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Saving Our Future
Tough Choices in Health Care
& for the Budget
Iowa Committee for Value in Healthcare
Des Moines
April 2, 2009
Eugene Steuerle
Vice-President
The Peter G. Peterson Foundation
More Beneficiaries, Less Workers
Source: The Social Security Administration The Future of Social Security (2008)
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Projected Real Health Care Costs Per Person
2008-2050
(2008 Dollars)
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Source: Congressional Budget Office, U.S. Census and PGPF calculations.
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Sources of Growth in Projected Federal Spending
on Medicare and Medicaid
Source: Congressional Budget Office 2008
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Federal Social Security, Medicare, and Medicaid Outlays,
FY 1940-2080
26.0%
24.0%
22.0%
Percentage of GDP
20.0%
18.0%
Medicaid
16.0%
14.0%
12.0%
Medicare
10.0%
8.0%
6.0%
4.0%
Social Security
2.0%
0.0%
1940
1950
1960
1970
1980
1990
2000
2010
2020
2030
2040
2050
Note: Authors used January 2007 CBO data for Social Security, Medicare, and Medicaid through 2017, and grew Social Security and
Medicare levels with 2006 Trustees data and Medicaid with 2005 CBO data.
Source: C. Eugene Steuerle, Adam Carasso, Gillian Reynolds, The Urban Institute, 2007.
2060
2070
2080
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Social Security and Expected* Medicare Benefits for
Average-Wage, Two-Earner Couple ($43.7k each)
$1,600,000
Medicare
$1,472,000
Social Security
Benefits (2009 dollars)
$1,400,000
$1,200,000
$1,000,000
$907,000
$800,000
$575,000
$600,000
$400,000
$289,400
$200,000
$0
1960
1985
2010
2035
Year Cohort Turns 65
* Expected rather than realized benefits. Notes: The “average” wage profiles are those hypothetical profiles used by the Social Security Administration in its
analyses. Lifetime amounts are rounded and discounted to present value at age 65 using a 2 percent real interest rate and adjusted for mortality. Projections based
on intermediate assumptions of the 2008 OASDI and HI/SMI Trustees Reports. Includes Medicare Part D. Source: Adam Carasso and C. Eugene Steuerle, 2008.
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Major Fiscal Exposures
($ trillions)
 Explicit liabilities
 Publicly held debt
 Military & civilian pensions
 Other
Social Security benefits
 Future Medicare Part A benefits
 Future Medicare Part B benefits
 Future Medicare Part D benefits
Total
$6.9
$12.2
0.5
1.3
13.0
42.9
3.8
6.6
2.7
12.7
6.5
15.7
--
7.9
$20.4
$56.4
undelivered orders
 Implicit exposures
 Future
2008
& retiree health
 Commitments & contingencies
 E.g., PBGC,
2000
Source: PGPF analysis of 2000 and 2008 Financial Report of the United States Government.
Note: Estimates for Social Security and Medicare are at present value as of January 1 of each year and all other data are as of September 30.
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A Budget for a Declining Nation?
 Less saving (long-run)
 Less work
 Reduced investment
 Increased dependence upon foreign lenders
 Reduced investment in our children
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Key National Indicators:
Where the United States Ranks
The United States may be the only superpower, but
compared to most other OECD countries on selected key
economic, social, and environmental indicators, on
average, the U.S. ranks
17 OUT OF 28
OECD Categories for Key Indicators
(2007 OECD Factbook)
 Population/Migration
 Macroeconomic
Trends
 Prices
 Energy
 Environment
 Labor Market
 Education
 Science & Tech.
 Quality of Life
 Economic
Globalization
 Public
Finance
Source: PGPF analysis of 2007 OECD Factbook
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Percentage of GDP
The Current Squeeze
23.0%
22.0%
21.0%
20.0%
19.0%
18.0%
17.0%
16.0%
15.0%
14.0%
13.0%
12.0%
11.0%
10.0%
Receipts
(if tax cuts made permanent)*
Resources
Left for Other
Domestic Outlays
Spending on Social Security,
Medicare, Medicaid, Defense,
International, and Interest
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Source: C. Eugene Steuerle, Adam Carasso, and Gillian Reynolds, The Urban Institute, 2007. Authors' calculations based on
data from CBO Budget Outlook (January 2007) and OASDI and HI-SMI Trustees Reports (2006).
* Assumes extension of 2001 and 2003 tax cuts and of expiring tax provisions and a permanent fix to the alternative minimum t ax.
