Busch: Health Care Is the Driver of US Long Term Spending Problems

Health care is the driver of U.S. long term spending problems

From the Heritage Foundation, here is a graph that shows how Medicare and Medicaid have massively expanded over the last 11 years with Medicare expanding 86 percent over that time frame.

From the Congressional Budget Office, this graph shows the projected growth of health care spending compared to other spending areas for the US government.

This is why there is such extreme focus on health-care costs and whether Obamacare succeeds at controlling the projected costs in the future.

Today, George Mason University expert and Obama approved GOP 2010 trustee for Medicare and Social Security Charles Blahous is today releasing a study that challenges the conventional wisdom that the health-care law, which calls for an expensive expansion of coverage for the uninsured beginning in 2014, will nonetheless reduce deficits by raising taxes and cutting payments to Medicare providers. The Washington Postwrites, “President Obama’s landmark health-care initiative, long touted as a means to control costs, will actually add more than $340 billion to the nation’s budget woes over the next decade…” according to Blahous.

If accurate, this would mean that the U.S. debt and deficit will expandat a pace that’s much worse than currently forecasted and the CBO cost curve will steepen. Sadly, both parties have engaged in super-charged political rhetoric over the future of these programs and this has led many lawmakers to avoid discussing the obvious elephant in the room when it comes to controlling the U.S. federal finances.

Fortunately, there is a bipartisan plan for the future of these programs called Wyden-Ryan that provides a framework that would offer traditional, government-run Medicare as an option for future retirees along with a variety of private plans. (Here’s a brief rundown of it.) I bring this up not to promote this plan, but to inform readers that this is how the future of health-care may look should the Supreme Court rule against President Obama’s health care law (individual mandate).

For the financial markets, this supports my view that health care will remain the most volatile sector in the equity markets due to this massive uncertainty over its future structure.

Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.