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Home Nation/World Rising Health Care Costs Nation's Top 'Long-Term Fiscal Challenge'
Rising Health Care Costs Nation's Top 'Long-Term Fiscal Challenge' PDF Print E-mail
Written by Jason Leopold   
Sunday, 09 November 2008 00:00
The sky-high cost of health-care threatens to further destabilize the country's long-term economic well-being, and unless radical steps are taken to address the issue federal and state governments could face a cascading fiscal crisis with devastating consequences, says an updated report by the Government Accountability Office.

In the report entitled, "The Nation's Long-Term Fiscal Outlook," the GAO, the investigative arm of Congress, said, "the federal government faces large and growing structural deficits driven primarily by rising health care costs."

"Rapidly rising health care costs are not simply a federal budget problem; they are our nation's number-one long-term fiscal challenge," the updated report says. "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.

"As we have noted elsewhere, the expected continued rise in health care poses a fiscal challenge not just to government budgets, but also to American business and society as a whole. In short, the fundamental fiscal problems facing all levels of government are similar and are linked. As such, solutions to address these challenges should be considered in tandem.

"Recently the President, the Congress, and the American people have been focused on addressing problems with financial markets and the appropriate response to a weakening economy. However, once the current challenges are resolved, the next President, the next Congress, and the nation will need to focus with the same intensity on the nation's long-term fiscal challenge. Our updated simulations continue to show escalating and persistent deficits that illustrate the long-term fiscal outlook is unsustainable."

Over recent decades, a patchwork U.S. approach to health care has evolved with many employers offering health insurance to workers; federal Medicare covering health costs for the elderly; state Medicaid programs providing limited care for the poor; and tens of millions of Americans uninsured.

By contrast, most industrial countries offer government-funded health insurance paid for through taxes, freeing up businesses from the direct costs and thus allowing them to charge less for their exports.

The situation in the U.S. has grown so dire that "absent policy actions aimed at deficit reduction the federal government faces unsustainable growth in debt. "

"Such growth would inevitably result in declining GDP and future living standards," the report says. "Even before such effects, these debt paths would likely result in rising inflation, higher interest rates, and the unwillingness of foreign investors to invest in a weakening American economy."

In testimony before the Senate Finance Committee in June, Peter Orszag, director of the Congressional Budget Office, said "health-care spending is the single most important factor determining the nation's long-term fiscal condition" and added that the U.S. political system is not very good at addressing long-term problems.

"But the problems caused by rising health-care costs are not just long-term ones," Orszag said. "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 this economic crisis by continuing to borrow heavily from other countries, which he said might not be sustainable.

Sen. Max Baucus, D-Montana, 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 areas.

"Unless we act, in 2030, the federal budget deficit will grow to more than 10 percent of the economy," Baucus said. "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 supported Baucus's dire 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."

Providing taxpayers with affordable health-care had been a cornerstone of President-Elect Barack Obama's 22-month presidential campaign. He favors a mix of incentives, subsidies and mandates to individual and employers that largely would leave in place the private health-insurance industry.

On his transition website, Change.gov, Obama vowed to overhaul the health care industry and reduce the cost of health care premiums by as much as $2,500 and includes several proposals that may help stimulate the economy.

"Under [Obama's] plan, if you like your current health insurance, nothing changes, except your costs will go down by as much as $2,500 per year," says the statement. "If you don't have health insurance, you will have a choice of new, affordable health insurance options.

His plan calls for the creation of a new "Small Business Health Tax Credit to help small businesses provide affordable health insurance to their employees; lower costs for businesses by covering a portion of the catastrophic health costs they pay in return for lower premiums for employees."

Additionally, Obama's proposal would:

    * Require insurance companies to cover pre-existing conditions so all Americans regardless of their health status or history can get comprehensive benefits at fair and stable premiums.
    * Prevent insurers from overcharging doctors for their malpractice insurance and invest in proven strategies to reduce preventable medical errors.
    * Make employer contributions more fair by requiring large employers that do not offer coverage or make a meaningful contribution to the cost of quality health coverage for their employees to contribute a percentage of payroll toward the costs of their employees health care.
    * Establish a National Health Insurance Exchange with a range of private insurance options as well as a new public plan based on benefits available to members of Congress that will allow individuals and small businesses to buy affordable health coverage.
    * Ensure everyone who needs it will receive a tax credit for their premiums.
    * Lower drug costs by allowing the importation of safe medicines from other developed countries, increasing the use of generic drugs in public programs and taking on drug companies that block cheaper generic medicines from the market
    * Require hospitals to collect and report health care cost and quality data
    * Reduce the costs of catastrophic illnesses for employers and their employees.
    * Reform the insurance market to increase competition by taking on anticompetitive activity that drives up prices without improving quality of care.

Obama said his plan could cost as much as $65 billion, which he intends to pay for "by rolling back the Bush tax cuts for Americans earning more than $250,000 per year and retaining the estate tax at its 2009 level," says a statement on the president-elect's transition website.
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Last Updated on Monday, 10 November 2008 15:54
 

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