Healthcare Spending Is Sinking The Federal Budget
The U.S. federal budget deficit for the fiscal year ending in September 2024 reached $1.8 trillion, making it the third-largest in dollar terms after the pandemic years of 2020 and 2021. As a percentage of GDP, the deficit stood at 6.4%, the largest outside of wartime or a global crisis. Federal revenue was near the post-World War II average, but spending exceeded historical norms, particularly in healthcare. This divergence raises concerns about fiscal sustainability, as healthcare spending, in particular, has grown disproportionately compared to other federal expenses over the past decades.Healthcare now constitutes a significant portion of federal expenditures, with spending in 2023 nearly double the 1962–2023 average and far exceeding defense spending. Medicare, Medicaid, and health insurance subsidies, driven partly by the Affordable Care Act, account for most of these costs. While Medicare spending has stabilized relative to GDP, Medicaid and subsidies have grown sharply. Without addressing the rising costs of healthcare services, cutting federal healthcare spending will be challenging. The U.S. spends far more on healthcare than other affluent nations, creating competitive disadvantages and fiscal pressures.
Reform ideas range from structural overhauls to more immediate cost-control measures. Proposals such as publicly financed basic healthcare services could align U.S. spending with international standards but require substantial tax increases. Incremental measures like value-based payment systems and cost-control policies, as seen with the ACA and prior efforts, might help curb healthcare inflation. However, with Republicans controlling the government and prioritizing privatization and spending cuts, significant healthcare reform is unlikely in the near term. The broader issue of healthcare affordability remains central to reducing federal deficits sustainably.
For more information see Justin Fox “Healthcare Spending Is Sinking The Federal Budget” Financial Advisor, December 4, 2024.