Red Ink (7 page)

The combination of “exploding” benefit programs, the aging of the population, the “rapid rise” in health care costs, and growing interest payments “places us on an unsustainable path to fiscal chaos.

“What is even more discouraging,” he said, with a sigh, “is that it ignores virtually everything we have learned the hard way in the past.”

T
he federal budget is as vast as the government itself: the instructions the White House sends agencies for making and keeping track of annual budget requests run 972 pages. The
instructions.
The four-volume budget that Obama sent to Congress in February 2012 came to 2,238 pages. Then each agency produced thousands of pages of more detail.
The Department of Homeland Security’s supplement topped out at 3,134 pages, one page for every $12.6 million it was seeking to spend.

To make sense of all this, groups that promote fiscal rectitude have boiled the budget down to (relatively) simple online games: cut spending here, raise taxes there, and see if you can do better at bringing the deficit under control than Congress and the president. There’s
Stabilize the Debt
by the Committee for a Responsible Federal Budget and
Federal Budget Challenge
by the Concord Coalition. The most elaborate is
Budget Hero,
built by educational gamers for the Woodrow Wilson International Center for Scholars, a government-backed Washington
think tank, and American Public Media, a public radio network. This is no
Call of Duty
or
Portal 2
. There’s no adrenaline rush from deciding whose taxes to raise or how much to cut the defense budget. But since it was launched on the Web in 2008,
Budget Hero
has been played 1.4 million times. The game plucks options from the thick catalog of ways to reduce the deficit published annually by the Congressional Budget Office and puts them into a Pokémon-style video game. Just as in real life, there is no single goal. Players identify up to three objectives, such as achieving greater energy independence or improving the competitiveness of the U.S. economy, and try to use the spending and tax levers to reach them. A running tally shows the consequences of their choices on deficits and the size of government. The overarching lesson: Bringing the deficit down to sustainable levels takes big changes. Little ones won’t do it.

Despite the video games and think tank websites and newspaper pie charts and televised presidential debates, the public remains strikingly misinformed about the budget.
The typical respondent to a CNN poll said food stamps accounted for 10 percent of federal spending; it’s closer to 2 percent. Maybe being off by a factor of five is understandable given the enormity and complexity of the budget. But it’s harder to make sense of
a 2008 Cornell University poll in which 44 percent of those who receive Social Security checks and 40 percent of those covered by Medicare say they “have not used a government social program.”

Polls also find that Americans cling to the belief that government is a sea of waste and inefficiency that can be excised painlessly.
When Gallup asked last year how much of each tax dollar sent to Washington is wasted, the answer averaged
51 cents
, the highest since the polling outfit began posing the question in 1979. Yes, the federal government harbors gobs of waste and inefficiency—the Department of Homeland Security recently discovered it was spending $10.6 million on
unused wireless devices—but the public overstates the magnitude. Reports on government corruption also reinforce this idea, even when the underhanded dealings ultimately cost taxpayers very little. For example,
the
Washington Post
identified thirty-three members of Congress who quietly steered government grants to road improvement and other projects near pieces of private property they owned. The tab: $300 million, less than one hour’s worth of federal spending. Nonetheless, every president vows to pare waste, fraud, abuse, and inefficiency, but the budgetary relief is often underwhelming. The Obama budget boasted that the
Social Security Administration took an employee suggestion to use e‑mail instead of snail mail to distribute commemorative flyers to its offices nine times a year. The grand total saved: $5,000 a year.

“
Reducing the deficit by cutting ‘waste, fraud, and abuse’ never works: there’s seldom any agreement on what qualifies as waste,” says Stan Collender, a Washington public relations man who has built a business explaining the federal budget
to outsiders. “Everyone thinks there’s a lot, but there’s nothing that a majority wants to cut. The average person doesn’t want less government. They just want the government to cost less.”

Rob Portman, a Republican U.S. senator from Ohio and George W. Bush’s White House budget director, understands the politics of persuading constituents that they are going to have to give up something to bring down the deficit. So when he was named to a congressional deficit-reduction committee last year, he asked Ohioans to offer
their
suggestions on his website. “
My goal was to actually end up taking some of these and being able to say, here’s something that came from Joe Smith in Akron, Ohio,” he said. “And we would have been able to do that had we come up with something [a committee agreement] because a number of their ideas were part of the mix.”

