June 17, 2008 Senate Finance Committee Hearing Highlights -- Health-Care Effects on Federal Deficit Projections

I've been out-of-pocket a bit of late, but I need to get the links to this important Senate Finance Committee hearing: "Crisis in the Future: Long Run Deficits and Debt" (held yesterday by Senators Grassley and Baucus) onto the blog, for wider dissemination. The below is from the most recent Report of the Government Accounting Office (Report GAO-08-912T). The GAO is a non-partisan federal office dedicated to modeling, projecting and generally figuring out the country's finances. The full PDF file is under that link, but here are the highlights:

. . . .The large fiscal gap is primarily the result of spending on Medicare and Medicaid, which continue to consume ever-larger shares of both the federal budget and the economy. Federal expenditures on Medicare and Medicaid represent a much larger, faster-growing, and more immediate problem than Social Security. Medicare and Medicaid are not unique in experiencing rapid spending growth, but instead this growth largely mirrors spending trends in other public health care programs and the overall health care system. A number of factors contribute to the rise in spending, including the use of new medical technology and market dynamics that do not encourage the efficient provision of health care services. Addressing these challenges will not be easy. . . .

. . . .[The below-graphic (do click it to view full-size!) depicts] the total future draw on the economy represented by Social Security, Medicare, and Medicaid. While Social Security will grow from 4.3 percent of GDP today to 5.8 percent in 2080, Medicare and Medicaid’s burden on the economy will more than triple -- from 4.7 percent to 15.7 percent of the economy. Although some of the increased burden is due to the aging of the population, the majority is due to increased costs per beneficiary, some of which is the result of interaction between demographics and health care spending. Consequently, unlike Social Security, which will level off after growing as a share of the economy, Medicare and Medicaid will continue to grow. The projections for Medicaid spending assume a long-term cost growth rate consistent with the long-term growth rate assumption of the Medicare Trustees -- GDP per capita plus about 1 percent on average. This growth rate, which would represent a slowing of the current trend, is well below recent historical experience of about 2.5 percent above GDP per capita. . . .



. . . .Mr. Chairman, Senator Grassley, members of the committee -- health care may be the principal driver of the long-term fiscal outlook, but that does not mean government should ignore other drivers. Demographics are a smaller component than rapid health care cost growth, but the two interact, and aging is not a trivial contributor to the federal government’s long-term fiscal condition. We have suggested that to right the fiscal path will require discussing health care and Social Security and looking at both the spending and tax sides of the budget. Although these entitlements and revenue drive the overall fiscal trends, it is also important that the federal government look at other programs and activities. Reexamining what government does and how it does business can help government meet the challenges of this century in providing some specific and practical steps that Congress can take to help address these long-term challenges. . . .

Indeed. And it could easily be worse than the above rather conservative models assume. It is well-nigh time to address this particular Leviathan, for as Senator Baucus remarked yesterday, at the Hearing (quoting Chicago columnist Sydney J. Harris), ". . . .An idealist believes the short run doesn’t count. A cynic believes the long run doesn’t matter. A realist believes that what is done or left undone in the short run determines the long run. . . ." And so, this is all about being a realist in the short-, middle- and long-runs.