It's Health Care: Why Fox Is Wrong About America's “Spending Problem”

Fox News host Neil Cavuto and Fox guest Stephen Moore agreed that President Obama is wrong to suggest that federal spending growth is driven by health care costs, when in fact Obama is right. Health care spending is the only category of federal spending projected to grow substantially over the next two decades, and government health insurance is actually more efficient than private sector insurance. And the president's Patient Protection and Affordable Care Act contains provisions that aims to contain and reduce national health care costs.

WSJ's Moore, Fox Slam Obama For Reportedly Tying Deficits To Health Care Spending

Stephen Moore: According To Speaker Boehner, The White House Blames “All Of The Fiscal Woes On Our Health-Care System.” Wall Street Journal editorial board member Stephen Moore stated in an op-ed that, according to House Speaker John Boehner (R-OH), President Obama repeatedly said “Washington doesn't have a spending problem,” but rather a “health care problem”:

The president's insistence that Washington doesn't have a spending problem, Mr. Boehner says, is predicated on the belief that massive federal deficits stem from what Mr. Obama called “a health-care problem.” Mr. Boehner says that after he recovered from his astonishment -- “They blame all of the fiscal woes on our health-care system” -- he replied: “Clearly we have a health-care problem, which is about to get worse with ObamaCare. But, Mr. President, we have a very serious spending problem.” He repeated this message so often, he says, that toward the end of the negotiations, the president became irritated and said: “I'm getting tired of hearing you say that.” [The Wall Street Journal, 1/6/13]

Fox's Cavuto: Fixing Health Care Right Now Would Still Leave “A Lot Of Red Ink.” On January 7, Fox's Neil Cavuto hosted Moore to discuss his op-ed. After Moore described what he sees as “what the left is saying about the budget problem,” Cavuto responded that “even if you were to solve health care tonight, you would still have a lot of red ink tomorrow.” [Fox News, Your World with Neil Cavuto, 1/7/13]

Cavuto: The Problem With Government Health Programs Is “Too Little Money Coming In For The Money Going Out.” Cavuto claimed that “to give the president the benefit of the doubt,” he could be saying “rein in Medicare and Medicaid, to an extent Social Security, these other big health care, health-related entitlements, and you don't have a problem.” Cavuto stated: “I'm not sure I buy the analogy” and said these programs are “all suffering from the same problem: Too little money coming in for the money going out now or soon to go out.” [Fox News, Your World with Neil Cavuto, 1/7/13]

Moore On Fox & Friends: Obama Is Denying The Real Problem. Appearing on the January 8 edition of Fox & Friends, Moore claimed Obama was denying the real problem with government spending, telling co-host Steve Doocy: “The first stage of recovery, Steve, from an addiction, is to at least acknowledge that you've got a problem.” [Fox News, Fox & Friends, 1/8/13]

But Spending Growth Over The Next Two Decades Is Projected To Be Driven By Higher Health Care Spending Alone

Bipartisan Policy Center: “Long-Run Spending Growth Boils Down To Healthcare.” A post on the Washington Post's Wonkblog featured this chart from the Bipartisan Policy Center. The chart shows that Social Security spending will be stable in the coming decades, while discretionary and mandatory spending are declining now and will stabilize, but health care spending will continue to grow. From the Bipartisan Policy Center, via the Washington Post:

[The Washington Post, Wonkblog, 1/7/13]

Center For Economic And Policy Research: “The Bulk Of Our Projected Rising Budget Deficits Are Due To Skyrocketing Private Health Care Costs.” The Center for Economic and Policy Research (CEPR) created a website that shows what would happen to the national debt if the United States' health care costs were in line with other advanced countries. CEPR notes that “we spend twice as much per person on health care,” but “have worse health outcomes.” It adds that since nearly all health care services are provided by the private sector, including those paid for by the government through programs such as Medicare and Medicaid, “the bulk of our projected rising budget deficits are due to skyrocketing private health care costs.” [Center for Economic and Policy Research, accessed 1/7/12]

CBO: “Unlike Spending For Social Security And Major Health Care Problems, Spending On” All Other Government Programs Is Set To “Decline Considerably Relative to The Size Of The Economy.” In a report titled “Choices for Deficit Reduction,” The Congressional Budget Office (CBO) wrote that spending on all programs besides health care and Social Security is set to “decline considerably relative to the size of the economy” over the next decade. The report also stated: “The increase in spending for health care programs is much greater than the increase for Social Security because the health care programs are affected by rising costs per beneficiary and legislated expansions in benefits, as well as by the aging of the population.” [Congressional Budget Office, November 2012]

CBO: Spending On Health Care Will Rise Continuously, While Spending On Social Security Rise Slightly And Stabilize, And Spending On Everything Else Will Fall. The CBO report “Choices for Deficit Reduction” included the following chart, which separately shows spending on health care, Social Security, and everything else, historically and over the next several decades:

[Congressional Budget Office, November 2012]

Medicare And Medicaid Control Costs Better Than Private Health Insurance

Center On Budget And Policy Priorities: “Medicare Delivers Health Care Services More Economically Than Private Insurance.” In a post arguing against a proposal for restructuring Medicare, the Center on Budget and Policy Priorities (CBPP) explained why Medicare “delivers health care services more economically than private insurance.” The Center wrote that this is because “it has low administrative costs and it can use its bargaining power to hold down payment rates to providers.” The post stated that Medicare “also has a better record of limiting the growth of costs,” and “has spearheaded several reforms in the health care system to improve efficiency.” [Center on Budget and Policy Priorities, 9/26/11]

