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In the long run, growth in the federal deficit is all about health care — particularly Medicare, which accounts for the biggest chunk of government health spending.
President Obama and Rep. Paul Ryan, the Republican chair of the House budget committee, both recognize this. Both want to slow the rise in Medicare costs. But they want to do it in very different ways.
Ryan wants Medicare coverage to be provided by private insurers, and subsidized by the federal government. He argues that, in this system, market forces would slow the rise in health costs.
But even if the market doesn't slow the rise in health costs, the government wouldn't be on the hook. Under Ryan's plan, the government's contribution to each person's Medicare bill could only rise as fast as inflation.
So if health-care costs were to keep going through the roof, individual seniors would end up paying more and more for Medicare coverage.
Under the Ryan plan, according to the CBO's estimates, the government would pay less for Medicare, and individual seniors would pay more.
Under Obama's plan, the government, rather than individual seniors, would still be on the hook if health costs keep rising so quickly.
But the Obama plan aims to make it easier for the federal government to slow the rise in Medicare costs.
If costs kept skyrocketing, a special panel would come up with ways to "reduce the rate of growth ... while not harming beneficiaries' access to needed services." Congress would then have to accept the panel's recommendation or make other changes that achieve comparable savings.
Read that quote again (it comes from a White House fact sheet):
reduce the rate of growth ... while not harming beneficiaries' access to needed services.
This is the holy grail of health-care economics: Give people what they need, but don't go broke doing it.
Ryan thinks market forces are the way to do this. Obama thinks a special government panel is the way to do this.
Whatever the approach, it's clear doing this is really, really hard. That's why health-care costs have been rising so fast for so long.
Medicine is an inexact science that with deals with life-and-death questions. In many cases, there's little evidence to determine whether a particular treatment will help. In that gray area, it's very difficult to define what counts as "needed services."
That's true for the private market, and it's true for government-funded programs.
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