Sustainable Spending

Support for entitlement programs does not necessarily entail ignorance of fiscal responsibility. In an editorial this past Friday, the Crimson Staff declared their “disappoint[ment] with the president’s wholesale commitment to entitlement programs such as Social Security, Medicare, and Medicaid.” Evidently, this “wholesale commitment” evidenced how the president was “conveniently ignor[ing]” the country’s economic difficulties and impending fiscal cliff. But the Obama administration’s commitment to sustainable entitlement reform in the form of the Patient Protection and Affordable Care Act has already set in motion a roadmap for the leading driver of entitlement costs to steadily decrease.

The New York Times’ Nate R. Silver recently performed a detailed breakdown of the major contributors to federal and local government spending and noticed that “all of the major categories of government spending have been increasing relative to inflation. But essentially all of the increase in spending relative to economic growth…has come from entitlement programs, and about half of that has come from health care entitlements specifically.”

Although healthcare entitlement costs are rising, their rise is slowing. Economist Peter R. Orszag, former director of the Office of Management and Budget, commented last year on how the United States is experiencing “a very marked slowdown in the growth of health-care costs.” In his article, Orszag cites the projections of two Harvard economics professors, David M. Cutler and Jeffrey B. Liebman. Their data shows that “relative to the projections issued three years earlier, today’s forecasts suggest health savings of $3,500 per family of four by 2017.” This is because “health-system leaders are anticipating two significant shifts over the next eight years: away from fee-for-service payments and toward clinical-decision support.”

The Affordable Care Act bolstered these shifts. Instead of simply shifting costs to individuals, the ACA provided a starting point for the government to regulate the relationship between health payments and the quality of care. A study in the New England Journal of Medicine notes that the ACA will “significantly reduce Medicare spending over the next decade.” However, the ACA only scratched the surface. If we really want to take control of entitlement spending, we should expand on the ACA’s provisions for quality control to make them concretely enforced throughout the entire private healthcare system.

For example, the ACA set certain administrative rules for Medicare, including requirements for the digitization and standardization of health records. By requiring private health payers and providers to simplify their administrative systems as well, the government can reduce up to 14 percent of excessive healthcare spending. The NEJM study observes that having “a task force consisting of payers, providers, and vendors set binding compliance targets, monitor use rates, and have broad authority to implement additional measures” could “achieve system-wide savings of $30 billion a year.”

The Obama administration has already put the government on track to control the leading driver of entitlement spending—and it can be controlled further, if Congress cooperates. But Silver’s analysis also reveals that the deficit problem has other causes. Defense programs are second only to entitlements in spurring federal spending growth.

Former Congressman Barney Frank explored this phenomenon recently, discussing how he “[has] been greatly frustrated…by the extent to which establishment opinion focuses on ‘entitlements’…as a major cause of the deficit” and how this “ignores the extremely large contribution made to this problem by military expenditures that are far beyond any rational assessment of our national security.”

In particular, Frank points out the United States’ excessive defensive support for many European and Asian allies as well as the continuing balance-sheet burden caused by nation-building in Afghanistan. He determines that our security interests can be protected while slowly phasing in cuts that would decrease defense spending to 20 percent below the current year’s amount. Even if only half of his proposed cuts are feasible, they could play a major role in reducing the deficit.

Last Friday’s Crimson editorial oversimplified the issues involved in the deficit reduction debate, answering the question of fiscal responsibility with an ambiguous desire to reform entitlement programs. The Obama administration has already played a vast role in resolving those questions by sustainably modernizing healthcare entitlements. The Affordable Care Act has helped decrease healthcare costs, which are the leading driver of entitlement spending. By innovating further, the government can ensure this trend continues in the private sector. And if politicians dare to look outside of entitlements, the government can be even more effective in controlling costs.

Nikhil R. Mulani ’14, a Crimson editorial executive, is a classics concentrator in Eliot House.