CBPP: Medicare And Medicaid Spending Projected To Grow Slower Than Private Insurance. A post at CBPP's Off the Charts blog used data from an article in The New England Journal of Medicine to show that cost growth in the major public health care programs is projected to be lower over the next decade than in the private sector. The post included this chart:

[Center on Budget and Policy Priorities, Off the Charts, 8/10/12]

Economic Policy Institute: “Public Health Programs Have Done A Better Job At Restraining Costs Than Private Insurers.” A post at Working Economics, a blog of the Economic Policy Institute (EPI), described how using the federal government's power as the largest purchaser of health care services leads to lower costs for government health insurance than for private health insurance. The post stated:

[P]ublic health programs have done a better job at restraining costs than private insurers. For example, since 1970, cost growth in inflation-adjusted Medicare spending per beneficiary has averaged 4.5 percent annually, versus 5.7 percent for private insurers. This underlying trend has been remarkably consistent over time.

The post included the following chart, which compares spending growth per enrollee over time between Medicare and private health insurance:

[Economic Policy Institute, Working Economics, 6/28/12]

And The Affordable Care Act Aims To Reduce Health Care Costs

Christina Romer: Affordable Care Act Contains Measures To Slow Health Care Cost Growth. Christina Romer, former chair of Obama's Council of Economic Advisers, explained the measures in the Patient Protection and Affordable Care Act that can slow the growth of health care costs, but argued more are needed:

Surprisingly, one of the law's most useful cost-containment measures may be a tax pay-for: the excise tax on high-priced insurance plans. Since the 1950s, health insurance benefits provided by employers haven't been taxed. Employers thus have strong incentives to pay workers with more generous insurance policies. Such policies, which typically have lower deductibles and co-payments, may lead families to be less vigilant consumers of health care.

Starting in 2018, the law taxes very generous policies -- those costing more than $27,500 a year for a family -- a move that should encourage benefits managers to shop for more cost-effective plans. Those plans are likely to include incentives for consumers to push for cost savings, too.

The hope is that this pressure will encourage efficiency improvements throughout the health care industry. And because the cutoff for what counts as a high-priced policy will grow with overall inflation, and not with the higher rate of health care inflation, the tax's effectiveness should increase over time.

The law also promotes efficiency by generating information about cost effectiveness.


For example, Medicare has a pilot program organizing primary-care physicians into teams that coordinate care and anticipate health problems. The goal is to see if this leads to better patient results than the traditional approach of individual doctors reacting to problems after the fact.

A third measure is the new Independent Payment Advisory Board, charged with proposing near-term cost savings whenever Medicare spending is projected to grow faster than a target rate. Though it's precluded from suggesting many things -- notably additional revenue measures or benefit limitations -- it can suggest restructuring or cuts in payments to health care providers. Congress must either accept these recommendations or find alternatives that achieve the same savings. In this way, the board may be able to bring about politically difficult changes.

Just how much the law will slow spending growth is highly uncertain. The Congressional Budget Office, whose views on this issue fall squarely between the optimists' and the pessimists', estimates that it's likely to reduce the budget deficit by about $1 trillion in its second decade -- when the cost-containment measures have had time to pay dividends.

Big as those savings are, they will still leave a huge share of national output dedicated to health care and the federal budget far in the red. What more might be done?

A natural approach is to strengthen measures already enacted. Once the payment advisory board has a track record, for example, perhaps it could be empowered to suggest changes in benefits or in how Medicare services are provided -- say, along the lines of successful demonstration projects. [The New York Times, 7/21/12]

Brookings' Henry Aaron: Affordable Care Act Includes “Virtually Every Cost Control Idea Anyone Has Come Up With.” Brookings Institute senior fellow Henry J. Aaron explained the importance of the Affordable Care Act in controlling health care costs:

The Affordable Care Act deserves a solid “A” for including virtually every cost control idea anyone has come up with -- limits on tax breaks for employer-sponsored health insurance, accountable care organizations, bundled payments, comparative effectiveness analysis, a commission to regulate payments, reforms in insurance design and much more.

Transforming the current chaotic mélange of health care payment and delivery arrangements into a genuine system will take many years, because current arrangements are entrenched and structured to resist effective cost control.

The task for this generation should be to implement the many promising cost-control measures in the health reform legislation. [Brookings Institute, 9/18/12]

Jared Bernstein: Health Care Savings “Will Come From Cost Control Measures Enacted In The Affordable Care Act.” Economist Jared Bernstein, former economic adviser to Vice President Biden, wrote in blog post that the Affordable Care Act contains measures to control health care costs, but they are not yet fully implemented and it remains to seen whether they will be effective:

The real savings in health care will come from cost control measures enacted in the Affordable Care Act but nowhere near fully implemented, and it's just too soon to know if they're working.  We must give them a chance -- early indicators are positive, though they may be conflated with recession-induced (i.e., temporary) dips in demand.  If they fail to control costs, then it's back to the drawing board. But now's the time to watch and evaluate, not to reduce access to what is a highly efficient, effective form of health coverage for the nation's seniors. [On the Economy, 11/27/12]