^ Assumes a m oderate drop in defense and international spending as a percent of GDP.
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SOON…VERY SOON
 ANY spending on education, environment, welfare,
community development and most domestic
programs, as well as deficit reduction, must be paid
for out of:
 Rescinding of tax cuts or tax increases
 Pared growth in health and retirement spending
 A larger economy through additional work and
saving
 A very small international and defense presence
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Deficits as a % of GDP
(1950-2019)
14
12
10
8
6
President's Budget
4
Current Law
2
0
-2
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
2019
-4
Source: Office of Management and Budget FY09 Historical Tables and Congressional Budget Office
Updated Budget and Economic Outlook (March-09)
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Projected Composition of the President’s Budget
12
10
Medicare, Medicaid
& Social Security
8
Net Interest
6
Defense
4
Other Spending
2
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: Congressional Budget Office Updated Budget and Economic Outlook (March-09)
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Tomorrow’s Problems Are Now Today’s
 Long-term budget unsustainable before crisis
 Stimulus & financial fix necessary…but
 Cause large increases in debt and interest
 Threaten higher interest rates as well
 Threaten recovery if U.S. bonds not AAAAA
 Recovery Phase (hopefully)
 Unwinding large increases in debt
 Reducing ever-growing demographic and
health costs pressures
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Trends in Health Care Costs vs. Wages
Health Care Costs Per Person
Real Median Household Wages
8,000
100,000
80,000
4,000
2,000
0
2008 Dollars
2008 Dollars
6,000
60,000
40,000
20,000
0
Source: Congressional Budget Office, U.S. Census and PGPF calculations
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Projected Real Health Care Costs
Per Person 2008-2050
(2008 Dollars)
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Source: Congressional Budget Office, U.S. Census and PGPF calculations
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International Context for U.S. Spending Levels
Health Care Spending as a % of GDP
1986-2006
18.0
16.0
14.0
12.0
10.0
8.0
6.0
United States
Germany
Canada
United Kingdom
4.0
2.0
0.0
Source: OECD 2008
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Estimated Sources of Financing for U.S. Health Care Expenditures
Calendar Year 2008
(Total = $2.48 Trillion, Government Sources = $1.44 Trillion)
Other Private
$170 billion (7%)
Private Out-Of-Pocket
$275 Billion (11%)
Other Public
$293 billion (12%)
State Tax Subsidies
$39 billion (2%)
Medicaid
$362 billion (15%)
Private Health Insurance,
Employee Share
$219 billion (9%)
Private Health Insurance,
Employer Share
$380 billion (15%)
Federal Tax
Subsidies
$263 billion
(11%)
Medicare
$479 billion (19%)
Source: C. Eugene Steuerle, The Urban
Institute, 2008. Based on data from
the Centers on Medicare and Medicaid
and the Budget of the U.S.
Government, FY 2009.
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Average Health Care Costs Per Household By Source, 2008
(Total = $20,990; through Government Taxes = $12,140)
Federal Supplemental
Out-of-pocket Medical Insurance
Federal Hospital
Premiums
payments
Insurance Payroll Tax
$500
(2%)
$2,330 (11%)
$1,950 (9%)
Personal contributions
to private health
Insurance
$1,860 (9%)
Other
$940 (4%)
Reduced wages: paid
by employers
$3,220 (15%)
Taxes: other federal,
state, and local
$10,190 (49%)
Source: C. Eugene Steuerle, The
Urban Institute, 2008. Based
on data from the Centers on
Medicare and Medicaid and the
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Some of the Trade-Offs
 Health versus everything else
 Negative cash wage growth in many firms
 Health versus other forms of social spending
 Education, environment, food, jobs subsidies
 Health versus health
 Acute care versus prevention
 Chronic care versus cure
 Insurance versus access & public health
 Health care for old versus health care for young
 Specialization versus primary care
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The Way Forward
Implement statutory budget controls that address discretionary and mandatory spending
as well as tax preferences
Achieve Social Security reform & especially encourage more work (with gains for health
care as well)
Reduce the rate of increase in health care costs and more effectively target related
taxpayer subsidies and tax preferences
Pursue comprehensive health care reform that addresses coverage, cost, quality
and personal responsibility (cost growth containment key to increasing coverage)
Pursue comprehensive tax reform (including health tax subsidies)
Review, re-prioritize and re-engineer the base of the federal government to focus on the
future and generate real results
Ensure that we have processes that will enable us to achieve the above objectives within
a reasonable period of time
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