to popular belief, spending on Social Security, Medicare, and Medicaid is not spiraling out of control. According to the Congressional Budget Office (CBO), Social Security spending is projected to increase from about 5% of GDP to 6% between 2023 and 2053. The rise is attributed to the aging population and not to mismanagement of funds. The 1% increase is relatively modest, especially when compared to the fluctuation of defense spending which varied by 2 percentage points between 2000 and 2023.
The Real Challenge: Rising Healthcare Costs
Where the real challenge lies, however, is the projected increase in healthcare spending. It is expected to rise from 6.5% of GDP in 2023 to 10.1% in 2053. Some of the increase can be attributed to the aging population, but the significant portion is due to the rising cost of healthcare. The U.S. spends twice as much on healthcare as other OECD countries and doesn’t necessarily achieve better results, as evidenced by metrics such as infant mortality and obesity rates.
The Inflation Reduction Act: A Step in the Right Direction
To address the skyrocketing healthcare costs, the Inflation Reduction Act was introduced, giving Medicare the power to negotiate drug prices with pharmaceutical companies. This is a significant step, as until now, Medicare had been explicitly prohibited from such negotiations. If companies do not comply, they could face a substantial excise tax or be forced to withdraw their drugs from Medicare and Medicaid coverage.
Industry Pushback and Legal Challenges
Despite the potential benefits, just weeks before the first 10 drugs subject to negotiations were to be announced, the pharmaceutical industry initiated a vigorous campaign to halt the program. Various lawsuits filed by the companies argue that enforced price negotiations violate aspects of the Constitution, including the Fifth Amendment’s protection against unjust property seizures and the First Amendment’s guarantee of free speech. Furthermore, they contend that the excise tax for noncompliance violates the Eighth Amendment’s prohibition of excessive fines.
The bottom line is that while Social Security spending is not spiraling out of control, healthcare costs present a significant challenge. The Inflation Reduction Act offers a potential solution, but the pharmaceutical industry’s pushback and ensuing legal battles could stymie progress. It’s clear that controlling healthcare costs will not be easy, and will likely require ongoing negotiation and policy adjustments.