Report: Rising health care costs causing serious economic woes
By Jason Leopold
Online Journal Contributing Writer
Jun 24, 2008, 00:18
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 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
�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 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
Sen. Max Baucus, (D-Montana), the chairman of the Senate
Finance Committee, said that since 1975 health care 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
�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 health care
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 health care
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
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
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 noninterest 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
�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
Leopold is the author of "News Junkie," a memoir. Visit
www.newsjunkiebook.com for a
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