The Centers for Medicare & Medicaid Services (CMS) released their annual report this week on total healthcare spending in the U.S. for 2008. To the limited extent that this release was even reported, the headline was that the growth in healthcare spending “slowed” from the prior year. From a growth rate of 6% in 2007 to only 4.4% in 2008. This in fact represented the lowest rate of growth since the CMS first started reporting this data in 1960. Given all the hyperbole about exploding healthcare costs this past year, this would seem to be wonderfully good news, worthy of national media attention. Might the cost curve be bending down (gasp) without government intervention?

Not surprisingly, media coverage of the report – and even the press release from the CMS itself – convey a less positive interpretation of the underlying data. By focusing on the fact that healthcare spending as a percentage of GDP continues to rise (if only slightly), from 15.9 percent in 2007 to 16.2 percent in 2008. And by attributing the decline to the economic downturn, implying that it is only temporary, even though the co-author of the report acknowledged that “health-care spending is usually somewhat insulated from the immediate impact of a downturn in the economy”.

Why the glass half-empty view? I believe the answer can be found in this accompanying statement from CMS Director Jonathan Blum (emphasis mine):

This report contains some welcome news and yet another warning sign. Health care spending as a percentage of GDP is rising at an unsustainable rate. It is clear that we need health insurance reform now.

Keep this last statement of Mr. Blum’s in mind. Because the CMS press release and the media have buried the most noteworthy aspect of the entire report. A simple, compelling fact that represents a clear warning of the grave financial peril we face if the Democrats succeed in passing ObamaCare.

Because in a year where the growth rate in overall healthcare spending dropped by an unprecedented amount, federal spending on Medicare and Medicaid actually increased dramatically from the prior year.

Medicare by 8.6% in 2008 compared to 7.1% in 2007, and Medicaid by 8.4% compared to 6.1% in 2007. And Federal spending on the Children’s Health Insurance Program (SCHIP) increased by an even greater amount (13.4%).

In other words, the reduced growth rate in healthcare spending for 2008 was entirely due to reduced spending in the private sector. Which upon reflection really comes as no surprise since the private sector by its very nature must respond and adapt to market dynamics. As long as it has the flexibility to do so, unimpeded by government regulation.

The federal government on the other hand is impervious to the business cycle, with no institutional or political incentive to reduce spending. As evidenced by the obscene and unhindered growth in the federal bureaucracy over the past 70+ years.

Given the ever-increasing national debt ($12+ trillion and counting), and with nearly $90 trillion (!) in unfunded Medicare liabilities, why, oh why, are we on the verge of having the federal government assume responsibility for providing healthcare for 40+ million more Americans? With 15 million additional people fully covered under Medicaid and another 26 million heavily subsidized by the government in the new insurance exchange. All at an incremental annual cost approaching $200 billion by 2019 according to the CBO. (A number, I suspect, which will be much higher by then.)

Have our leaders in Washington completely lost their minds? Is this why “we need heath insurance reform now”? So a federal government which has never in history demonstrated one iota of ability to reign in spending can permanently add another 40+ million people to federal entitlement programs. This is the silver bullet necessary to reduce costs? Really??

It defies logic. It defies evidence. It’s completely preposterous.

It is obvious what will happen to overall healthcare spending when the entity least able to control costs assumes a greater share of it. An entity which is politically beholden to a growing class of people dependent on the government for health benefits. The federal budget will expand dramatically, and with reduced private sector funds available for investment, the pace of healthcare innovation will slow and overall costs will skyrocket. Ultimately drastic government rationing will be the only thing which will prevent a total collapse of the entire healthcare system.

As the CMS report demonstrates only the private sector has the inherent incentive and flexibility necessary to reduce the growth in healthcare spending. Through innovation and just good old-fashioned competition. A point which is startlingly reinforced by yet another report ignored by the media, from prominent economist and Obama healthcare adviser David Cutler.

The reckless and self-serving politicians who are most responsible for this coming disaster are likely to pay a heavy price. As will we all unless we can find a way to halt or reverse the most damaging parts of this legislation before it goes into effect.

The future of our nation and our very freedom depend on it.