Even If We Tackle Health Cost Inflation, An Aging Population Will Drive Spending Increases

by Reihan Salam

Charles Blahous has a primer on the latest CBO report that includes the following observation:

In recent years a seductive but incorrect picture of the federal budget became fashionable; the idea that the main thing we need to do to repair the budget is to conquer health care cost inflation in the public and private sectors alike. Unfortunately, it’s not true. Last year CBO estimated that over the next quarter-century, cost growth in the federal health entitlements and Social Security will be 75% attributable to population aging and only 25% to health cost inflation. Even in the health entitlements considered alone, population aging accounts for 60% of such cost growth, excess health inflation only 40%. Thus even in the unlikely scenario that we completely conquer health cost inflation, we would still have to confront the bigger problem of the growing number of people receiving federal health benefits. [Emphasis added]

This gives us reason to consider more radical solutions to the challenge of population aging, e.g., encouraging the expatriation of older Americans to Mexico and Central America and other low-cost countries, where the cost of living, including the cost of medical care, is substantially lower than in the U.S. Right now, this will strike at least some readers as Strangelovian parody. But soon it might be common sense to allow retired expatriates to draw on U.S. health entitlements, provided that doing so will yield substantial cost savings. 

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.