Health Costs Will Determine Future Federal Budgets
The "rate at which health care costs grow will be the primary determinant of the nation's long-term budget picture," Congressional Budget Office Director Peter Orszag writes in a Wall Street Journal opinion piece.
According to Orszag, CBO projections show that "under current law, federal spending on Medicare and Medicaid measured as a percentage of gross domestic product will rise to 12% in 2050 and almost 20% around 2080 from 4% today."
He adds that a significant part "of that projected increase arises from steadily growing health care costs per beneficiary." In addition, the "aging of the population, although a less important factor, will exacerbate the fiscal pressures created by rising health care costs," Orszag writes.
He continues, "Such increases in spending associated with both aging and increased health care costs -- unless matched by significant reductions in other spending or increases in revenues -- would ultimately create outsized budget deficits that would raise government debt to unprecedented levels."
According to Orszag, "The bottom line is that while we need to address the effects of the coming retirement of the baby boomers and the projected imbalance in Social Security, we have to pay even more attention to the health care costs that exert the dominant influence on our fiscal future."
Orszag writes, "The interactions between Medicare and Medicaid and the rest of the health system can complicate long-term efforts to reduce costs," adding, "But it's too soon to conclude that the fiscal picture is hopelessly dismal" because there "remains the promising possibility of restraining health care costs without incurring adverse health consequences." In addition, it might "be possible in some cases to reduce cost growth and improve health at the same time," he writes.
According to Orszag, costs per beneficiary in Medicare that "vary substantially across the U.S. ... cannot be explained fully by the characteristics of the patients or price levels in different areas." Orszag writes that "understanding the reasons for such differences and finding effective ways to reduce them while ensuring high-quality care will not be easy." However, he adds, "Potentially promising approaches include generating more information about the relative effectiveness of medical treatments and enhancing the incentives for providers to supply, and consumers to demand, better care, rather than just more care."
Orszag concludes, "Moving the nation toward a more efficient health system inevitably will be a process in which policy steps are tried, evaluated and maybe reconsidered," adding, "Beginning that arduous process now is essential to securing the nation's long-term economic future" (Orszag, Wall Street Journal, 12/12).