Skyrocketing health care costs are taking a toll on the nation’s long-term economic well being, requiring an immediate “multipronged solution” before the “window of opportunity” to address the issue closes, according to a new report by the Government Accountability Office, the investigative arm of Congress.
The report, Long Term Federal Fiscal Challenge Driven Primarily by Health Care, was prepared Gene Dodaro, the acting U.S. Comptroller General. He says the federal government is on an “unsustainable long-term fiscal path” driven primarily by rising health care costs.
“Rapidly rising health care costs are not simply a federal budget problem,” the GAO report says. “Growth in health-related spending is the primary driver of the fiscal challenges facing state and local governments as well. Unsustainable growth in health care spending also threatens to erode the ability of employers to provide coverage to their workers and undercuts their ability to compete in a global marketplace.”
“The large fiscal gap is primarily the result of spending on Medicare and Medicaid, which continue to consume ever-larger shares of both the federal budget and the economy,” the report added. “Federal expenditures on Medicare and Medicaid represent a much larger, faster-growing, and more immediate problem than Social Security. Medicare and Medicaid are not unique in experiencing rapid spending growth, but instead this growth largely mirrors spending trends in other public health care programs and the overall health care system. A number of factors contribute to the rise in spending, including the use of new medical technology and market.”
Complicating the long-term economic issue the country faces is the fact that for years the federal government has financed other federal initiatives with surpluses in Social Security trust funds placing a heavy burden on taxpayers.
“When such borrowings occur, the Department of the Treasury issues federal securities to these government funds that are backed by the full faith and credit of the U.S. Government,” the GAO report says. “Although borrowing by one part of the federal government from another does not have the same economic and financial implications as borrowing from the public, it represents a claim on future resources and hence a burden on future taxpayers and the future economy. If federal securities held by those funds are included, the federal government’s total debt is much higher — about $9 trillion as of the end of fiscal year 2007.”
Last week, the Senate Finance Committee convened a hearing to hear testimony about the rising costs of health care and the burden it’s placing on the economy.
Dodaro testified about the issue and said immediate health care reform is essential in order to alleviate the current fiscal woes. Providing taxpayers with affordable health care is the cornerstone of the Sen. Barack Obama’s presidential campaign.
Peter Orszag, director of the Congressional Budget Office, who also testified before the Finance Committee, said, “health care spending is the single most important factor determining the nation’s long-term fiscal condition.”
“Our political system arguably is not particularly effective at addressing gradual long-term problems such as rising health care costs and aging,” Orszag told the Finance Committee. “But the problems caused by rising health care costs are not just long-term ones. In fact, some of them are already having significant effects on various aspects of our society. Health care costs are already reducing workers’ take-home pay to a degree that is both underappreciated and at least partially unnecessary, consuming roughly a quarter of the federal budget, and putting substantial pressure on state budgets (mostly through the Medicaid program), thereby constraining funding for other governmental priorities.”
Orszag said the federal government has dealt with the economic crisis by continuing to borrow heavily from other countries, which he said might not be sustainable. He said the Bush administration officials and lawmakers have ignored the country’s dire financial condition for far too long, comparing the situation with an individual who remains in a dysfunctional relationship.
Sen. Max Baucus, (D-Montana), the chairman of the Senate Finance Committee, said that since 1975 healthcare spending per capita has outpaced overall economic growth at a rate of 2.4 percent faster in Medicare, 2.2 percent faster in Medicaid, and 2 percent faster in other health related areas.
“Unless we act, in 2030, the Federal budget deficit will grow to more than 10 percent of the economy,” Baucus said during the hearing last week. “In 2050, it will be more than 22 percent of the economy. And by 2082, it will exceed 54 percent of the economy. These deficits would dwarf the post-World-War-II record of 6.3 percent in 1983. If we control healthcare costs, then along with prudent policies for the rest of the budget, we will be able to control Federal budget deficits. But if we fail to control healthcare costs, it won’t matter what else we do in the rest of the budget. We will have no hope of keeping Federal budget deficits under control.
The GAO report confirmed Baucus’s economic predictions.
“Health care costs are growing much faster than the economy, and the nation’s population is aging,” the GAO report says. “These drivers will soon place unprecedented, growing, and long-lasting stress on the federal budget. Absent action, debt held by the public will grow to unsustainable levels.”
Baucus is trying to pass legislation that will prevent physicians from taking a 10.6 percent Medicare cut, which is expected to take effect July 1. Lobbyists representing doctors warned that if the legislation goes through doctors would no longer see Medicare patients.
The GAO report emphasized, “Growth in health-related spending — Medicaid and health insurance for state and local employees and retirees — is the primary driver of the long-term fiscal challenges facing the state and local governments.
“If unchanged, the federal government’s increased spending and rising deficits will drive a rising debt burden,” the report says. “At the end of fiscal year 2007, federal debt held by the public exceeded $5 trillion. This growth in the federal government’s debt cannot continue unabated without causing serious harm to the economy. In the last 200 years, only during and after World War II has debt held by the public exceeded 50 percent of [gross domestic product].”
The GAO has recommended tax increases and spending cuts to deal with the issue. But in an election season it’s unlikely either presidential candidate would embrace the idea. Moreover, Sen. John McCain, the presumptive Republican presidential candidate, said he would not only make President George W. Bush’s tax cuts permanent if he were elected but would also look at other ways he can lower taxes.
Still, the GAO report says, “policymakers could phase in the policy changes so that the tax increases or spending cuts would grow over time and allow people to adjust.”
“Delaying action would make future adjustments even larger. Under our alternative simulation, waiting even 10 years would require a revenue increase of about 45 percent or non-interest spending cuts of about 40 percent. This gap is too large to grow out of the problem. To be sure, additional economic growth would certainly help the federal government’s financial condition, but it will not eliminate the need for action,” the report says.
Baucus agrees that the issue requires immediate attention, however, it’s unlikely that lawmakers will take action to address the matter until after a new administration takes office in 2009.
But by then the issue will no doubt worsen, the GAO report says.
“The longer action on reforming heath care and Social Security is delayed, the more painful and difficult the choices will become. Simply put, the federal budget is on an unsustainable long-term fiscal path that is getting worse with the passage of time. The window for timely action is shrinking.”