It’s long past time to deal with en­ti­tle­ments

The Oklahoman (Sunday) - - OPINION - BY CHARLES BLA­HOUS Bla­hous holds the J. Fish and Lil­lian F. Smith Chair at the Mer­ca­tus Cen­ter at Ge­orge Ma­son Univer­sity. IN­SID­ESOURCES.COM

This is an elec­tion year, which means there are long odds against com­pre­hen­sive en­ti­tle­ment spend­ing re­forms be­ing en­acted any time soon. Af­ter all, there is a long, re­gret­table his­tory of ir­re­spon­si­ble cam­paign rhetoric on this sub­ject, and it’s sim­ply too easy to mis­at­tribute any near-term ini­tia­tive to causes rang­ing from mean-spirit­ed­ness to ide­o­log­i­cal fer­vor to tax cuts.

How­ever, if one puts pol­i­tics aside and looks only at the pol­icy sub­stance, there is no avoid­ing one clear con­clu­sion: Fed­eral en­ti­tle­ment pro­grams re­quire re­form, the sooner the bet­ter.

This need for re­form has noth­ing to do with ide­ol­ogy and ev­ery­thing to do with sim­ple math. En­ti­tle­ment pro­gram fi­nances are on an un­sus­tain­able path due to ex­plod­ing cost growth. Law­mak­ers will have to cor­rect this at some point, and the sooner they do so, the less painful the cor­rec­tions will be.

The Con­gres­sional Bud­get Of­fice projects that the largest sin­gle en­ti­tle­ment pro­gram, So­cial Se­cu­rity, will spend $988 bil­lion this year, by it­self far more than all non-mil­i­tary dis­cre­tionary spend­ing com­bined. So­cial Se­cu­rity re­quires re­forms to avert in­sol­vency sep­a­rate and apart from any ef­fect it has on the larger fed­eral bud­get. Each of the past two trus­tees’ re­ports, is­sued dur­ing dif­fer­ent pres­i­den­tial ad­min­is­tra­tions, has warned of this ne­ces­sity in iden­ti­cal lan­guage: “Law­mak­ers should ad­dress th­ese fi­nan­cial chal­lenges as soon as pos­si­ble.”

The next-largest en­ti­tle­ment, Medi­care — like So­cial Se­cu­rity — faces pro­jected in­sol­vency in its Hos­pi­tal In­sur­ance trust fund, a sit­u­a­tion its trus­tees de­scribe as a “sub­stan­tial fi­nan­cial short­fall that will need to be ad­dressed with fur­ther leg­is­la­tion,” best en­acted “sooner rather than later to min­i­mize the im­pact on ben­e­fi­cia­ries, providers and tax­pay­ers.”

More­over, hos­pi­tal in­sur­ance isn’t even the fastest-grow­ing part of Medi­care. Its Sup­ple­men­tary Med­i­cal In­sur­ance costs are greater and grow­ing even faster, strain­ing the fed­eral bud­get and sub­ject­ing ben­e­fi­cia­ries to ris­ing pre­mi­ums.

CBO has re­peat­edly found that run­away en­ti­tle­ment spend­ing is at the root of wors­en­ing fed­eral fis­cal prob­lems. En­ti­tle­ments con­tin­u­ally ab­sorb an es­ca­lat­ing share of eco­nomic out­put: roughly 5 per­cent of GDP 50 years ago, up to 13 per­cent to­day, and pro­jected to hit 18 per­cent by mid-cen­tury.

CBO projects deficits will reach cat­a­strophic lev­els be­cause spend­ing growth will out­strip growth in fed­eral rev­enues and in the un­der­ly­ing econ­omy. CBO notes that non-in­ter­est spend­ing growth is driven by “out­lays for So­cial Se­cu­rity” and “the ma­jor health care pro­grams,” which it de­fines as “Medi­care, Med­i­caid, and the Chil­dren’s Health In­sur­ance Pro­gram, as well as sub­si­dies for the health in­sur­ance bought through the mar­ket­places un­der the Af­ford­able Care Act.”

The math is clear and un­avoid­able: Un­til spend­ing growth in th­ese pro­grams is mod­er­ated, no other fix to our bud­get woes will hold.

Not only has there been no leg­isla­tive fix to th­ese prob­lems, we’ve moved in the wrong di­rec­tion the past sev­eral years. The Af­ford­able Care Act, orig­i­nally ad­ver­tised as es­sen­tial to mod­er­at­ing fed­eral health cost growth, in­stead added to health spend­ing. It also in­cluded a dra­matic ex­pan­sion of Med­i­caid in which the fed­eral gov­ern­ment is to pay 90 per­cent of the costs of care for the ex­pan­sion pop­u­la­tion — not only an un­sus­tain­able but a grossly in­equitable pref­er­en­tial treat­ment, rel­a­tive to the 57 per­cent match­ing rate his­tor­i­cally pro­vided for Med­i­caid’s need­ier, pre­vi­ously el­i­gi­ble ben­e­fi­cia­ries.

We also now know that the flawed de­sign of var­i­ous in­come se­cu­rity pro­grams in­clud­ing the ACA is driv­ing mil­lions of in­di­vid­u­als out of the work­force. Clearly, fis­cal con­sid­er­a­tions aren’t the only rea­sons to re­form en­ti­tle­ments.

Only a very wise politi­cian knows when is the right time go­ing for­ward to pur­sue en­ti­tle­ment pro­gram re­forms. Eco­nomic pol­icy ex­perts, how­ever, know it should have been done a long time ago.

Charles Bla­hous

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