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Health Care Cost Growth: An Unsustainable Prognosis presented by Robert L. Bixby, Executive Director THE CONCORD COALITION www.concordcoalition.org www.concordcoalition.org THE CONCORD COALITION Washington Needs a Fiscal Wake-Up Call From “We The People” www.concordcoalition.org • The Fiscal Wake-Up Tour consists of speakers from diverse perspectives who are increasingly alarmed by the nation’s long-term fiscal outlook. • Our mission is to cut through the usual partisan rhetoric and stimulate a more realistic public dialogue on what we want our nation’s future to look like, along with the required trade-offs. • Elected leaders in Washington know there is a problem, but they are unlikely to act unless their constituents — We The People — demand it. THE CONCORD COALITION Composition of Projected FY 2009 Federal Government Revenues and Outlays (Deficit: $1.59 Trillion) Interest In Billions of Dollars Domestic* Estate & Gift Taxes ($21 billion) Defense Other Taxes Other Entitlements Corporate Taxes Financial Rescue** Social Insurance Taxes Medicare & Medicaid Individual Income Taxes Social Security Outlays: $3.69 trillion Revenue: $2.1 trillion *Includes all appropriated domestic spending such as education, transportation, homeland security, housing assistance, and foreign aid. **CBO classification of funds allocated for TARP, Fannie Mae, and Freddie Mac. Source: CBO August 2009. THE CONCORD www.concordcoalition.org COALITION Federal Spending vs. Revenues as a Percent of GDP (FY 1980-2009) CBO March Baseline Compared to CBO Estimate of the President’s Budget Percentage of GDP Actual Projected Average outlays: 21.0% Average revenues: 18.3% CBO August 2009 Baseline Source: Congressional Budget Office, August 2009. www.concordcoalition.org CBO’s Estimate of the President’s Budget THE CONCORD COALITION Percent of Debt Held by the Public Owned by Foreigners (1987-2008) Source: United States Treasury Department, Treasury Bulletin, December 2008. www.concordcoalition.org THE CONCORD COALITION National Saving Is Very Low by Historical Standards Source: BEA, NIPA Tables 1.1.5 and 5.1 (2009). www.concordcoalition.org THE CONCORD COALITION Billions of Dollars Interest Costs Go Through The Roof Source: Congressional Budget Office, June 2009. www.concordcoalition.org THE CONCORD COALITION Mandatory spending is consuming a growing share of the budget 1968 1988 2008 28% 44% 66% 42% 38% 53% 6% 14% Mandatory Net Interest 9% Discretionary Source: Congressional Budget Office, January 2009. NOTE: Numbers may not add up due to rounding. www.concordcoalition.org THE CONCORD COALITION Outlays of Select Mandatory Spending Programs (FY 2009 Projected) Source: Congressional Budget Office, January 2009. www.concordcoalition.org THE CONCORD COALITION Social Security, Medicare, & Medicaid as a Percentage of the Federal Budget All other Federal Spending Social Security, Medicare and Medicaid $1.91 Trillion $1.35 Trillion 59% 41% CBO treatment of TARP, Fannie Mae and Freddie Mac: $424 billion Source: Congressional Budget Office, August 2009. www.concordcoalition.org THE CONCORD COALITION America’s Population is Aging Percentage of Population Aged 65 and Over Population age 65 and Over Year Source: Social Security and Medicare Trustees’ Report, May 2009. www.concordcoalition.org THE CONCORD COALITION Health Expenditures as a Percent of GDP (1960-2018) *Projected Source: Centers for Medicare and Medicaid Services. www.concordcoalition.org THE CONCORD COALITION Health Care Costs are Rising Faster Than the Economy Percentage of GDP Historic Level of Federal Spending Historic Level of Federal Revenues Assumes that health care cost growth will not exceed GDP growth. Assumes that health care cost growth continues at the average rate for the past 40 years (2.5 percentage points greater than GDP growth.) Assumes that health care cost growth rate declines to 1.0 percentage point greater than GDP growth— consistent with the assumption used by the Medicare Trustees. Source: Congressional Budget Office, June 2009. www.concordcoalition.org THE CONCORD COALITION Factors Explaining Future Federal Spending on Medicare, Medicaid, and Social Security Percent of Growth Attributed to: 2035 2080 Excess Cost Growth 36% 56% Aging 64% 44% Source: Congressional Budget Office, June 2009. www.concordcoalition.org THE CONCORD COALITION How Paying for Health Care Has Changed (1960-2008) Source: