Economists now project third-quarter economic growth slipped to less than 1.5% annually—barely enough to add jobs in an economy still suffering from 7.3% unemployment. That's less than half the economy's potential, which is usually pegged at 3%.
The damage is far from over. Flash estimates for the cost of the two-week shutdown suggest fourth-quarter growth will be trimmed by anywhere from 0.3 to 0.6 percentage points. There's no reason to think that the Tea Party's debt ceiling brinkmanship games won't continue through at least the 2014 election. If their goal is to dampen consumer spending, keep unemployment high and create a climate of unrelenting economic fear, they are succeeding admirably.
How does this affect healthcare? The sector's share of economic activity is approaching 18%. However, that has remained constant over the past three years for the first time in generations.
The debate among economists as to reasons for healthcare's growth slowdown is over. An August report from the Congressional Budget Office—always a prudent voice in these debates—“found no link between the recession and slower growth in spending for Medicare.” As a result, the CBO substantially reduced its projections for Medicare and Medicaid spending for the coming decade.
Indeed, Congress' budget arm in September projected the nation's budget deficit will shrink to 2% of GDP as soon as 2015. By 2018, the federal debt as a share of GDP—that closely watched number by deficit hawks—is projected to fall to 68% from its current 73%.
But there are some assumptions in that rosy scenario, the most important of which are the projections for economic growth. The CBO assumes that next year the economy will grow 3%—the same assumption it has made since 2010. Indeed, its average growth projection for the next five years is 3.6%, twice what it has averaged during the years of the Tea Party's control over one house of Congress.
The other rosy scenario in the CBO projection involved healthcare. Its economists assumed that spending on physicians would follow current law, that is, there would be no “doc fix.” But that cost is a rounding error compared to the projections for overall Medicare spending, which are assumed to follow the Independent Payment Advisory Board formula. That sets a target growth rate for Medicare spending at 1 percentage point above the increase in per capita GDP. In other words, if GDP grows at 3.6% per capita, Medicare spending can grow at 4.6%.