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U.S. Budget Chief: Inefficient Care Drives Health Cost Growth

Health care spending will consume about half of the U.S. economy in 75 years if nothing is done to curb growing costs, according to a Congressional Budget Office report released on Tuesday, Reuters reports (Kenen, Reuters, 11/13).

The report states that Medicare and Medicaid spending combined will grow to 19% of the gross domestic product in 75 years. The two programs now account for 4% of GDP. The report also estimates that Medicare spending will be 50% higher by 2082 than a projection released in April by Medicare trustees (Reichard, CQ HealthBeat, 11/13).

CBO Director Peter Orszag on Tuesday said that policymakers are focusing on the wrong issue by weighing the effects of the aging baby boom generation on health care costs rather than looking into treatment effectiveness and quality.

"The nature of the long-term fiscal problem has been misdiagnosed," Orszag said, adding that the aging population "is not by any means the main factor" behind the projected rise in cost growth. He noted that many new medical treatments and tests are "of dubious value." He said that in their efforts to stem the growth of health care costs, Congress and federal policymakers need to promote cost effectiveness and "evidence-based" medicine (Reuters, 11/13).

Orszag said that excess health care cost growth will account for 90% of the growth in Medicare and Medicaid spending by 2082, whereas the aging population will account for 10% (CQ HealthBeat, 11/13). Orszag said that some CBO health care analysts believe health care spending could be halved without damaging quality and outcomes, while other analysts have cited lower figures. He said that reducing spending by 30% through changed health care policies would be nearly impossible to achieve but would be a worthy goal.

Orszag said that there is a "significant opportunity to remove costs from the system without harming health outcomes," pointing to "comparative effectiveness" research as a key element. He noted that a 30% reduction in health care costs would account for 5% of GDP -- a "very substantial amount of money" (Johnson, CongressDaily, 11/13).

Next Steps

Orszag announced that CBO will begin releasing long-term budget projections that include health care spending estimates annually instead of biannually. He also said the office will be hiring 20 to 25 additional health analysts during this fiscal year, strengthening the current team of about 35. In the next few months, CBO will release other reports that show "levers and options" to curb rising health costs, Orszag said (CQ HealthBeat, 11/13).

Senate Finance Committee Chair Max Baucus (D-Mont.) in a statement released on Tuesday said, "Finding ways to make the health care system more efficient and cost-effective will reduce costs for all health care users, private and public, and that will pave the way toward getting federal spending truly under control. The Finance Committee will dedicate a great amount of time next year toward finding real solutions." He added that in January 2008, he will announce a series of hearings on health care costs and reforming the system (CQ HealthBeat, 11/13).

The CBO report is available online (.pdf).

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