Actual mileage may vary, but if GDP growth and health inflation continue at their historical pace, healthcare spending per capita in 2105 would be $213,000 while all other spending per capita would be $130,000. Health care spending would go from 15% of GDP to approximately 60%. Reihan Salam takes those numbers, courtesy of The Cost Disease by economist William Baumol, and makes this extrapolation:
Medical expenditures by business and households and other private sources are subsidized in various ways by government at all levels, but we’ll leave that aside and say that government accounted for 45 percent of medical expenditures in 2011. This number will most likely increase as the Affordable Care Act is implemented, but let’s also leave that to the side and imagine that government will account for 45 percent of medical expenditures in 2105 — government spending on medical care alone with represent 27 percent of GDP.
This is the best-case scenario. In this world, total government expenditures (federal, state, and local) might represent as much as 60 percent of GDP. Even if we achieve fiscal balance with government expenditures at 60 percent of GDP, the space for private enterprise, civil society, and voluntary cooperation writ large will be smaller than it is today, and it is not unreasonable to believe that this might have deleterious consequences on dynamism and initiative.
So just raise taxes, right? Pre-Reagan marginal income tax rates. Maybe a VAT, too. And some Pigovan carbon and Tobin taxes for good measure. After all, if the challenge is just making the numbers work, tax away.
But as Salam adds, we also want government to, you know, deliver better services and a better quality-of-life. Value. So what is required here is not just cost cutting or deficit reduction, but massive amounts of fresh thinking and disruptive innovation.
Perhaps the most important role for government is not getting in the way, not letting established public- and private-sector players use government to preserve the status quo. Still, center-right policymakers must not just focus on cutting government, but making the government we do need work better. McKinsey notes that the US government has not tried to measure its own productivity in nearly two decades.