Behind the deficit - contribution of federal health program costs to the budget deficit - Column

National Review, Feb 15, 1993 by Ed Rubenstein

When confronted with last deficit projection for 1993, and the forecasts of still larger imbalances in future years, Dick Darman said, "I thought we'd have more time." Based on the budget director's performance, we're glad he didn't:

The Federal Government will spend $332 billion, or 29 per cent, more this year than it did the year George Bush was inaugurated. By comparison, consumer prices rose 16 per cent, and economic growth was a mere 6.6 per cent over the same period. Revenues kept pace with inflation, but they were no match for spending. The deficit more than doubled.

Although Social Security is the largest federal program, and accounted for one-quarter of the budget growth since 1989, it is not responsible for the current deficit. Indeed, the Social Security trust fund will record a surplus of more than $100 billion this year, reflecting the excess of payroll-tax receipts over benefits paid to retirees. The surplus is spent on other government programs, a practice that has been widely criticized.

The real culprits are federal health programs. Medicaid spending, for example, after being held to a 14 per cent average annual growth rate under President Carter, and 9.5 per cent under Ronald Reagan, exploded at a 25 per cent annual rate in the Bush/Darman regime. Medicare and other federal health programs will account for 16.1 per cent of the budget this year, versus 11.7 per cent in 1989.

Apologists insist that this trend was inevitable, given the recession and the enormous inflation in health costs. But Medicaid eligibility was expanded in recent years, along with the number of covered services. Significant liberalization also occurred in the Head Start program, child nutrition, unemployment insurance, prenatal care. The nation's largest welfare program - Aid to Families with Dependent Children - saw its enrollment increase by 25 per cent since January 1989, far faster than the rise in the poverty population.

Public-policy experts estimate that the recession, the aging U.S. population, and inflation together explain 60 per cent of the increase in domestic spending. The remaining 40 per cent reflects program changes proposed by the Bush Administration, or congressional initiatives approved by it.

Social Security, Medicare, and Medicaid are well protected politically. Interest payments must be made. President Clinton might in theory cut the deficit in half by attacking the waste, fraud, and mismanagement that the General Accounting Office says costs the taxpayers $180 billion each year. But only the most exuberant optimist could imagine a government free of waste, fraud, and mismanagement.

There was a glimmer of hope last year. The deficit forecast for fiscal 1992 was reduced from $400 billion at the start of the year to $325 billion by mid-year. The actual deficit was only $290 billion. Good news? Not exactly. Most of the decline was due to Congress's failure to enact additional funding for the S&L bailout, a delay which many believe will eventually increase the total cost of the cleanup. When it comes to the deficit, even good news is bad news.

    Federal Spending, Revenues and Deficit
               (Billions of Dollars)
                    1989       1993       % Change
National Defense    $303.6     $289.3       -4.7
Social Security      232.5      304.7       31.1
Medicare              85.0      132.8       56.2
Health Programs       48.4      105.0      116.9
Transfer Payments    136.0      207.4       52.5
Infrastructure        51.9       72.8       40.3
Net Interest         169.3      202.8       19.8
Other                116.5      160.1       37.4
 Total Spending   $1,143.2   $1,474.9       29.0
 Total Revenues      989.7    1,147.6       16.0
 Deficit            $153.5     $327.3       113.2