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Clear Thoughts
Government Healthcare Spending
Originally Published Thursday, March 24, 2005
| Each year government spending on healthcare continues to increase. Medicare is experiencing financial difficulties and its cost is rising. How does this influance the market? |
Last week we attempted to put a face on at least part of the social security debate. This week we are tackling healthcare spending. The press and Congress has accomplished placing a very real face on medical spending by going through extraordinary measures for one individual, and we all feel for the entire Schiavo family.
Should society, translated as the government, pay for its citizen's healthcare? The fact is, it already does, and in applying our usual methodology, we wish to explore all sides, look at the data and how these numbers might influence the financial markets and therefore our portfolios and investors.
Most of the statistics we present here are from the Federal government, but looking at only the Federal government's spending scratches the surface of the dollars spent each year when all 50 states are included.
Today, there are entire industries protecting personal assets from healthcare providers, infomercials boast about "helping you fill out forms" to obtain governmental reimbursement to pay for their new product, all aimed at sticking our government, translated it means we taxpayers, either now or in future generations, to pay for long-term care for the chronically sick, disabled and the elderly, and for other products and drugs.
As a country, we all want to "pay less," have the greatest healthcare system in the world, continuously improve our health, extend our life spans through research and development and cut the Federal deficit.
This is a challenging and often competing set of goals.
In their annual report to Congress yesterday, the trustees of the Social Security and Medicare programs stated the obvious, Medicare's "financial difficulties come sooner - and are much more severe - than those confronting Social Security."
Social Security and Medicare face "essentially the same demographic challenge," and health costs are rising faster than the wages on which Social Security benefits are based. The trustees predicted that "Medicare's cost will first exceed Social Security's in 2024" and will then grow rapidly as a share of the nation's economy. The basic monthly Medicare premium, withheld from Social Security checks, has risen 33 percent in the last two years, to the current $78.20 from $58.70 in 2003. The trustees said that beneficiaries faced another double-digit percentage increase in 2006, with the charge rising to $87.70.
To get an even closer data oriented look at government medical spending, and the rising cost of healthcare today, we went to the web site for The Centers for Medicare & Medicaid and read their most recent report which predicts and sets the budget that government agencies use to inform Congress and the President. We found the following:
Lower Overall Medicare Spending Than Mid-Session Review Estimates
FY 2006 net Medicare spending (benefits minus premiums) in the President's FY 2006 budget is estimated to be $345.2 billion. This is the first year that Medicare's costs include the Medicare prescription drug benefit.
Five-year spending is estimated to be $2.1 trillion.
The gist is that the government is currently the largest provider of healthcare in this country and will carry an increasing share of healthcare costs as employers reduce their benefit offerings. Healthcare spending is on the rise and cost containment does not seem to be easily achieved.
With population growth outstripping enrollment growth in private health insurance over the next 10 years, the Centers believe that the government will be required to shoulder a larger share of costs through its primary programs; Medicare and Medicaid.
The agencies arrived at this conclusion based on simple mathematics: private health care spending is being reduced, government spending is being increased, the population is aging, all while overall healthcare costs are increasing. In fact, by 2014 the study predicted public funding of healthcare will be over 49%; it is currently at 46%. By comparison, the government paid about 25% of healthcare costs in 1965. Total healthcare spending as part of GDP was 15.3% in 2003 and is projected to be 18.7% by 2014.
Where does this leave us? With soaring Federal deficits, and many states struggling to make healthcare ends meet. We still have millions of uninsured citizens, many of which are children. There is no end in site and no simple solution. As inflation rises, medical spending continues to be a key contributor. Healthcare is not a place we as a nation necessarily want to cut corners.
To curb inflation, the Fed has hinted that it may raise interest rates at a faster pace to keep our currency strong and to gain foreign interest in our bonds to finance our debt, which also curbs exports, increases borrowing costs for businesses and makes monthly mortgage payments higher, and we all know what that means.
Putting a personal face on every bill to come in front of Congress and the President is a good thing. As a government of, by and for the people, this understanding of the individual should not ever get lost on our law makers. Balanced and insightful thought are required by our government decision makers to make the right long-term choices. It is up to us, as individuals to keep our law makers focused on solving our society's and economy's important problems, and the healthcare "Dilemma" is clearly a large one.
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