By BEN WHEATLEY

The U.S. is in the midst of an ongoing—and still expanding—health care cost crisis. Even among people with health insurance, medical debt has become a persistent problem. Top executives at nearly 90% of large employers believe the cost of providing health benefits to employees will become unsustainable in the next 5-10 years. And the nonpartisan Congressional Budget Office (CBO) is warning that expanding federal debt—driven largely by health expenditures and compounding interest payments—indicates that a major fiscal crisis is looming.

On this last point, it is true that reputable people have been predicting fiscal collapse for many years. In 1988, Benjamin Friedman wrote that we’re facing a Day of Reckoning. Pointing to the rising federal debt, he said: “we are living well by running up our debt and selling off our assets. America has thrown itself a party and billed the tab to the future.”

Peter G. Peterson wrote a book in 1993 called Facing Up: How to Rescue the Economy from Crushing Debt and Restore the American Dream. In it, he said that “runaway medical costs are the single most important reason that federal spending and federal deficits have now become ‘uncontrollable.’”

Not everyone agreed that deficits and debt were problematic. In 2003, as Republicans were pursuing further income tax cuts, Vice President Dick Cheney declared: “Reagan proved that deficits don’t matter.”

David Stockman was Ronald Reagan’s first budget director and one of the chief architects of the Reagan Revolution—a plan to cut taxes and reduce the size and scope of government. He wrote in The Triumph of Politics that the Reagan Revolution failed because the administration had not been able to control spending, leading to massive increases in the federal debt.

In 2013, Stockman wrote a book called The Great Deformation: The Corruption of Capitalism in America. He said that during the Great Recession, the Federal Reserve Bank had carried out “the greatest money-printing spree in world history.” Between 2004 and 2012, 70 percent of rising U.S. debt was absorbed by central banks. He said that “the world’s central banks have morphed into a global chain of monetary roach motels. The bonds went in, but they never came out.” He concluded that it was easy money, which the Federal Reserve System had supplied for decades, that was responsible for “deficits without tears.” “American politicians…had essentially died and gone to fiscal heaven.” They were able to spend money “without the inconvenience of taxing.” Both Democrats and Republicans have taken advantage of this changed reality.

In 2020, Stephanie Kelton wrote a book called The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy. In it, she called for a paradigm shift: since the U.S. has the ability to print its own money, we should recognize that federal spending is not financed by tax revenue or borrowed funds. Whenever the need is pressing enough (e.g., warfare), we can and do supply whatever money is needed. The real deficit, she said, is not the fiscal deficit, but societal needs that are going unmet. Regarding health care, “our failure to provide proper insurance and care for every American is not because the government cannot ‘afford’ to cover the cost.” It’s just that we are operating under the wrong budget paradigm.

Importantly, though, Kelton wasn’t saying that there is a free lunch. She wrote, “It is possible for the government to spend too much. Deficits can be too big. But evidence of overspending is inflation, and most of the time deficits are too small, not too big.” This dovetails with David Stockman’s concerns about unsound money. And it mirrors the concerns of the CBO, which has said that a fiscal crisis would involve higher rates of inflation and an erosion of confidence in the U.S. dollar.

Containing Health Care Costs

If the CBO is to be believed, deficits and debt do matter. And although there have been “Cassandras” saying the sky is about to fall for many decades now, there may come a point in time when the need for cost containment becomes immediate and vital. (Some would argue that we’re already there.) Health care is a primary driver of fiscal deficits and, in an emergency, it would become a primary target for budget savings.

In this context, cuts to Medicare and Medicaid become a central focus.