Malani: "After the Supreme Court Ruling: The Reckoning for Health Care Costs"
Now that the Supreme Court has upheld the new health care law, it is time to turn our attention to the looming health care cost crisis. Even before the Affordable Care Act (ACA), America spent 16% of its GDP -- twice that of the average OECD country -- on healthcare. Half that spending was by the government. The ACA expands Medicaid coverage for the poor and provides tax breaks for insurance purchases by families earning up to 400% of the federal poverty level or $92,000. This will add on average $140 billion in federal spending to the nation's health care bill each year beginning in 2014.
Moreover, the Supreme Court decision comes on the heels of grim news about Medicare, the government program that provides health insurance for the elderly and disabled. According to a report this spring by one of the Medicare's financial accountants, that program is almost broke. If the ACA is successful at raising revenue and cutting health care costs, it could save $210 billion over the next decade. If that money were used to finance Medicare, the trust fund that pays for Medicare's hospital expenditures might survive another 10 years. But the ACA earmarks those savings for deficit reduction. As a result, that trust fund will be bankrupt within 5 years. At that point, the next president will have to raise taxes or cut Medicare benefits.
The day of reckoning could be even sooner if the ACA is unsuccessful at cutting health care costs. The health care law uses three basic approaches to cutting costs. None inspires confidence.