Health Care Costs and the Affordable Care Act

August 17, 2012

Rapidly rising health costs is the most serious threat to the nation's long-term prosperity. Already, the rapid run-up in federal health entitlement spending is putting tremendous pressure on the federal budget, says James C. Capretta, a visiting fellow at the American Enterprise Institute.

  • Between 1972 and 2011, federal spending on Medicare and Medicaid rose from 1.1 percent of gross domestic product (GDP) to 5.5 percent, according to the Congressional Budget Office (CBO).
  • CBO's latest projections indicate that spending on these programs, plus the Affordable Care Act's (ACA) new entitlement spending, will push total health entitlement spending up to at least 8.4 percent of GDP by 2030.
  • That's a jump in spending of nearly 3 percentage points of GDP compared to today's level -- or the equivalent of another $500 billion in budget outlays.

Unfortunately, the ACA did not lay the foundation for sensible cost control, and did not partially ease budgetary pressures, as has been asserted. Quite the contrary, the ACA will pour an ocean of gasoline on the health entitlement fire, and the supposed cost-control mechanisms are a mirage.

What's needed in American health care is the discipline and accountability that comes with a functioning marketplace. That means empowering consumers, not bureaucrats, to make sound decisions for themselves. With consumers in the driver's seat, those providing medical services to them will have strong incentives to reorganize their business practices to deliver better care at less cost.

That's the only way to slow the pace of rising costs while maintaining or even improving the quality of care provided to patients.

Source: James C. Capretta, "Health Care Costs and ObamaCare," Economic Policies for the 21st Century, July 31, 2012.

 

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