New paper: Entitlements, not just a health care problem

I have a new Health Policy Outlook out from AEI which looks at the question of how population aging and health care cost growth contribute to the budget shortfall going forward. There's been a new view that almost the entire fiscal gap is attributable to per-capita health care inflation – called "excess cost growth" – while population aging is a bit player at best. This view was spurred by a November 2007 CBO report which implied that almost 90 percent of the future Medicare/Medicaid shortfall was driven by health care inflation rather than population aging.

Many took the CBO research and ran with it, concluding that population aging in general, and Social Security in particular, aren't really worth worrying about. What I show here is that if you look at the full entitlement spending picture, population aging contributes around 50 percent to the overall fiscal gap, with the other half being drive by excess health care cost growth. In the short- to medium-terms population aging is the largest cost driver, while after around 2045 health care inflation becomes the biggest player.

This isn't to imply that we shouldn't worry about health care; it's still a major issue and we know a lot less about fixing it than we do about aging-related cost growth. What we should reject, however, is the claim from some analysts that population aging and Social Security aren't major factors in the fiscal problem facing the country going forward.