The Long-Term Deficit Trap

It is fashionable in many circles to warn of the impending bankruptcy of the federal government (see USAToday). Be warned � this is not a story about the evils of Bush�s tax cuts for the rich. These tax cuts are just a footnote. The real villain in the bankruptcy story is the projected explosion in the cost of Medicare and Medicaid. This cost explosion is not due to aging; Social Security costs inch up in these projections � just like they have been doing for the past seventy years. Medicare and Medicaid costs explode in this story because the U.S. health care system is broken and the projections assume that we never fix it.

Being an optimist, I think that American politicians are not so much more incompetent and corrupt than politicians elsewhere in the world. Every other wealthy country manages to provide health care for its people at a fraction of the price of the U.S. system. Per person health care expenditures in other rich countries average less than half as much as in the United States, and they all enjoy longer life expectancies. So, I think that somewhere between now and government bankruptcy date, the geniuses in Washington will be able to craft a system that is at least as efficient as the second worst system in the world � saving us tens of trillions of dollars over the long-term future.

However, I do have a fallback if our politicians adamantly resist fixing the problem. A couple of years ago, I came up with a plan for �Medicare Choice Plus.� The basic idea is simple. We give every Medicare beneficiary a voucher. The voucher allows them to buy into the health care system of any country with a longer life expectancy than the United States. (The longer life expectancy rule is a form of quality control.) The beneficiary and the government split the savings. This should be total red meat for free-market conservatives. You have vouchers, free trade, individual choice; what is there for conservatives not to like? And, it could save the government trillions of dollars.

So, if we can never fix our broken health care system, we just let people opt out into a system that works. It�s a rather pathetic state of affairs, but at least we don�t have to worry about the government going bankrupt.