Diane Lim Rogers, Chief Economist

Sara Imhof , Midwest Regional Director

The Concord Coalition www.concordcoalition.org

My presentation today does not include any discussion about a particular commercial product/service and I do not have any significant financial interest/relationship with any

organizations that make/provide this product/service.

Growing Health Care Costs and the Federal Debt

1

Current Federal Fiscal Policy

$1,800

$1,600

$1,400

$1,200

$1,000

$800

$600

$400

$200

$0

In b

illio

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f 19

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ant

(cha

in)

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rs

1980 1984 1988 1992 1996 2000 2004 2008 2012

Fiscal Years

Composition of Projected FY 2009 Federal Government Revenues and Outlays

(Deficit: $1.59 Trillion)

Interest

Domestic*

Social Security

Medicare & Medicaid

Other Entitlements

DefenseEstate & Gift Taxes($21 billion)

Other Taxes

Corporate Taxes

Social Insurance Taxes

Individual Income Taxes

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.

In B

illi

ons

of D

olla

rs

Financial Rescue**

Social Security, Medicare, & Medicaid as a Percentage of the Federal Budget

All other Federal

Spending

$1.88 Trillion

58%

Social Security, Medicare and

Medicaid

$1.35 Trillion

42%

Source: Congressional Budget Office, March 2009.

CBO treatment of TARP, FannieMae and Freddie Mac: $627 billion

CBO August 2009 Baseline CBO’s Estimate of the President’s Budget (June 2009)

Where We’ve Been and Where We’re Headed: (Almost Always) OverextendedFederal spending vs. revenues as percent of GDP (FY 1980-2019)

Source: Congressional Budget Office, August 2009.

Average outlays: 21.0%

Average revenues: 18.3%

Per

cen

tage

of

GD

P

Actual Projected

Current Policy Trends Lead to Large Sustained DeficitsFiscal Years 2010-2019

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Fiscal YearCBO August 2009 Baseline

The Concord Coalition Plausible Baseline assumes that discretionary spending grows at the rate of nominal GDP, that war costs slow gradually, and that all expiring tax provisions (including those from 2009 stimulus package) are extended with AMT relief.

Source: Congressional Budget Office, August 2009 and Concord Coalition analysis.

Bil

lion

s of

Dol

lars

-$14.4 Trillion Deficit

-$7.1 Trillion Deficit

Current fiscal policy is on an unsustainable pathFederal Outlays as a Percentage of GDP

Social Security

Medicaid

Medicare

All Other

Interest

Source: Government Accountability Office, September 2008.

Average tax revenue

Why Deficits (Still) Matter

• Negative public saving reduces national saving and economic growth over the longer term;

• Can threaten short-term financial stability as well, if investors lose confidence in the federal government’s ability to pay back its debts;

• Mark Zandi of Economy.com calls the fiscal outlook the “next crisis”—as he predicts within ten years total government debt will reach 100 percent of GDP.

The “Revenue Crisis”• Since just September 2008, CBO’s forecast of federal revenues under current law over the

next ten years (FY2010-19) declined by over $3 trillion due to economic factors alone.

• Shows that even our current-law revenue base (where revenues gradually rise as a share of GDP over the ten-year window due to expiration of the Bush tax cuts) is inadequate to fund ongoing (and rising) spending needs.

• Yet the Obama Administration proposes to cut revenues (legislatively) by another $2.0 trillion--or $2.4 trillion in tax cuts including refundable credits.

• Surprising part is how most of the Obama tax proposals are simply a continuation of Bush tax policy: the Obama budget includes about $2 trillion in Bush tax cuts and allows only $600 billion to expire.

• And now: how to pay for health care reform? (Time to think more broadly about tax reform?)

America’s Population is AgingPopulation age 65 and Over

Source: Social Security and Medicare Trustees’ Report, April 2008.

Year

Per

cen

tage

of

Pop

ula

tion

Age

d 6

5 an

d O

ver

Health Expenditures as a Percent of GDP(1960-2018)

*ProjectedSource: Centers for Medicare and Medicaid Services.

Total and Per Capita Spending on Health Care, 1965 to 2005

Source: Congressional Budget Office based on data on spending on health services and supplies, as defined in the national health expenditure accounts, maintained by the Centers for Medicare and Medicaid Services.Note: Spending amounts are adjusted for inflation using the gross domestic product implicit price deflator from the Bureau of Economic Analysis.

  (Per capita in thousands of 2005 dollars)   (Total in trillions of 2005 dollars)

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Health Care Costs are Rising Faster Than the Economy

Source: Congressional Budget Office, December 2007.

Per

cent

age

of G

DP

All Federal Revenues

In Fiscal Year 2007

All Federal Spending

In Fiscal Year 2007

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.

The Relationship Between Quality and Medicare Spending, by State, 2004

73

78

83

88

4,000 5,000 6,000 7,000 8,000

Spending (Dollars)

Composite Measure of Quality of Care

Source: CBO Data from AHRQ and CMS. 14

Variations Among Academic Medical Centers

UCLA Medical Center

Massachusetts General Hospital

Mayo Clinic(St. Mary’s Hospital)

Biologically Targeted Interventions: Acute Inpatient Care

CMS composite quality score 81.5 85.9 90.4

Care Delivery―and Spending―Among Medicare Patients in Last Six Months of Life

Total Medicare spending 50,522 40,181 26,330

Hospital days 19.2 17.7 12.9

Physician visits 52.1 42.2 23.9

Ratio, medical specialist / primary care 2.9 1.0 1.1

Use of Biologically Targeted Interventions and Care-Delivery Methods Among Three of U.S. News and World Report’s “Honor Roll” AMCs

Source: CBO and Elliot Fisher, Dartmouth Medical School.

Medicare’s Fiscal Future Relates to ALL of us

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Health Reform

• Can we afford to enact health reform (or can we not afford NOT to?)

• Fact or Fiction: reform will not add to our deficit, now or in the future?

• Key to economic sustainability in the future?

17

Thank you!

Any questions?

Contact info: drogers@concordcoalition.org703-894-6222simhof@concordcoalition.org 319-471-0236