Centers for Medicare and Medicaid Services. www.concordcoalition.org THE CONCORD COALITION Sources of Medicare Funding www.concordcoalition.org THE CONCORD COALITION 16 Medicare Costs Soar in the Coming Decades Calendar Year General Revenues required to fund the program Income from dedicated taxes, premiums, and state transfers Source: Medicare Trustees’ Report, May 2009. www.concordcoalition.org THE CONCORD COALITION Percent of Taxable Payroll Benefits promised far exceed dedicated tax revenues Social Security Cash Deficits Payroll Tax & Taxation of Benefits Calendar Year Source: Social Security Trustees’ Report—May 2009 (Intermediate Projections). www.concordcoalition.org THE CONCORD COALITION Social Security and Medicare Part A Cumulative Cash Surpluses and Deficits In Constant 2009 Dollars — 2009 through 2085 In Billions of Constant 2009 Dollars $147 Billion: Cumulative Social Security Cash Surplus -$28 Trillion: Cumulative Social Security Cash Deficits -$58 Trillion: Cumulative Medicare Part A Cash Deficits -86 Trillion: Cumulative Social Security and Medicare Part A Cash Deficits 2010 2020 2030 2040 2050 2060 2070 2080 Calendar Year Source: Social Security Trustees’ Report—May 2009 (Intermediate Projections) www.concordcoalition.org THE CONCORD COALITION Percentage of Revenues Social Security, Medicare, Medicaid and Interest Consume All Federal Revenues in under 20 Years Year Social Security, Medicare and Medicaid Source: Government Accountability Office, March 2009. www.concordcoalition.org Interest THE CONCORD COALITION Current fiscal policy is on an unsustainable path Federal Outlays as a Percentage of GDP Interest All Other Medicaid Average tax revenue Medicare Social Security Source: Government Accountability Office, March 2009. www.concordcoalition.org THE CONCORD COALITION Cost Control Strategies 1. 2. 3. 4. 5. Budgetary restraint. Unlike many other nations, we do not budget for health care. Yet all of our nation’s commitments need to be evaluated and prioritized. That’s impossible without long-term budgeting for one of the largest spending categories. A health care budget would force politicians, providers and the public to do the necessary prioritizing for responsible health care spending. Perverse payment incentives. Fee-for-service payment reimbursing providers for each individual service raises costs in two ways. It rewards providers who do more, regardless of whether that contributes to better health. And it encourages fragmented care rather than a coordinated approach in which providers are jointly accountable for a patient’s health. That, combined with third-party insurance coverage and open-ended budgets for public programs such as Medicare, means no one has an incentive to minimize costs. Evidence-based practices. Extraordinary variation exists across the country in health care costs, with no difference in the quality of care. This results, in part, from lack of knowledge about the effectiveness of treatments and from insufficient evidence-based practice guidelines. It leads to widespread use of ineffective treatments while effective treatments are under-utilized. Ultimately, we need to decide which treatments are worth paying for and which are not. Tax incentives. Tax preferences for health insurance allow employers to provide unlimited benefits tax-free. This creates another perverse incentive that encourages higher health care spending. It is also regressive and unfair to those attempting to purchase their own insurance. Enforcement mechanism. There will be an ongoing need to ensure that assumed savings are realized, guard against unintended consequences and provide a means to implement future “curve bending” reforms. A permanent review mechanism is needed to make recommendations that must be considered by Congress. www.concordcoalition.org THE CONCORD COALITION Key Points of Agreement Members of the Fiscal Wake-Up Tour do not necessarily agree on the ideal levels of spending, taxes and debt, but we do agree on the following key points: • Current fiscal policy is unsustainable • There are no easy solutions, such as cutting waste fraud and abuse or growing our way out of the problem. • Finding solutions will require bipartisan cooperation and a willingness to discuss all options. • Public engagement and understanding is vital in finding solutions. • This is not about numbers. It is a moral issue. www.concordcoalition.org THE CONCORD COALITION