The United States has a long term budget problem.  That problem has nothing to do with too much spending on defense or building bridges to nowhere.  That problem is almost entirely a healthcare problem.  Medicare and Medicaid are, by far, the largest drivers of our deficits.  If anyone tells you otherwise, they either don’t understand large numbers or they are deliberately trying to mislead you.

As the Baby Boomers get older, the costs of Medicare and Medicaid will increase dramatically.  Or will they?  Yes, yes they will.  But!  But, it’s looking likelier that things are not nearly as bad as everybody predicted they would be.

You see, the problem has been that, for decades now, the cost of healthcare has been growing much faster than everything else in the economy.  So, predictions of future costs has always assumed that Medicare and Medicaid would continue to grow much faster than the economy.  For the last few years, that hasn’t been true. Healthcare appears to have started growing apace with the economy.  This changes everything.  Those massive predicted deficits almost disappear.

Of course, the $500 billion question is if healthcare costs growing apace with the economy is a new normal or a temporary adjustment.  I believe that it is a new normal.  It seems economically dubious that healthcare spending would continue to grow faster than the broader economy forever.  I can’t think of another industry that has had this long of a run rising costs for customers.  Healthcare isn’t like other industries, though, so maybe that thinking is flawed.  With Obamacare and the level of governmental oversight that it brings, I’m guessing that healthcare spending will slow down as a greater emphasis is placed on bring costs down.