Analysis of Federal Spending, Social Security, and ACA Fiscal Impacts

costs onto the private market to help subsidize lower payments from public programs. This tends to help drive a cycle of higher private market costs causing higher insurance premiums, leading to the slow erosion of private market coverage and a greater enrollment burden for government programs. The Patient Protection and Affordable Care Act, enacted in early 2010, includes the biggest changes to healthcare since 1965 and will eventually expand health insurance coverage by ~10%, to 32 million new lives. Increased access likely means higher spending if healthcare costs continue to grow 2 percentage points faster than per capita income (as they have over the past 40 years). The CBO sees a potential $143B reduction in the deficit over the next 10 years, but this assumes that growth in Medicare costs will slow — an assumption the CBO admits is highly uncertain. Unemployment Insurance and Social Security are adequately funded...for now. Their future, unfortunately, isn’t so clear. Unemployment Insurance is cyclical and, apart from the 2007-09 recession, generally operates with a surplus. Payroll taxes kept Social Security mainly at break-even until 1975-81 when expenses began to exceed revenue. Reforms that cut average benefits by 5%, raised tax rates by 2.3%, and increased the full retirement age by 3% (to 67) restored the system’s stability for the next 25 years, but the demographic outlook is poor for its pay-as-you-go funding structure. In 1950, 100 workers supported six beneficiaries; today, 100 workers support 33 beneficiaries. Since Social Security began in 1935, American life expectancy has risen 26% (to 78), but the “retirement age’ for full benefits has increased only 3%. Regardless of the emotional debate about entitlements, fiscal reality can’t be ignored — if these programs aren’t reformed, one way or another, USA Inc.’s balance sheet will go from bad to worse. Federal Government Spending Had Risen to 24% of GDP in 2010, Up From an Average of 3% From 1790 to 1930 Federal Government Spending as % of GDP, 1790 — 2010 ee sssceeeeeentennes 24% in 2010 eS aE 3% Trendline Average 15% - 1790-1930 Federal Spending as % of GDP saree UneeeeneenenneUeeeeeccecnecccncenn | REE VW tes eee OY 1790 1810 1830 1850 1870 1890 1910 1930 1950 1970 1990 2010 Source: Federal spending per Series Y 457-465 in "Historical Statistics of the United States, Colonial Times to 1970, Part il and per White House OMB. GDP prior to 1930 per Louis Johnston and Samuel H. Williamson, “What Was the U.S. GDP Then?" KP MeasuringWorth, 2010. GDP post 1930 per White House OMB. Neither federai spending nor GDP data are adjusted for inflation. (aE wew. kpcb.com USA Inc. | Summary KP CB www.kpcb.com USA Inc. xi HOUSE_OVERSIGHT_020834