Friday, January 11, 2008

Bond Ratings, Healthcare, and Social Security is reporting that the Moody's rating agency is having concerns about the long term viability of the US government maintaining its AAA rating:

The US' ratings might be pressured in the very long term if medicare and social security reforms are not carried out, Moody's (nyse: MCO - news - people ) Investors Service cautioned, adding that subprime risks do not affect the government's rating.

'In the very long term... these two programs are the largest threats to the long-term financial health of the US and to the government's 'Aaa' rating,' said Moody's vice president Steven Hess (nyse: HES - news - people ).

This is an unfair statement. Over the long run, Medicare/health care in general AND ANYTHING ELSE is a fiscal problem/train wreck depending on your mood when you write about Medicare. Medicare/healthcare in general is its own massive problem. Grabbing a chart from Ezra Klein shows the different growth rates of entitlement spending projections:

Social Security in the intermediate case projections will grow by about 2% of GDP to 2075. President Bush's tax cut was roughly 1.3% of GDP, and President Reagan's tax cuts were roughly 1.9% GDP. 2.0% of GDP on a budget that is roughly 20% of GDP in long term trends is a marginal difference, especially if one believes that the productivity and immigration assumptions in the intermediate case are too pessimistic and that reality on those two fronts are closer to the low cost case. Social Security is a fairly inexpensive problem to fix if it needs to be fixed at all.

Now Medicare is a problem due to a combination of general health cost inflation AND demographics. Medicare by program design is targetted towards the high cost class of people (old people), and we are going to get more old people. But general healthcare costs society wide are increasing rapidly too.

Conflating medical/health expenditures and Social Security expenditures and then proclaiming a combined crisis is absurd and alarmist.

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