It’s Health Care, Stupid! Why Control of Health Care Spending Is Vital for Long-Term Fiscal Stability and Discussion

As the United States looks ahead to the fiscal challenges of population aging, two facts stand out. First, the United States faces far smaller pension problems from population aging than do most other developed nations. Our combined fertility and immigration rates are higher than those of all other developed nations, and life expectancy is lower and projected to remain lower than in most other developed nations. Our pension system is less generous than those of nearly all other developed nations.1 As a result, meeting the added costs of pensions, public and private, is not technically difficult. The added costs of Social Security benefits—a bit more than 2 percent of gross domestic product (GDP) over the next 35 years—is less than past increases in pension costs, which have accrued over many fewer years. Second, total health care spending in the United States is vastly higher than in any other nation. It is so much higher, in fact, that although the U.S. government is responsible for a smaller share of total health care spending than the government of any other developed nation, government-financed health care spending in the United States approximates that of other nations as a share of GDP (Reinhardt, Hussey, and Anderson 2004). Furthermore, the U.S. government bears fiscal responsibility for the parts of health care spending that will increase because of technological change and population aging. These two forces are multiplicative, one pushing up per capita expenditures and the other pushing up the number of “capitas.” Of these two forces, increases in per capita spending resulting largely from advances in medical technology (see Murphy and Topel 2003; Cutler and McClellan 2001; and Berndt et al. 2000) are by far the more powerful. As a result of these two trends, health care The U.S. Health Care System and U.S. Fiscal Stability 184