Does it Take a Commission? Health Care and the Federal Budget

Thank you. I first want to say I agree very much with everything that has been said so far. At Brookings we have produced two books on the fiscal situation facing the country — one in 2004, one in 2005. In both of those books, we laid out solutions that included both spending cuts and revenue increases and we got quite specific about both. There are many ways to bring back some balance between revenues and spending, and the ways we suggested are not the only ways. If elected officials do not like our ways then they should suggest some others. But I want to emphasize everything that has been said up to now about the need to get serious about this.

To further reinforce what Bob Bixby said, we need to get the public better educated about this, which is one reason we have all been going around the country talking about these issues. I think what surprises people is we have a group very much like the one assembled here today. In fact, this usually is the group. And we all seem to agree with each other and the public is somewhat amazed because they are so used to the more partisan conversation about this issue that they hear from their elected officials.

Now, what I want to just really focus on in my few minutes is health expenditures. They are the real driver of future deficits. Those of you who have looked at the numbers know that, but if you have not looked at the numbers you might not realize it. Long-term deficits are driven not only by the aging of the population and increased longevity, which Chuck Blahous said was first and foremost the problem, they are much more driven by increasing health care costs per capita. That is much more important than the demographics. The demographics play a role. But if you look at the numbers carefully you will see that the problem has been health care spending per capita that has been growing two to three percent faster than per capita incomes or per capita GDP.

We hear a lot about Social Security, and it is important, but Medicare is a much, much more daunting challenge. The federal cost of Medicare and Medicaid together are projected to increase at least four times as fast as the cost of Social Security between now and 2030. That is a key factor.

Moreover, many people think it is going to be very difficult, maybe even impossible to reform Medicare in isolation from doing something about the rest of the health care system in the United States. If that is true, it has major implications for the scope of work of an entitlements commission. It might not only have to take on the Medicare and Medicaid issue, it might have to think about how changing Medicare and Medicaid relates to the way in which we pay for health care more generally in this country. That could be daunting.

The system as a whole has three big problems. The first is cost, which I have already alluded to and the growth of this cost. It is affecting not only federal budgets but also state budgets, employers, and individual households. The second problem is access. Forty-six million people are uninsured. The third problem is quality. We spend about twice as much on health care in this country as in any other industrialized country and we do not get better outcomes.

So a commission, I think, would need to think very seriously about the health care programs and the federal budget, but also how to use those programs to move the entire system in a direction that dealt in some way with these three big problems: Cost, access, and quality. If it was done right, there could be some political benefits as well because it would not just be a matter of saying “Eat your spinach, Mr. or Mrs. Citizen,” it would be “We are going to fix the health care system in this country for the long term. We are going to make some major changes over time.” It will take time. But in the process, you are going to have a better health care system, which right now the public is quite distressed about.

So we come to the issue of fiscal responsibility through the health care door, at least in part. The big questions that will have to be debated are how much of the cost of care should be subsidized by the government and how much should be borne by individuals? For example, should there be more income-relating of the benefits in Medicare? Should Bill Gates have as much health care as an average worker who has earned minimum wages all his life? Should we change the retirement age? Should we go into Stuart’s reform agenda on the tax front and continue to exclude from taxation the value of the health benefits that people get through their employers?

The President’s tax reform panel suggested that we should cap those tax expenditures, which are close to $200 billion a year right now, so that is a big chunk of money. And as Stuart has argued, that would lead to a more efficient and effective tax system. Should there be a cap placed on total federal expenditures for health care and how should such a cap be adjusted over time as medical advances continue to make better treatments available? Can the government make more information available and then create incentives for consumers and providers to use that information to make better choices than they are making now? And, of course, how do we make a transition from where we are now, which I do not think anybody likes, to where we need to be in light of all the political constituencies that have a strong stake in the current system?

These are huge questions. If our political system could muster the leadership and the discipline to reform health care in the United States, it could be a win-win situation. Win-win in the sense that a restructured health care system could, over time, produce enough savings to balance the budget while simultaneously improving health care. Thanks.