Not all of the ideas were practical: a constituent from Cincinnati suggested that the United States merge with Canada, while someone from Columbia Station advocated replacing paid congressional staff with volunteers. Others were sober and serious: JZ from Cincinnati suggested raising the age at which Americans qualify for Social Security and Medicare. A farmer from Lebanon proposed paring farm subsidies. CM from Bay Village questioned the merits of allowing holders of municipal
bonds to avoid federal taxes on the interest they earn. Even the feasible ones, though, amounted to nibbling at the edges.

When Portman tries to explain the budget to constituents, he slices it into several pieces: “One is the annually appropriated spending that gets all of the attention. But when you take out defense, which is more than half of it, it ends up being 18 percent of the budget. Then you’ve got defense spending … that’s the second big part.

“And the third big part—and the fast-growing part—is the mandatory spending,” he continues, lapsing into Washington jargon for benefits paid to those eligible without any annual vote by Congress. “You can divide that into basically three things: It’s interest. It’s Social Security. It’s the health care programs, Medicare and Medicaid.”

The federal budget can be sliced in any number of ways. Portman’s are as good as any. But his slices are huge, and each has many parts, subparts, and individual programs. So to get a feel for where all that money goes and for why cutting spending sounds easier than it is, slice the budget into five pieces besides interest—health care, Social Security, other benefits, defense, and everything else—and take a closer look.

“When I left OMB in 2007,” Portman said in an interview, “people asked me: ‘What did you learn? What’s the biggest
concern about our budget? Is it the spending in Iraq and Afghanistan? Is it tax revenues? Is it the spending?’

“I said, ‘No. It’s two words: health care.’ ”

The numbers support that assessment. Health care spending is rising faster than any other major part of the federal budget, driven by a costly trio of factors. One, the number of insured is rapidly increasing as Congress expands the pool of those who are eligible, fewer people get health insurance on the job, and the huge baby boom generation turns sixty-five and becomes eligible for Medicare. Two, those insured through government-subsidized insurance are using more health care, undergoing more procedures, and availing themselves of new
technologies. Three, the price of that health care is rising faster than the price of other goods and services.

These three facts add up to a predictable and alarming trend: already expensive, health care is likely to balloon in cost in coming years. Medicare for the elderly and disabled and Medicaid for the poor currently account for about 21 percent of all federal spending. Medicare alone cost $555 billion in 2011; adjusted for inflation, that’s more than the federal government spent on
everything
in 1951. The CBO forecasts that the Medicare tab will climb by 75 percent over the next decade. “
It is the aging of the population and the rising costs of health care that are putting this unbearable pressure on the federal budget,” CBO director Doug Elmendorf told Congress recently.

Replacing worn-out hip joints, a marvel of modern medicine that makes old age more comfortable, illustrates the three drivers of Medicare costs. First, more people are living longer, creating a larger pool of potential hips to be replaced. Second, the overall number of eligible patients electing the procedure is on the rise.
Between 1999 and 2009, the number of hip replacements performed on patients between sixty-five and eighty-four rose 30 percent, and in a remarkable development, the number done on people over eighty-five rose 21 percent. By 2009, nearly one in every six Americans who had a hip joint replaced was over eighty-five. A generation or two earlier, it was next to none. Third, the cost per procedure has escalated.

In 2009, Medicare spent $9 billion replacing hip, knee, and shoulder joints, a tab that has been rising at better than
8 percent a year, with about a third of that going to 264,000 hip replacements at roughly $12,000 apiece. The Government Accountability Office, the investigative arm of Congress, estimates that while 40 percent of the increase in Medicare spending on hip replacements between 2004 and 2009 reflects the increase in the number of procedures, fully 60 percent is due to the rising cost per case.

Surveys of patients after surgery suggest that most are very satisfied, reporting an improved ability to walk and, in some cases, exercise or play sports, so the money may be well spent. But the popularity of the procedure is also an ominous portent for Medicare’s finances: the rapid adoption of joint replacement among middle-aged, non-Medicare-covered Americans is growing, and those artificial hips don’t last forever. When it’s time to replace them, the patients are likely to be of Medicare age.