Healthcare Costs "Place Unprecedented, Growing and Long-Lasting Stress" on Government

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Written by Stephanie Wasek

Wednesday, 18 June 2008

The federal government is on an "unsustainable long-term fiscal path" when it comes to dealing with sharply rising healthcare costs, according to Gene L. Dodaro, Acting Comptroller General of the United States, today in testimony before the Senate finance committee. Further, the "state and local governments ? absent policy changes ? will also face large and growing fiscal challenges beginning within the next few years."

The GAO was asked by Congress to provide its views on the long-term fiscal outlook for Social Security, Medicaid and Medicare. The result, "Long-Term Federal Fiscal Challenge Driven Primarily by Health Care," uses long-term fiscal simulations by GAO, the Congressional Budget Office (CBO), and others to show that, despite a decline in the federal government's unified budget deficit between fiscal years 2003 and 2007, structural deficits driven by healthcare and concomitant population trends are already large ? and they're growing. Growth in health-related spending is the primary driver of financial problems for state and local governments as well, says Mr. Dodaro.

He summarizes the overall fiscal picture:

"The rest of the budget will feel the pressure when the Social Security cash surplus begins to decline starting in 2011 ? less than three years from now. In 2017, the Social Security cash flow turns negative ? at that point the choices will be increased borrowing from the public, reduced spending, or increased revenue.

"These dates call attention to the narrowing window. The real challenge then is not this year?s deficit or even next year?s; it is how to change the current fiscal path so that growing deficits and debt levels do not reach unsustainable levels. By definition something that is unsustainable will stop ? the challenge is to take action before being forced to do so by some sort of crisis. Healthcare costs are growing much faster than the economy, and the nation?s population is aging. These drivers will soon place unprecedented, growing, and long-lasting stress on the federal budget. Absent action, debt held by the public will grow to unsustainable levels."

Driving the growth in public and private are three key factors, according to the testimony:

increased utilization of new and existing medical technology;

lack of reliable comparative information on medical outcomes, quality of care, and cost; and

increased prevalence of risk factors such as obesity that can lead to expensive chronic conditions.

The window of opportunity to address the enormous societal challenge posed by healthcare costs, demographics and their interaction is narrowing. The longer healthcare reform is delayed, the "more painful and difficult the choices will become," says Mr. Dodaro. "Additionally, in addressing this fiscal challenge it will be important to review other programs and activities on both the spending and revenue sides of the budget."

Among the GAO's recommendations for a multipronged approach:

strengthening oversight of programs and activities, including creating approaches to better facilitate the discussion of integrated solutions to cross-cutting issues; and

reengineering and reprioritizing the federal government?s existing programs, policies, and activities to address 21st century challenges and capitalize on related opportunities;

Further, GAO reports that, at its recommendation, the Federal Accounting Standards Advisory Board is contemplating changing social insurance reporting and has started a project on fiscal sustainability reporting, not unlike those produced by European Union members.

For more, including the GAO fiscal simulation models, download Mr. Dodaro's entire testimony (PDF).